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Sea misses profit estimates, turnaround still fragile

Bloomberg
Bloomberg • 3 min read
Sea misses profit estimates, turnaround still fragile
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Sea had its worst day in more than a year after earnings missed estimates and gaming revenue plunged 43%, raising questions around its nascent profitability drive.

Despite posting its second consecutive quarterly profit, Sea said revenue grew just 5% and a goodwill impairment charge of more than $100 million slashed net income to US$88.1 million, missing the US$224.4 million analysts expected. Its US-listed shares fell the most since February 2022, dropping 18% to close Tuesday at US$72.45 in New York.

The miss shows that sustained profitability still isn’t guaranteed for Singapore-based Sea, which 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 cash flows.

“The major disappointment was around the modest top line growth and declining profitability, which sparked the profit taking,” said Esme Pau, regional internet analyst at Macquarie Capital. “My view is that Sea has gone through the toughest time. The profitability trajectory will continue, though may be less linear.”

Sea, the largest of Southeast Asia’s internet firms and briefly the world’s best-performing stock, shifted from spending on global expansion to focusing on its core operations after it struggled to convince investors of its money-making potential. Last year was one of the most difficult for Sea shareholders 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.

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The mixed quarterly performance of Sea’s various units signals investors may face more volatility. 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. Before its latest earnings result, the company had more than doubled its market value since November. The slump in the shares cost it almost US$9 billion of that gain, leaving it at US$41 billion.

Sea and its regional peers Grab Holdings 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.

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