Shares of Shopee-owner Sea surge 14% after stronger-than-expected revenue

Shares of Southeast Asia’s e-commerce and gaming firm Sea Group popped after its first-quarter revenue beat analysts’ expectations on Tuesday.

Sea’s U.S.-listed shares rose 14% to close at $80.21 after the of Singapore-based internet firm reported revenue that exceeded analysts’ expectations in the first quarter this year.

Here’s how the New York Stock Exchange-listed company did in the January to March period:

• Revenue: $2.9 billion vs. $2.76 billion as expected by analysts, according to Refinitiv.
• Net Loss: $580.1 billion vs. $722 billion as expected by analysts, according to Refinitiv.

Sea’s revenue rose by 64.4% from the same period a year earlier, but fell around 9.5% from the $3.2 billion it made in revenue in the previous quarter, a sign that after two years of pandemic-driven sales, growth is starting to plateau.

It’s online shopping platform Shopee and gaming arm Garena grew more slowly as countries opened up.

The company warned that inflation and supply chain disruptions could affect business, even as it continues to be loss-making.

“As we enter a new period, we recognize that the current macro trend and uncertainties could affect our region and world in the near term,” said Forrest Li, Sea’s chief executive officer and co-founder during the earnings call.

Both Shopee and Garena, Sea’s two main money-making divisions, faced lower revenues compared to the previous quarter.

E-commerce revenues generated by Shopee was $1.52 billion in the first quarter, down from $1.59 billion in the previous quarter. Heavy logistics and marketing expenses led to $810 million in losses — that’s $131 million less than the previous quarter.

The company revised its full-year revenue guidance for Shopee to between $8.5 billion and $9.1 billion, citing “elevated macro uncertainties.”

Sea’s chief corporate officer Yanjun Wang pointed out that the company was not lowering its guidance, but widening it as a way of caution. Its previous guidance was between $8.9 billion to $9.1 billion.

But the amount that people spend on each order could trend downwards, according to Kristine Lau, an analyst at research firm Third Bridge.

“Inflation’s impact on discretionary spending is one,” she said, referring to non-essential items such as entertainment and luxury goods.

“For a lot of the high-frequency items or just daily necessities that people had to buy online — either it was out of stock offline or it just made more sense to use Shopee when everything is in lockdown — I think a lot of that would be reallocated to offline retail,” Lau added.

Garena, which has long been Sea’s profit maker, posted sales of $1.1 billion. Net profit for the gaming arm was up 52.2% (or $432 million) from the same period a year ago, but down 23.5% (or $859 million) from the previous quarter

Quarterly active users were down 32.9 million year-on-year, while quarterly paying users dropped by more than 18 million to 61.4 million from 79.8 million a year ago, matching worries that there is now weaker demand for mobile games in a post-pandemic world.

Much of the loss could be attributed to a ban in India too. Earlier this year, India blocked Garena’s hit mobile game Free Fire, along with 53 other apps with links to China.

Chinese tech giant Tencent is a major shareholder of Sea. In January, Tencent sold $3 billion worth of Sea shares, reducing its stake from 21.3% to 18.7%.

Shares of Sea have been hammered by the broader tech selloff. Its stock has fallen by more than 80% since its October 2021 high when it hit $366.99. Prices fell to a two-year low of around $57 earlier this month.

Investors are also concerned over its cash-burning model Sea has spent hundreds of millions, even billions of dollars every quarter on marketing, particularly on subsidies to attract consumers and merchants onto Shopee, which competes with the likes of Amazon, Alibaba‘s Lazada in Southeast Asia, and Mercado Libre in Latin America.

Shopee has a presence across 13 countries and is in Southeast Asia, Latin America, and Europe. It pulled its Shopee business out of India and France in March this year, just months after venturing into the two countries.