To The Moon

• Sea Ltd $Sea Ltd(SE)$ has surged by 16% since its earnings announcement on March 4, 2024.

• Its outperformance was primarily due to an earnings beat and a better-than-expected outlook for 2024.

Earnings Review:

• Sea Ltd reported a net income of $162.7 million in 2023, a significant improvement compared to a net loss of $1.7 billion in 2022.

• Nonetheless, we maintain concerns about Sea Ltd's long-term profitability.

E-commerce:

• In the fourth quarter of 2023, gross orders experienced a notable 46% year-on-year increase, and GMV (Gross Merchandise Volume) saw a 29% year-on-year growth.

• Despite these positive indicators, the operating income witnessed a substantial 377% year-on-year decline, reaching a negative USD303 million.

• This decline suggests intense competition in the e-commerce sector, with Sea Ltd making significant investments to fuel its growth. While the aggressive strategy aims to capture more market share, it raises concerns about the potential for longer-term operating losses.

• Nonetheless, Shopee is raising its take rate in Singapore, Vietnam, Malaysia, and Taiwan in early 2024. This adjustment may bring about some upside surprises in operating profit, counteracting the concerns about sustained losses in the long term.

Source: Company Financial Statement

Digital Entertainment:

• DE bookings experienced a year-on-year decline of 16%, but showed a modest increase of 1.8% quarter-on-quarter in the latest quarter.

• The quarterly paying user ratio remains low at 7.5%, and quarterly active users saw a dip once again, reaching 528.7 million.

• Operating income observed a 34% year-on-year decrease in the fourth quarter of 2023.

• The relaunch of Free Fire in India does not have an exact launch date yet. Consequently, we anticipate a slow recovery for Garena's gaming division moving forward.

Source: Company Presentation Slides

 Digital Financial Services

• Operating profit demonstrated a substantial year-on-year increase of 117% in the fourth quarter of 2023.

• Non-performing loans past due by more than 90 days as a percentage of consumer and SME loans on-book was 1.6%.

Conclusion:

• Sea announced its intention to "reaccelerate investments in growth," with a specific focus on e-commerce. The shift toward a growth-over-profits strategy may potentially diminish investor interest, especially considering the current trend among many tech companies to prioritize profitability. This involves cost-cutting measures such as layoffs and shutting down certain initiatives.

• Our stance on Sea Ltd remains neutral due to the absence of clear profit visibility, intense competition in the e-commerce sector, and the delayed relaunch of Free Fire in India.

• Our preference lies with other e-commerce peers like Amazon ($Amazon.com(AMZN)$) , PDD( $Pinduoduo Inc.(PDD)$ ), and Meituan.