To The Moon

Sea Ltd’s focus on profitability seems to bear fruit immediately in 3Q22, much earlier than my expectation! In my earlier Tiger post on SE, I predicted 3Q would be even worse due to one-off severance cost and lease termination, but it seems like the cost savings more than offset all these one-off costs! Kudos to Forrest Li’s team!

SE’s revenue grew by 17% yoy and 7% qoq, while net loss narrowed 35% yoy to 370m. Significant narrowing of losses at Shopee and SeaMoney more than offset weakness in Garena, and the losses would have been even lower if one-time severance package and early lease termination costs were excluded

Shopee: Resilient growth!

Surprisingly, Shopee had a resilient quarter and registered strong yoy revenue growth despite the deteriorating macro environment and flattish qoq GMV. Within core Asia markets, Indonesia registered a positive contribution margin while Malaysia and Taiwan positive adjusted EBITDA. The basket size was flat qoq at US$9.70 but take-rates saw a bump-up by c.95bps to 10.07%. Overall, adjusted EBITDA for Shopee has declined 24%qoq driven by higher monetization and efficiency improvements. Since many of the take rate increases have come in Aug-Oct and SE has only begun more focused efforts to optimize HQ costs from 3Q, we are more likely to see further growth in revenues and reduction in losses in 4Q. SE now expects Shopee to achieve EBITDA breakeven by end-FY23F, most likely at the expense of GMV growth as Shopee tries to recalibrate its growth in a more sustainable manner after achieving groupwide self-sufficiency.

SeaMoney’s growth offset Garena’s weakness.

Adjusted EBITDA losses narrowed for SeaMoney with more disciplined spend on driving mobile wallet adoption and healthy profitability in credit business. On the other hand, Garena’s revenue and adjusted EBITDA declined by 7% and 13% qoq. SE notes that reopening trends continue to have an impact on user engagement, and game spend was further impacted by macro uncertainties hurting discretionary spend.

Gaming launches could accelerate though, and diversification of gaming revenues will be key to the rerating of the gaming franchise. Garena has launched Blockman Go, Moonlight Blade, and Primitive Era in 2022 and is looking to launch Fae Farm (similar to Animal Crossing) on Nintendo Switch in 2023.

Overall, Forrest Li’s urgency attitude that I highlighted multiple times to Tiger Community truly paid off this quarter. With renewed urgency to achieve self-sufficiency and cashflow breakeven, I believe SE’s share price re-rating is a matter of time.

Let’s see if I’m right about Grab tonight. (Recap: im bearish)

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