Sea Ltd. had its worst day in more than a year after saying earnings missed estimates, gaming revenue plunged 43% and it swallowed a one-time charge of more than $100 million, putting the Southeast Asian internet firm under pressure to sustain profitability.
(Bloomberg) — Sea Ltd. had its worst day in more than a year after saying earnings missed estimates, gaming revenue plunged 43% and it swallowed a one-time charge of more than $100 million, putting the Southeast Asian internet firm under pressure to sustain profitability.
Despite posting its second consecutive quarterly profit, revenue grew just 5% and a goodwill impairment charge slashed net income to $88.1 million, missing the $224.4 million analysts expected. Sea’s US-listed shares fell the most since February 2022, dropping 18% to close Tuesday at $72.45 in New York.
Singapore-based Sea, the largest of Southeast Asia’s internet firms and briefly the world’s best-performing stock, has embarked on a brutal cost-cutting drive to reverse years of losses. The company, which grew at triple-digit percentage rates just two years ago, cut thousands of jobs, froze salaries and slashed hundreds of millions of dollars in sales and marketing expenses in a bid to trim costs and reach positive cash flows.
This marked a stark shift from its previous stance in spending for global expansion, as the gaming and e-commerce company struggled to convince investors of its money-making potential. Last year was one of the most difficult for Sea investors since the company was founded in 2009 — the gaming and e-commerce giant lost about $150 billion of its value since a peak in October 2021 as the world turned against money-losing tech companies like Sea.
Sea’s Path to Profit Paved With Layoffs, Single-Ply Toilet Paper
The quarterly performance of Sea’s various divisions was mixed. Revenue from Shopee, Sea’s e-commerce unit, gained 36% to about $2.1 billion. Sales at gaming arm Garena slumped 43% to $540 million, while revenue from SeaMoney, the digital financial services business, rose 75%.
Last week, Sea said it would hand out 5% raises to most staff. Before its latest earnings result, the company had more than doubled its market value since November. The slump in the shares cost it almost $9 billion of that gain, leaving it at $41 billion.
Still, Sea and its regional peers Grab Holdings Ltd. and GoTo Group continue to face challenges in an era of slowing economic growth, rising costs and a decline in technology company valuations. Grab, which is set to report results this week, is losing more than $300 million a quarter, while Indonesia’s GoTo Group’s losses exceed $250 million.
What Bloomberg Intelligence Says:
“Sea’s growth risks appear contained despite 1Q sales and profit missing consensus, as a potential recovery in Garena, its digital entertainment arm, and rising monetization in e-commerce and fintech may revive growth and fuel the bottom line.”
-Nathan Naidu, analyst
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(Updates shares in first, second and sixth paragraphs.)
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