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Sea Ltd ADR SE Stock Quote

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Morningstar‘s Stock Analysis SE

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Sea Shifts Focus to Profitability at the Expense of Lowered Growth; Q3 2022 Results Mixed

Kai Wang, CFA Senior Equity Analyst

Analyst Note

| Kai Wang, CFA |

We are maintaining our fair value estimate for Sea at USD 70 after the company reported narrower-than-expected losses at Shopee, its e-commerce business, but mixed third-quarter 2022 results. Operating losses narrowed due to a combination of Shopee’s strong advertising revenue that helped increase monetization rate by 90 basis points to 8.6%, a reduction in sales and marketing expense, and 10% slash in mostly e-commerce headcount in the last six months. As a result, we are moving up our operating profit breakeven timeline for Shopee and the overall firm by one year to 2025. Despite an acceleration toward breakeven, Sea’s narrowing of losses likely comes at the expense of lowered growth. Gross merchandising value, or GMV, increased only 14% year on year and was flat sequentially, while the total number of orders was flat sequentially again and has been stagnant at 2.0 billion-2.1 billion for four quarters in a row. In addition, management is anticipating macro headwinds in the near term, and that it is “entirely” shifting its focus to profitability away from growth. As a result, we revise down our GMV growth assumptions, which reduces the future value creation opportunity and offsets the progress made toward profitability.

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Key Statistics SE

Company Profile SE

Business Description

Sea operates Southeast Asia's largest e-commerce company, Shopee, in terms of gross merchandise value and number of transactions. Sea started as a gaming business, Garena, but in 2015 expanded into e-commerce, which is now the main growth driver. Shopee is a hybrid C2C and B2C marketplace platform operating in eight core markets. Indonesia accounts for 35% of GMV, with the rest split mainly among Taiwan, Vietnam, Thailand, Malaysia, and the Philippines. For Garena, Free Fire was the most downloaded game in January 2022 and accounted for 74% of gaming revenue in 2021. Sea’s third business, SeaMoney, facilitates e-wallet payments on Shopee and offline and provides other digital financial services such as credit lending.

1 Fusionopolis Place, No. 17-10, Galaxis
Singapore, 138522, Singapore
T +65 62708100
Industry Internet Retail
Most Recent Earnings Sep 30, 2022
Fiscal Year End Dec 31, 2022
Employees 67,300