Sea posts Q2 profit of US$331 million but misses revenue forecasts
NEW York-listed Sea has reported a third consecutive profitable quarter, posting a US$331 million profit for the three months ended Jun 30, compared to a loss a year prior.
Revenue for the second quarter rose 5.2 per cent to US$3.1 billion, from US$2.9 billion in Q2 2022. However, revenue for the latest quarter was still below the forecast amount of US$3.3 billion.
Revenue growth in Q2 2023 was driven by the e-commerce and other services segment, which grew 32.3 per cent to US$2.3 billion in Q2 2023 from US$1.8 billion in Q2 2022. This came on the back of improved monetisation in the e-commerce business and growth of the credit business.
Within the e-commerce segment, core marketplace revenue – consisting of transactions and advertising fees – rose 37.6 per cent year on year to US$1.2 billion, due to increased commission rates and uptake of advertising by sellers. Value-added services revenue within the segment also grew 11.3 per cent year on year to US$625.2 million.
The digital entertainment segment recorded a 41.2 per cent drop in revenue to US$529.4 million, from US$900.3 million in Q2 2022. This was attributed to moderation in user engagement and monetisation.
The last revenue segment, sale of goods, recorded a 15 per cent drop to US$243.8 million in Q2 2023 from US$286.7 million in the corresponding quarter a year earlier.
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“In the past couple of quarters, we have not only achieved self-sufficiency, but also demonstrated the profitability of our model and our ability to manage fast and significant shifts in operational focus as we see fit,” said Forrest Li, chairman and chief executive officer of Sea.
Cost of revenue fell 11.2 per cent to US$1.6 billion, from US$1.9 billion in Q2 2022. All segments recorded a fall in cost of revenue, with digital entertainment recording the biggest fall of 38.3 per cent to US$160.7 million from US$260.5 million.
Cost of revenue for e-commerce and other services edged down 5 per cent to US$1.3 billion. This was due to improved gross profit margins in the e-commerce and digital services business, which was in turn driven by increased monetisation and greater cost efficiencies.
Sales and marketing expenses continued to be slashed, with digital financial services recording the biggest percentage drop of 88.2 per cent to US$19.2 million in Q2 2023 from US$162.5 million in Q2 2022. The digital entertainment segment saw expenses slashed 69.4 per cent to US$26.6 million, from US$87.1 million in Q2 2022.
E-commerce’s sales and marketing expenses were cut 35.9 per cent to US$432 million in Q2 2023, from US$674.1 million a year earlier.
Li said that Sea is looking to tap recent developments in user engagement through live-streaming, short-form videos and affiliate programmes. These developments will offer opportunities to grow and expand its addressable market.
“Given these positive developments and trends, we have started, and will continue, to ramp up our investments in growing the e-commerce business across our markets,” he said.
Sea will be investing to grow its e-commerce business, Shopee. Li warned that this might impact the group’s bottom line and result in losses for the segment. The key metrics that Sea will be focused on for its e-commerce segment will include its active user base and user engagement, particularly in the live-streaming portion.
Video content is another opportunity that Sea is looking to capture with a ramp up in investment. As the group seeks to capture growth in Indonesia, it will also invest more in the live-streaming segment of its e-commerce business, as well as free shipping.
Even with these investments towards growth, Sea reiterated that it is continuing to focus on self-sufficiency. “Our strategic focus to build cost leadership and continually improve user experience remains key to our long-term success,” said Li.
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