Sea Ltd sinks deeper into the red in Q3 despite revenues doubling

Photo: Sea Ltd

Singapore-based technology giant Sea Limited has reported a net loss of $571 million for the third quarter of this year, widening by 34% from a year ago, as spending on marketing and hiring shot up.

The losses of the NYSE-listed company came despite Q3 revenues more than doubling year-on-year (YoY) to a record $2.7 billion in the three months.

Sea’s aggressive expansion plans led to a 114% YoY jump in sales and marketing expenses to $1 billion in Q3. Spending on research and development more than doubled to $231.3 million from $104.3 million in the year-ago quarter too as the company ramped up hiring.

No longer satisfied with just dominating Southeast Asia and Latin America – its first Latin America market Brazil now has 1 million local sellers – Sea Ltd launched its e-commerce site Shopee in India, Poland, France, and Spain since August this year, bringing its presence to a total of 15 markets. It is also said to be entering Argentina soon.

Shopee’s revenue in Q3 jumped 167.6% from the year-ago quarter to $1.45 billion on the back of the platform’s continued expansion and growing advertising revenue. Its take rate improved by a wider margin from the previous quarter to 7.14%, an indication that it is confident of keeping merchants while charging them higher fees. However, the unit fell deeper into the red, as its net loss more than doubled to $741.4 million as it spent more on logistics, while sales and marketing expenses climbed 125% to $688.9 million.

Though Shopee has rapidly entered new countries in the past few months, Sea’s chief corporate officer Yanjun Wang said during an earnings call that it’s still “testing waters” in these markets and its focus is still on Southeast Asia, Taiwan, and Brazil.

“We believe that we have gained deep operational experience in operating in different markets as well as understanding of our business model of focusing on mobile native, social commerce-driven and long tail, high diverse categories that serve especially the local sellers and buyers,” she said. The long tail strategy refers to selling many types of niche items.

Wang said the company is optimistic about Shopee’s growth post-pandemic as she believes it has permanently brought shoppers and merchants online, and that the market Shopee targets tend to have low e-commerce penetration. The company also has tools to help local merchants sell overseas on other Shopee interfaces.

Sea has also been quietly growing its food delivery arm, which launched in April this year and is now in Indonesia, Malaysia, and Vietnam. It has also opened an official Facebook page in Thailand and is hiring for two ShopeeFood roles in Singapore

Kristine Lau, an analyst at research firm Third Bridge said Shopee is in a good position to leverage on providing cross-border support to merchants. It has experience in this service, since its entry into new markets relies on merchants in Southeast Asia and Taiwan as their main source of selections.

“Shopee’s whole direction to enter this many new geographies, it should be an even more important theme to them,” Lau said, adding that Lazada is actively developing its cross-border services as well.

Shopee has a team in China working on attracting merchants to sell in Southeast Asia, which includes having Shopee’s executives join WeChat channels to introduce Shopee as an option, Lau added.

Net profit from Sea’s gaming arm Garena, which has for long subsidised Shopee’s cash-burning model, more than doubled year-on-year to $611.7 million. Garena’s bookings per user remained at $1.7 as its number of active users and paying users crept up to 729 million and 93.2 million respectively. The growth of paying users to active users also slowed to just 12.8% this quarter.

Its hit mobile game Free Fire’s ranking rose to second on App Annie’s list of average monthly active users for all mobile games on Google Play. In Q2 it had ranked third. Free Fire was the highest-grossing mobile game in Southeast Asia, Latin America, and India in the period, the company said in its media release.

However, Free Fire’s active user base growth has slowed to just 3.8 million in the third quarter after experiencing double-digit growth every quarter. Wang said the focus will be to sustain the current user base and find opportunities in markets where Free Fire isn’t played widely yet, and create new game features like user-generated content, referring to users’ ability to create and share their own maps on Free Fire MAX, an upgraded standalone version of the game it launched in September.

And last Friday, blockchain gaming platform Forte announced that Sea’s maiden investment fund Sea Capital co-led a $725 million investment in the company. Forte allows game developers to integrate blockchain technologies such as token wallets and non-fungible tokens (NFTs) into their games.

Sea’s fintech arm SeaMoney stayed in the red as well, making a net loss of $166.1 million, although revenues rose to $132 million from $14.4 million the same period last year. Its pool of quarterly paying users continued to expand to 39.3 million.

As Sea’s digital wallet users increase, the focus is to create more use cases for it both online and offline, said Sea’s chief executive Li during the call, as well as other financial services like its buy-now-pay-later and digital banking services.

On Sea’s unprofitability, Lau said its an ongoing risk, especially since it is entering new geographies, while its newer verticals like food delivery have huge competition and high burn rates.

“In the Southeast Asia tech scene, or if we look at the kind of general expectation around e-commerce in the tech industry across the world, it is still in line with the general roadmap of focusing first on the growth story and cash flow, and then profitability,” she said. “It’s just something that has always been on every’s mind and this particular time it hasn’t eased the risk or made it worse.”

Sea’s cash and cash equivalents stood at $11.1 billion as on September 30, 2021. In September, it raised about $6 billion in a shares and convertible bond sale.

The company also raised its revenue guidance for the second time this year. It expects revenue from Shopee to increase to between $5 billion and $5.2 billion, up from the $4.7 billion and $4.9 billion that it projected in the previous quarter. Li said that Shopee’s stronger ability to monetise and revenue growth led the company to up its guidance. No revised guidance was given for Garena’s earnings.

Chris Feng, who is SeaMoney and Shopee’s chief executive, will take on the additional mantle of Sea’s president starting next year, the company announced. He will report to Li, who said Feng’s new role will develop “long-term strategic initiative with an increasing focus on synergy creation across our various businesses”.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.