Sea Group eyes promising new income source amid Garena’s slowing bookings growth

Sea Group, one of Southeast Asia’s most valuable tech companies, has reported strong revenue growth in its financial results for the second quarter of 2021.

However, its sales and marketing expenses have also accelerated, primarily those relating to its ecommerce arm Shopee. This resulted in negative adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the whole business – the first time this has happened since the first quarter of 2020.

In the company’s post-earnings Q&A briefing with analysts, its leadership team described this increased spend as a “managed outcome” of investing in attractive opportunities, rather than as a result of heightened competition.

The firm also teased at the potential of advertising to become a future revenue driver for its ecommerce unit.

Photo credit: Shopee

Group revenue for the second quarter came in at US$2.3 billion, up by 158.6% year on year.

But adjusted EBITDA was at a negative US$24 million, the first time this has been in the red at the group level since Q1 2020.

Sea has continued to see the benefits of scale, with Q2 2021 costs of revenue and general and administrative expenses declining to 59.2% and 10.7% as a percentage of revenue, respectively. These are the lowest figures for the tech firm over the past 10 quarters. Research and development expenses also grew at a slower rate.

As mentioned previously, the uptick in Sea’s sales and marketing expenses exceeded revenue growth, which caused sales and marketing expenses as a percentage of revenue to inch up from 38.5% to 40.4%. However, even this figure is the third-lowest over the past 10 quarters.

In Q2 this year, the company’s cash flow from operating activities declined by US$186 million to US$132 million, while cash outflows for its investing activities climbed by US$641 million to US$1.1 billion. This contributed to a slight decline in cash and cash equivalents.

All in all, Sea is certainly ramping up its spending on future growth, which it can do given that it’s sitting on a comfortable cash cushion.

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