Mixed Q1 makes Sea's Dilemma Continues?

$Sea Ltd (SE)$ Q1 results A mixed bag, with significant revenue growth on the one hand and a sharp decline in profits on the other.

In terms of overall results, the company reported total revenues of $3.73 billion, up 22.8% year-over-year, beating the consensus estimate of $3.56 billion; however, the net loss of $23 million was significantly lower than the net profit of $87.3 million in the same period last year; while adjusted EBITDA of $401 million was down 21% year-over-year, but still better than the consensus estimate of $222 million.

Investment Highlights

• E-commerce company Shopee achieved its highest ever quarterly order intake, GMV and revenue. This included a 33% year-on-year increase in revenue of $2.7 billion, above the consensus estimate of $2.54 billion, stemming from a 36% year-on-year increase in GMV to $23.6 billion, and proving that it maintains its dominance in the Southeast Asian e-commerce space. However, faced with a different market, it invested heavily in marketing, while increasing R&D spending including live streaming and AI, with adjusted EBITDA coming in at a loss of $21.7 million, compared to a profit a year ago.

• Games Garena booked $512.1 million, up 10.8% year-on-year, but revenues were still down 15.1%, with adjusted EBITDA up 27% to $292 million. The division has been working on launching new games to boost sales, with new game Black Clover M seeing a boost in water share.

• Finance's SeaMoney business generated revenues of $499 million, up 21% year-over-year, outpacing the gaming business, with adjusted EBITDA of $148.7 million, up 50.3% year-over-year, while outstanding loan balances of $3.3 billion were up 28.7% year-over-year, as SeaMoney continued its strong growth momentum and profitability, while maintaining prudent credit loss management. Credit losses at the end of Q1 were $161.8 million, down from $177.4 million in the same period last year.

Overall Sea's performance is very comprehensive, with both positive and negative parts.

Positive Takeaways

1. The financial business is growing and margins are improving, and given that interest rate cuts are probable in the future, there will also be a better environment to support the credit business backed by an e-commerce platform;

2. The game business of paying users is still growing, although the current game because of the life cycle is not short decline, at the same time, the water flow data year-on-year decline narrowed with the passage of the high base period; the future may be supplemented by more agents, co-publishing, and the new game also needs cycle;

3. The e-commerce share is still growing steadily, focusing on Southeast Asia to deepen the local market after contracting in South America;

4. The company's overall losses began to narrow;

Negative Takeaways

1. E-commerce in exchange for volume, excessive marketing costs, but also shows that although the Southeast Asian region is not large, but because of cultural, political and other influences, the promotion of community networks is not an easy task. In addition, the market competition tends to be fierce, and consumers are more price-sensitive, resulting in low profits;

2. The game business is still green, the downward trend in revenue is unchanged, and is now the smallest percentage, Chinese companies in Southeast Asia is going well, Ali, Poundland Temu will continue to grab the Southeast Asian market;

3. Bad debt ratios remain low and user asset quality is relatively good while growing.

4. Growing businesses don't make money, and profitable businesses don't grow.