Why Sea’s shares plunged while GoTo avoided the carnage

Toxic. That’s the best description of Sea’s most recent earnings report for the second quarter of 2023, at least as far as the market was concerned.

In the hours after the New York Stock Exchange-listed company reported its earnings, which missed analysts’ revenue estimates, its shares plunged 29%, the biggest daily drop since the company went public in 2017.

This came despite the company recording US$331 million in net income, which is an increase of nearly 4x from the previous quarter.

Investors appear to have been spooked by the prospect of a brutal competition among ecommerce players in Southeast Asia – including a rising TikTok Shop – which could send Sea’s ecommerce unit Shopee back into the red.

TikTok logo / Photo credit: 123rf

Sea’s shares fell by about 11% following the initial release of the results. The price continued to plunge over the course of the post-earnings analyst call, as management failed to assuage concerns.

While Tokopedia faces many of the same challenges as Shopee, its parent firm GoTo appears to have managed these concerns with greater finesse this time.

Sluggish revenue growth

As a group, Sea’s revenue growth was sluggish, up just 5% from the same period last year to US$3.1 billion, a figure that also fell short of analyst estimates by 4.7%.

But the revenue miss was not the only cause of the market’s violent reaction.

For instance, Indonesia-listed GoTo, which announced its Q2 results on the same day, missed revenue expectations by 6.6%.

Yet, investor reaction to GoTo’s results was less extreme, with the company’s shares off by just 5% in the two trading days following the release of its results. The firm’s net revenue for the quarter was up 87% increase from the same period last year, even as adjusted EBITDA improved 72%.

Shopee sinking the ship

Concerns over Shopee’s future expenses – and lower adjusted EBITDA – as Sea deepens its investments at the ecommerce unit is what likely alarmed investors.

Q2 2023 already saw Shopee’s expenses rise and its adjusted EBITDA decline from the previous quarter.

What certainly did not help was a statement by Sea Group CEO Forrest Li where he shared that Shopee plans to “ramp up” investments to grow the ecommerce business. He added that this is expected to “impact the firm’s bottom line” and “result in losses for Shopee and our group as a whole in certain periods.”

Back to free shipping

Tokopedia’s more conservative approach