Sea Group sees blistering growth, hints at bolder vision for Free Fire

Sea Group’s financial results for the first quarter of 2021 and the earnings call that followed were not just about its financial and operational numbers, although these seem to have been well-received by investors. The tech giant’s shares closed the day up 4% despite a decline in the broader market.

Beyond that, management’s comments on the earnings call and a Q&A session with analysts that followed also offered a glimpse into how the tech conglomerate’s different businesses could evolve over the next few years.

Headline numbers

Group revenue for the quarter was at US$1.8 billion, marking a 147% year-on-year increase. This means that Sea is on track to meet its forecast of more than doubling its revenue this year, but quarter-on-quarter growth slowed to 12.6%.

While operating and net losses widened year on year, the quarter-on-quarter performance was positive, with operating loss and net loss improving on the previous quarter.

At US$88 million, Sea’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was also a standout, improving both year on year and quarter on quarter.

Costs increased in tandem with the growth of the business, although the cost of revenue and sales and marketing expenses both declined to 63.4% and 38.5%, respectively as a percentage of revenue. These are the lowest figures over the past eight quarters. General and administrative expenses would have followed a similar trajectory as well, if not for a one-time corporate donation to the National University of Singapore.

Sea’s cash position has held steady. Cash from operating activities jumped to US$318 million, but US$504 million was used for investing activities.

Garena continues steady growth

The bookings, GAAP revenue and adjusted EBITDA numbers for Garena, Sea’s gaming arm, are all chugging along nicely, even though the quarter-on-quarter growth rates are somewhat slower than before.

It’s worth noting that this growth came despite a fall in the absolute sales and marketing spend from Q4 2020.

The EBITDA margin (adjusted EBITDA divided by bookings) for this segment was 64.4%, dropping slightly from the previous quarter but in line with peers such as US gaming firm Activision Blizzard (61.7%).

As with previous quarters, Sea’s growth in these financial metrics was driven by an increase in quarterly active users and higher penetration rates (quarterly paying users as a percentage of quarterly active users).

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