Shopee sales surge helps Sea hit record revenue, but net loss widens

Sea chairman and CEO Forrest Li and president Nick Nash on the podium of the New York Stock Exchange on Friday / Photo credit: NYSE

Sea, one of Southeast Asia’s largest internet firms, today reported record-high revenue but a wider net loss for April to June 2018. This as it continued to invest in its ecommerce business, which has started to post growth.

“EC” denotes ecommerce, “DE” digital entertainment, and “DFS” digital financial services / Chart: Sea

“The monetization of Shopee is delivering ahead of expectations, even at this early stage. Marketplace revenue surged by more than 69 percent sequentially to US$37.3 million, as more merchants invested in our value-added services to deepen engagement with their customers,” chairman and CEO Forrest Li said in a statement.

Shopee sold US$2.2 billion worth of goods in Q2 2018 – called gross merchandise volume (GMV) – which was 171 percent higher year-on-year. The store kicked off its money-making efforts in late 2017, starting with seller ads and commission fees in Taiwan. It expanded to offer a range of value-added services like inventory management, as well as online store operations and fulfillment services across the company’s markets. Shopee also offers merchants shipping and delivery.

Meanwhile, Sea’s adjusted net loss widened to US$199 million from Q2 2017’s US$87 million, though it’s lower than the US$205 million in Q1 2018.

While Sea continues to spend for Shopee’s sales and marketing, the expense as a percentage of Shopee’s GMV has been steadily decreasing. Currently, the figure stands at 6.2 percent of GMV, compared to 7.1 percent in Q2 2017 and 6.8 percent in Q1 2018. This means Sea has gotten more value for every dollar it invested this year than last.

Still, 6.2 percent of GMV is a lot – about US$136 million. Shopee would have to more than double its revenue to make one dollar for each dollar it spends for marketing.

Chart: Sea

How other units performed

Garena, which contributed the most to Sea’s top line, saw its revenue climb 19 percent year-on-year to US$139 million, though the figure was down from the first quarter’s US$146 million. This was blamed on the dip in the number of paying users in Vietnam, where leading mobile operators have begun to restrict the use of prepaid telco cards for online game top-ups.

“Losses are still looming large, and if the gaming business continues its slowdown, Sea could be inviting even more red ink,” says analyst Gary Alexander on Seeking Alpha. “At the moment, strength in gaming is necessary to keep the company afloat.”

A big war chest