To The Moon

Sea Ltd (SE) blew my mind when I saw its 4Q22 EBITDA and net profit both turned positive! This is far better than consensus’s estimates of US$433m loss! The 4Q22 results were exceptional, surpassing expectations and achieving significant profit milestones, including adjusted EBITDA breakeven on both Shopee and digital financial services (SeaMoney) segments, group level GAAP profitability and positive cash flow!

Quick result summary

4Q22 GAAP revenue increased by 7% YoY and 9% QoQ. Strong cost discipline allowed for a rapid turnaround in 4Q22 as SE achieved adj. EBITDA of US$496m, driven by the strong beat on Shopee and SeaMoney EBITDA, offsetting the weaker performance of Garena. Sales and marketing expenses decreased significantly to US$474m in 4Q22, down 42% QoQ and 61% YoY, and there was also a sequential improvement in R&D spend and headquarter costs. Balance sheet cash reserves stood at US$6.0bn at the end of the quarter.

Shopee: Weaker GMV offset by Higher take-rate

In 4Q22, Shopee’s GMV was down by 5% QoQ and 1% YoY, amounting to US$18bn. However, GAAP revenue increased by 10% QoQ and 32% YoY as take-rates continued to rise to 11.6% compared to 10% in 3Q22, which more than compensated for the GMV decline. Additionally, the basket size was also higher at US$10.50, despite the lower GMV and gross orders, compared to US$9.67 in 3Q22. Adjusted EBITDA turned profitable at US$196m due to lower operating expenses. The Asia markets recorded an adjusted EBITDA of US$320m, while other markets' adjusted EBITDA loss narrowed to US$124m. Moreover, Brazil's contribution margin loss per order improved to US$0.47.

This substantial improvement was credited by the Management to two main factors: firstly, a clear shift in focus towards business areas with the highest potential, and simultaneously reducing or shrinking those with lower potential; and secondly, achieving considerably better unit economics for Shopee, by increasing commission rates, reducing the extent of coin cashback and free shipping subsidies, and lowering logistics expenses.

Garena: No more Covid tailwind

As expected, Garena’s performance was softer due to Covid lockdowns being mostly over. Garena’s GAAP revenue increased by 6% QoQ but decreased by 33% YoY. During this quarter, QAU dropped below the 500m level, while QPU decreased by 15% QoQ due to lower engagement with gamers after Covid mobility restrictions were largely lifted. Despite this weakness in the user base, ARPPU increased by 26% QoQ and 19% YoY, amounting to US$21.80, which helped mitigate the negative impact.

DFS/SeaMoney: Early EBITDA breakeven achieved!

SeaMoney had another strong quarter, with its GAAP revenue increased by 16% QoQ and 92% YoY, while the adjusted EBITDA turned profitable as well! Sea Ltd disclosed its non-performing loan (NPL) at around 5% (excluding write-off period changes).

Currently, SeaMoney is still mainly driven by e-wallet, but  digital banking is growing in Indonesia, with Philippines to follow suit. (SE isquiet on Singapore and Malaysia digital banking licence though.) SeaMoney plans to introduce Insurtech and WealthTech, as well as expanding the consumer credit products available. In order to introduce these products, SE intends to take advantage of ecosystem synergies and prioritize quality growth over costly user acquisition strategy.

Conclusion

I covered SE a few times in Tiger Broker and have been very positive on this Company when Forrest Li and SE management made the decisive pivot to focus on core key markets and optimize cost structures. This quarter has reflected SE’s determination to drive sustainable growth amidst macroeconomic challenges and focus on solidify efficiency gains. With SE turning profitable in 4Q22, I am confident that SE is now better positioned to take advantage of the longer-term trend of digitalization in the ASEAN region.

@Daily_Discussion @TigerStars