NYSE-listed Sea Ltd announced on Tuesday that its adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) turned positive to $495.7 million in the fourth quarter of 2022, as compared to negative $492.1 million for the same period in 2021.
The company’s total GAAP revenue was up 7.1% year-on-year (YoY) at $3.5 billion while total gross profit was $1.7 billion, up 29.5% YoY.
Sea’s e-commerce arm Shopee posted a 31.8% YoY growth in revenues at $2.1 billion for the quarter that ended December 2022.
The company also reported that its net income has turned positive to $422.8 million, compared with a net loss of $616.3 million for the fourth quarter of 2021.
“We are starting 2023 on a much stronger footing. Our decisive pivot to focus on efficiency and profitability since late last year is already driving meaningful bottom-line improvements,” said Sea’s Chairman and Group CEO Forrest Li.
“The firm delivered positive total net income in the fourth quarter, demonstrating the strength and resilience of the underlying business model and the execution capabilities of Sea’s teams,” he added.
Sea’s total GAAP revenue for the full year of 2022 was $12.4 billion, up 25.1% YoY from $10 billion for the full year that ended December 31, 2021. Its cost of revenue increased by 19.9% to $7.3 billion in 2022 from $6.1 billion for the full year of 2021. Cost of revenue is the total of all costs incurred directly in producing, marketing, and distributing the products and services of a company to customers.
As of December 31, 2022, Sea reported $6.9 billion of cash, cash equivalents, and short-term investments, which represents a net change of $(401.6) million from September 30, 2022.
Sea Group’s stock was up nearly 22% on Tuesday.
E-commerce push
Sea reported Shopee’s adjusted EBITDA turned positive to $196.1 million in the fourth quarter of 2022, compared to negative $877.7 million in the same period the previous year.
Asia markets, which include SE Asia and Taiwan, recorded adjusted EBITDA of $320 million in Q4 2022, down from $525.8 million in Q4 2021. Meanwhile, other markets recorded adjusted EBITDA of $123.9 million in the final quarter of 2022, as compared to $352 million in the same period of 2021.
The unit economics of Shopee Brazil showed improvement with contribution margin loss per order improving by 53.9% quarter-on-quarter to reach $0.47 in Q4 2022.
Shopee noted $18 billion in gross merchandise value (GMV) in the October-December period, which was down from $18.2 billion for the fourth quarter of 2021.
For the full year of 2022, Shopee recorded a GMV of $73.5 billion, up 17.6% year-on-year. Its adjusted EBITDA also improved by 33.8% to $(1.7) billion in 2022, as compared to $(2.6) billion in the previous year.
Its GAAP revenues increased by 63.5% to $7.5 billion for the full year of 2022, from $4.6 billion in the same period of 2021.
Gaming faces tough times
Sea’s digital entertainment unit continues to face a challenging time since its main game title Garena Free Fire was banned in India last February. In the fourth quarter of 2022, active users of this unit were 485.5 million, down 14% from 568.2 million in the previous quarter.
Nevertheless, the GAAP revenue for Sea’s digital entertainment unit was $948.9 million in Q4 2022, up from $892.9 million for the previous quarter.
For 2022, Garena’s revenue was down by around 9% to $3.9 billion, compared to $4.3 billion in 2021.
Digital financial services look up
The GAAP revenue of Sea’s digital financial services – which comprises mobile payment, lending, and digital banking – surged 92.5% YoY to $380 million in the fourth quarter of 2022. Its adjusted EBITDA was $75.6 million, as compared to $(149.8) million in Q4 2021.
Its total loans receivable was $2.1 billion, net of allowance for credit losses of $238.8 million. Non-performing loans were past due by more than 90 days as a percentage of the firm’s total gross loans receivable declined from less than 4% in the third quarter of 2022 to less than 2% in the final quarter of 2022.
The business unit recorded a 160.1% increase in revenue YoY to $1.2 billion for the full year 2022 while its adjusted EBITDA losses improved from $616.9 million in 2021 to $228.6 million last year.
Cost cuts
Sea Group has been implementing drastic cost-cutting measures including massive layoffs in Shopee. DealStreetAsia recently learned that Shopee has undertaken another round of job cuts affecting around 10-15% of its regional headcount.
Sea Group has essentially “not stopped job cuts since Q3 last year”, indicating that this is merely a continuation of its previous round of job culls reported in November.
In its financial results, Sea reported a decrease of 61.2% in its sales and marketing expenses to $473.6 million in the fourth quarter of 2022 from $1.2 billion in the fourth quarter of 2021.
However, the company’s general and administrative expenses increased by 24% to $352.3 million in Q4 2022 from $284.1 million in the fourth quarter of 2021.
“Given the macro uncertainty and our recent strong pivot, we are closely monitoring the market environment and we will continue to adjust our pace and fine-tune our operations accordingly. While there may be near-term fluctuations in our performance, we remain highly confident in the long-term growth potential of our markets and are fully focused on capturing this opportunity,” said Li in a statement.
