Saturday 03 Jun 2023
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(May 16): Sea Ltd fell after saying earnings missed estimates, gaming revenue plunged 43% and it swallowed a one-time charge of more than US$100 million, putting the Southeast Asian internet firm under pressure to sustain profitability.

Despite posting its second consecutive quarterly profit, revenue grew just 5% and a goodwill impairment charge slashed net income to US$88.1 million, missing the US$224.4 million analysts expected. The company’s US-listed fell as much as 14% to US$76.10 in early New York trading, the biggest drop since November.

Singapore-based Sea, the largest of Southeast Asia’s internet firms and briefly the world’s best-performing stock, has embarked on a brutal cost-cutting drive to reverse years of losses. The company, which grew at triple-digit percentage rates just two years ago, cut thousands of jobs, froze salaries and slashed hundreds of millions of dollars in sales and marketing expenses in a bid to trim costs and reach positive cashflows.

This marked a stark shift from its previous stance in spending for global expansion, as the gaming and e-commerce company struggled to convince investors of its money-making potential. Last year was one of the most difficult for Sea investors since the company was founded in 2009 — the gaming and e-commerce giant lost about US$150 billion of its value since a peak in October 2021, as the world turned against money-losing tech companies like Sea.

The quarterly performance of Sea’s various divisions was mixed. Revenue from Shopee, Sea’s e-commerce unit, gained 36% to about US$2.1 billion. Sales at gaming arm Garena slumped 43% to US$540 million, while revenue from SeaMoney, the digital financial services business, rose 75%.

Last week, Sea said it would hand out 5% raises to most staff. The company has now more than doubled its market value since November.

Still, Sea and its regional peers Grab Holdings Ltd and GoTo Group continue to face challenges in an era of slowing economic growth, rising costs and a decline in technology company valuations. Grab, which is set to report results this week, is losing more than US$300 million a quarter, while Indonesia’s GoTo Group’s losses exceed US$250 million.

“Sea’s rapid improvement in cost structure should enable it to net a profit for full-year 2023, while it might take rivals such as Grab and GoTo another one or two years to achieve the same. Sea and Grab should have enough cash to burn for 21 and 17 quarters, while GoTo’s cash could last at least five more quarters if its cost-cutting goal is met,” says Bloomberg Intelligence. — Nathan Naidu, analyst

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