Sea’s a steady ship, but shares drop after first quarterly results as a public company

Sea chairman and CEO Forrest Li rings the NYSE opening bell. Photo credit: NYSE.

Sea has announced growth in its revenue, gross merchandise volume, and gross billings during Q3 2017. Its net loss has widened, however, and its share price on the New York Stock Exchange (NYSE) continued to fall during after-hours trading.

The Southeast Asian company, the most valuable to list on the exchange in recent memory, released its first quarterly financial results since its US$844 million IPO last month.

Sea grew its ecommerce, payments, and gaming segments. The group’s total GAAP-recognized revenue plus non-GAAP deferred revenue from its Garena digital entertainment business and non-GAAP ecommerce commission income from Shopee was US$151.7 million for the quarter. This translates into 73 percent growth in revenue year-on-year, and 21 percent growth over the preceding three months.

Digital payments platform AirPay reported a gross transaction value of US$448 million, representing year-on-year growth of 172 percent and 29 percent growth on the previous quarter.

NB: Financial figures are unaudited. 1: DE = digital entertainment. EC = ecommerce. 2: DE gross billings = digital entertainment GAAP revenue plus change in digital entertainment deferred revenue. Image credit: Sea.

Speaking today during a conference call, Sea CEO Forrest Li said that mobile drove Garena’s performance during the quarter. “More than half of our billings came from mobile games,” he said. “This is a new milestone as mobile use continues to grow across the region.”

Sea operates across several Southeast Asian countries and Taiwan – an area it refers to as “Greater Southeast Asia.”

Li attributed Shopee’s growth to its asset-light marketplace model, which he said was perfectly suited to the logistical practicalities of Southeast Asia. “There’s a strong network effect – the more sellers we have, the more buyers we attract, and that attracts even more sellers. It is a virtuous cycle of growth. It means Shopee is now part of the everyday life of our consumers… Shopee is equivalent to 0.15 percent of the region’s GDP.”

He also underlined Shopee’s claim to be the biggest ecommerce player in the region. “[Shopee] is over twice the size of its nearest competitor [by revenue],” he said. “Also in terms of GMV, we’re close to one-and-a-half times the size of our nearest competitor.”

The unnamed rival is presumably Lazada, which was acquired by Alibaba in April 2016. Speaking at Tech in Asia Jakarta 2017, Lazada CEO Max Bittner argued that publicly held Shopee “will have a harder time continuously raising money… At some point, public market investors expect improvements in profitability. The luxury of being [Lazada] is we’re not exposed to that scrutiny.”

There was some indication of that exposure today as Sea’s share price tumbled, from US$15.70 at the start of the day to US$14.78 by the close of the market. It appears that some investors may have been spooked in advance of the company’s earnings release. After-hours trading saw a further decline in share price, influenced by Sea’s US$127 million adjusted net loss for the quarter – more than twice the US$60.2 million loss it reported in Q3 2016.