Sea plunges 22% after unexpected losses amid rising competition

(Bloomberg) — Sea Ltd. shares tumbled after an unexpected third-quarter loss, hurt by intensifying local competition from Alibaba Group Holding Ltd. and ByteDance Ltd.

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The company reported a net loss of $149 million, compared with a profit of $322 million in the previous quarter. The stock fell 22% in New York trading, wiping out about $6 billion in market value. The company will report a profit of about $100 million.

Chief Executive Forrest Li told investors on a post-results conference call that he believed the company should invest heavily now amid competition from ByteDance’s TikTok, Alibaba’s Lazada and Pinduoduo’s Temu. to expand the scale of its online retail business Shopee. Long-term profits will help future business, he said.

“The entry of new players has intensified competition in our market,” Li said, without naming the entrants. “Reinvesting in market share now will put us in a better position.”

Adjusted interest, tax, depreciation and amortization advance profit (Ebitda) fell short of expectations, and stock prices plummeted: Street Wrap

Sea’s revenue growth did beat analysts’ expectations. Sales rose 4.9% to $3.3 billion in the quarter, compared with the average estimate of $3.2 billion.

Until recently, Sea’s strongest markets, including Indonesia, appeared to be under siege from TikTok and new video shopping services that use popular influencers to sell a range of goods to increasingly engaged online audiences. But in September, Jakarta effectively forced TikTok to shut down its shopping service in response to backlash from small merchants against the Chinese platform.

Since then, investors have been looking for clues to see whether this sudden exit could reignite Sea’s energy. Ahead of Indonesia, there were fears that the Singaporean company – which has posted losses for more than a decade since its founding in 2009 – would fall into the red again. Southeast Asia’s online economy is expected to post its slowest growth on record this year, the result of a sluggish economy with uncertain outcomes.

“Given that competition remains strong and dynamic, we caution that if the aggressive spending model persists for longer, it could further weigh on Shopee’s earnings timing,” Citigroup analysts including Alicia Yap wrote in a research note road.

Sea’s other big business, its Garena-focused gaming unit, shrank rapidly in 2023 due to a lack of new hit games. But the company recently said it would reinstate its popular game Free Fire on the Indian App Store after a surprise ban in 2022.

Read more: Sea, Grab face Southeast Asia’s slowest online growth in years

What does Bloomberg say?

Sea’s investment in e-commerce unit Shopee, which resulted in losses after three quarters of profitability, may exacerbate net losses into the fourth quarter. After falling for the fourth consecutive quarter, marketing costs soared 12.4% year-on-year in the third quarter. Total merchandise value and revenue in the second quarter only grew by single digits. Revenue growth should accelerate in the fourth quarter, with incentives and marketing spending to attract shoppers and live streamers likely to intensify costs as the company regains lost market share and captures the market. Year-end shopping demand means net losses are likely to continue this quarter.

– Nathan Naidoo, Analyst

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Earlier this year, Li’s company overhauled its business to focus on profitability. Sea began aggressively cutting costs to achieve profitability, shifting its focus to profits as revenue growth slowed from triple-digit percentage levels. Just two years ago, the company froze wages and cut hundreds of millions of dollars in spending in an effort to achieve positive cash flow.

To drive growth, Li said in August that he planned to increase investment in Shopee. He is stepping up efforts to build out his live-streaming unit, an offensive move that could eat into profits and spark a price war with TikTok and Alibaba. He believes this is necessary to defend his market share.

In addition to deep-pocketed rivals Alibaba and ByteDance, local rivals such as GoTo Group are also putting pressure on Sea. GoTo, owner of Indonesian e-commerce competitor Tokopedia, nearly doubled its net revenue in the second quarter.

Read more: Sea’s path to profits paves the way to job cuts, single-ply toilet paper

—With help from Peter Elström.

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