Gaming and e-commerce titan Sea’s revenue nearly doubles in Q3 2020

Southeast Asian gaming and e-commerce unicorn Sea Ltd reported total revenue of $1.2 billion for the third quarter of 2020, up 98.7 per cent year-on-year, boosted by growth in the digital entertainment and e-commerce sectors, and sales of goods.

In a mid-October report, Morgan Stanley had forecast Sea’s third-quarter total revenue would come in at $1.47 billion, while Japanese investment bank Daiwa had forecast total revenue of $1.16 billion for the firm in an August report.

Total adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) came in at $120.4 million in the July-September period, swinging from a $30.8 million loss in the year-ago quarter, Sea said. That beat Morgan Stanley’s forecast of $22 million.

For the first nine months of the year, Sea posted total revenue of $2.81 billion. That compares with full-year total revenue forecasts from Morgan Stanley, CGS-CIMB, and Daiwa of $5.38 billion, $3.96 billion, and $4.04 billion, respectively.

Pandemic impact

Sea is a beneficiary of the lifestyle and work changes caused by the global COVID-19 pandemic. Pandemic-induced lockdowns have created an increased demand for e-commerce, digital payments, and home entertainment, including gaming. Unlike many industries, gaming can be considered counter-cyclical, as unemployment may boost the time spent playing online games.

For the digital entertainment segment, which includes Sea’s games offerings, bookings climbed to $944.7 million, up 109.5 per cent year-on-year, while its revenue under generally accepted accounting principles (GAAP), came in at $569 million, up 72.9 per cent year-on-year.

In August, the New York-listed Sea said it would stop reporting adjusted revenue, a non-GAAP metric, after receiving a query from the US Securities and Exchange Commission (SEC).

The digital entertainment segment switched to a “bookings” metric, which is an approximation of cash spent by users in the period. Under GAAP, revenue from the gaming segment can’t all be recognised immediately, and must instead be amortised over the estimated life of the game.

For the digital entertainment segment, Morgan Stanley had forecast revenue of $789 million in the quarter, while Daiwa forecast $767 million.

The digital entertainment division reported revenue of $1.32 billion for the nine-month period. That compares with Daiwa’s full-year forecast for $1.89 billion, Morgan Stanley’s $2.85 billion, and DBS’ $3 billion.

Quarterly paying users more than doubled to 65.3 million, with average bookings per user coming at $1.7, compared with $1.40 a year earlier, Sea said, pointing to data from App Annie showing its self-developed game Free Fire was the highest-grossing mobile game in Latin America and Southeast Asia in the quarter.

Sea’s e-commerce division, Shopee, reported GAAP revenue of $618.7 million, up 173.3 per cent on-year. Morgan Stanley had projected revenue for the segment at $617 million and Daiwa had estimated $585 million.

The e-commerce segment posted nine-month revenue of $1.12 billion. That compares with Daiwa’s full-year forecast of $1.84 billion and Morgan Stanley’s $2.25 billion.

More than 30 per cent of Shopee’s total gross orders were paid using Sea’s mobile wallet services in October.

Sea pointed to strong growth in the SeaMoney division, with total payment volume topping $2.1 billion in the quarter. The division had 17.8 million paying users in the quarter. Shopee has offered users shipping incentives for using the e-wallet.

The adjusted Ebitda loss for digital financial services widened to $149.26 million for the quarter, up from $33.63 million in the year-ago period.

The Morgan Stanley report, citing a survey it conducted in urban Indonesia in September, said Shopee had become Indonesia’s most popular e-commerce site. Indonesia represents around 50 per cent of Shopee’s gross merchandise value, the report said.

The survey indicated ShopeePay had become Indonesia’s third most popular e-wallet. The bank said it viewed the data as validation of its projection that ShopeePay was set to take around 20 per cent of the country’s fintech market by 2025.
Sea reported a net loss of $425.3 million for the quarter, up from $206.1 million in the year-ago period on increased sales and marketing expenses, higher general and administrative expenses, increased research and development expenses, higher interest expenses and a foreign exchange loss.

Sea raised its guidance for the full year, expecting the digital entertainment segment’s strong performance to continue in the fourth quarter. The company projected digital entertainment’s bookings to exceed $3.1 billion for the full year, which would be an around 75 per cent year-on-year rise, and an increase from the previous guidance of $1.9-2 billion.

For the e-commerce segment, Sea said it now expects GAAP revenue plus sales incentives net-off to top $2.3 billion, up more than 144 per cent year-on-year, and up from the previous guidance of $1.7-1.8 billion.

Sea’s shares were down 3.9 per cent in pre-market trade to $171.25 in New York on Tuesday. Shares of Sea have been volatile recently after news that two potential vaccines for COVID-19 could be available next year; that would mitigate some of the pandemic-related boost to the company’s business lines.

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.