Tencent-backed Sea makes better second impression

[HONG KONG] Sea is making a better impression the second time around. The US$7.8 billion Singaporean tech outfit backed by China's Tencent just sold a bigger slug of stock at a higher price than it did in its lacklustre initial public offering (IPO) less than 18 months ago. Fresh capital can help keep some positive momentum going.

It has been a rollicking ride for Sea since a downsized New York debut at US$15 a share in October 2017. Although its Garena gaming unit has been generating cash, it is used to prop up the unprofitable online retail business, Shopee. Based on comparable rival valuations, Garena alone should be worth some US$8 billion, implying Sea gets virtually no credit for Shopee or the Airpay payments business.

The latest financial results suggest the tide may be turning. Free Fire, Garena's first fully self-developed game, helped push the division's adjusted Ebitda (earnings before interest, taxes, depreciation, and amortisation) for the year to US$263 million, 50 per cent higher than in 2017. The bigger surprise, however, was Shopee, where sales, adjusted for various merchant incentives, hit US$291 million, a 16-fold increase from a year earlier. Sales and marketing expenses as a percentage of gross merchandise value also fell in the fourth quarter.

On the back of the good news, Sea capitalised on some investor enthusiasm. It sold 60 million American depositary shares at US$22.50 each, raising US$1.4 billion, some 60 per cent more than in the IPO.

The firepower will come in handy for this tech David to combat US$475 billion goliath, Alibaba. In Indonesia, the region's biggest e-commerce battleground, Shopee sold US$3.9 billion of goods, a 175 per cent increase from 2017, or roughly double Lazada's haul, which is growing nearly as fast, CLSA analysts estimate. Sea also makes more of its money from apparel, a higher commission category. And Shopee has overtaken Lazada as the top online shopping app in Vietnam by monthly active users, according to App Annie.

Shopee has plenty yet to prove. It burned through some US$860 million last year. Unlike Lazada, it also does not have its own delivery network, which exposes it to third-party price hikes. For now, though, Sea is comfortably riding the wave.

CONTEXT NEWS

Sea, the South-east Asian gaming and e-commerce company backed by Chinese Internet giant Tencent, said on March 5 it had raised US$1.35 billion in a share sale.

The New York-listed company priced 60 million American depositary shares at US$22.50 each, 10 million more than it intended to sell when it announced the offering on March 1.

The price represents a 6.5 per cent discount to the US$24.06 closing price on March 5.

Sea has also granted underwriters a 30-day option to buy up to an additional nine million depositary shares on the same terms and conditions.

An entity affiliated with Tencent and another affiliated with one of Sea's directors are expected to buy 6.3 million of shares on offer.

Sea said it expects to use the proceeds for business expansion and other general corporate purposes.

Goldman Sachs and Morgan Stanley are acting as joint bookrunners and China International Capital Corp is acting as a co-manager of the offering.

REUTERS