Sea’s new results disappoint, but offer tantalizing morsels

Sea’s fourth quarter and full year 2021 results were released on Tuesday, and three key things stood out.

But first, it’s important to understand the backdrop. Much has transpired since November 2021, when Sea last announced Q3 results.

Back then, its share price was a lofty US$330. But it had plummeted to US$145 a day before Q4 numbers came out.

Image credit: Tech in Asia

To be fair, many other tech companies – especially unprofitable ones – have been caught in the same maelstrom, which started when Jerome Powell, chairman of the US Federal Reserve, pivoted to a more hawkish position on inflation, raising the prospect of faster than expected interest rate hikes.

However, company-specific factors were also at play for Sea.

Free Fire, the flagship game of Sea’s digital entertainment unit Garena, was banned in India over national security concerns tied to Chinese apps, even though it is produced by a Singapore company. This cut the game’s access to a large market with massive potential for growth.

Some analysts have also pointed out other issues, such as the impact of Garena’s slowing growth on Sea’s wider prospects and the long-term sustainability of ecommerce unit Shopee’s business model.

Stormy seas for Garena

Indeed, Garena’s Q4 results were not pretty.

Bookings, an operational metric that Sea uses to approximate cash spent by its users, came in at US$1.1 billion. This was not merely a case of lagging growth – it’s a decline from US$1.2 billion in Q3.

Quarterly active users (QAU) and quarterly paying users (QPU) also fell from the previous quarter by 10% and 17%, respectively.

Significantly, this is the first time since Sea’s IPO in 2017 that QAU has declined, and the first for bookings and QPU since the second quarter of 2018.

The near-term outlook isn’t any rosier.

Sea expects bookings of US$3 billion in 2022. This figure is around what the company achieved in 2020 and a third less than what it generated in 2021.

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