Sea’s Q2 2022 revenue growth fails to stem widening losses

NEW York stock exchange-listed Sea reported a 29 per cent jump in second quarter 2022 revenue from US$2.3 billion to US$2.9 billion, mainly driven by revenue contribution from e-commerce arm Shopee and digital financial services.

However, losses for the period have widened, up 114.7 per cent to US$931.2 million from US$433.7 million. Losses were driven by increasing cost of revenue for the e-commerce and other services segment, which rose 62.8 per cent to US$1.3 billion in Q2 2022 from US$816.7 million in Q2 2021 due to higher costs of logistics from order growth and costs driven by growth of Shopee. This was partially mitigated by the 11 per cent decrease in cost of revenue for the digital entertainment segment, dropping to US$260.5 million from US$292.7 million.

Also driving losses in a 95.9 per cent increase in general and administrative expenses to US$476 million in Q2 2022 from US$243 million in Q2 2021, due to increase in allowances for credit losses from the digital financial services business from loan receivables growth, higher staff costs and office facilities and related expenses to support business growth. Research and development for Q2 2022 also saw a 115 per cent increase from US$172.6 million to US$370.9 million. This was due to higher staff cost from headcount growth.

Sea also booked an impairment of goodwill of US$177.3 million for the quarter due to changes in carrying amount of goodwill that was driven by lower valuations amidst market uncertainties.

There are some bright spots among Sea’s business segments. Shopee is reporting an improvement on adjusted earning before interest, tax, depreciation and amortisation (Ebitda) loss per order of 21 per cent to US$0.33 from US$0.41 for Q2 2022.

Regionally, for South-east Asia and Taiwan, Shopee’s adjusted Ebitda per order loss before allocation of headquarter costs was under US$0.01, a 95 per cent improvement. Sea still expects Shopee to breakeven post headquarter costs in Asia next year.

In Brazil, the adjusted Ebitda per order loss has improved 35 per cent to US$1.42 for Q2 2022. The e-commerce arm continues to see strong performance in Brazil, with Q2 2022 revenue surging over 270 per cent.

“Shopee’s unit economics improved significantly driven by gains in both monetisation and efficiency across our markets, even as we sustained a healthy growth rate against tough comparisons,” said Forrest Li, Sea’s chairman and group chief executive officer.

The digital entertainment segment or Garena saw a rising number of quarterly active users from 615.9 million from Q1 2022 to 618.3 million in Q2 2022, but is still down from 725.2 million users in Q2 2021. Quarterly paying users are also down, from 12.7 of quarterly active users in Q2 2021 to 9.1 per cent of quarterly active users in Q2 2022. Hence, there was a 12.1 per cent drop in revenue from US$1 billion to US$900.3 million for the quarter.

“At Garena, we saw positive outcomes from our focus on user retention and efforts to bring more engaging experiences to our large global games community, with quarterly active users stable quarter-on-quarter,” said Li.

The digital financial services segment – or SeaMoney – was also another bright spot, booking a 214.4 per cent jump in revenue to US$279 million in Q2 2022. Quarterly active users went up 53.3 per cent to 52.7 million in Q2 2022, and about 40 per cent of quarterly active buyers on Shopee in South-east Asia have used SeaMoney products or services.

“We also benefited from expanding synergies between Shopee and SeaMoney as our underserved user base adopted more of our financial products and services, resulting in strong growth and narrowing losses at SeaMoney,” said Li.

In an unexpected move, Sea is suspending its e-commerce guidance for 2022. Citing the need to adapt to increasing macroeconomic uncertainties, the company is shifting its focus on efficiency and optimisation for the long-term sustainability of the e-commerce business.

This move, according to management, is a proactive decision with the aim to be upfront to the market. Sea will be tightly managing operating expenses such as marketing and logistics costs while also increasing monetisation across its income streams, with a focus on high-income streams. Topline growth is no longer a target; instead, efficiency improvement and profitability are the new targets for Sea’s management.

“While we have strong resources and are well on-track to achieve our self-sufficiency targets, we are nevertheless rapidly prioritising profitability and cash flow management. We are confident that this focus, combined with our demonstrated ability to execute, our scale and leadership, and our proven business models, will position us for long-term sustained success.” said Li.

Shares of Sea closed up 1.42 per cent or US$1.26 to US$89.97 on Monday (Aug 15).