After recording a profit in the previous three quarters, NYSE-listed Sea Ltd on Tuesday reported that its losses for the third quarter of 2023 stood at $144 million as the tech major chases a high-growth strategy, particularly in the fiercely competitive e-commerce space.
Sea Ltd recorded $331 million and $87.3 million in net profit respectively in Q2 and Q1 2023, while its Q4 2022 net profit stood at $422.8 million.
However, against the corresponding period last year, Sea Ltd has narrowed its losses in the third quarter ended Sept 30, 2023, compared to $569.3 for the third quarter of 2022, according to its earnings release.
Its adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) for the three months ending Sept 30, 2023, stood at $35.3 million compared to a loss of $357.7 million in the same period last year.
However, on a sequential quarter comparison, the Q3 adjusted EBITDA figure is significantly down from $510 million in Q2 this year. The company turned EBITDA positive for the first time in Q4 2022.
On the group level, Sea Ltd booked GAAP revenue of $3.3 billion in the July-September 2023 period, which grew by 4.9% year-on-year. Meanwhile, its total gross profit stood at $1.4 billion, marking a 17.4% increase YoY.
At the end of September 2023, Sea Ltd had $7.9 billion of cash, cash equivalents, short-term and other treasury investments.
“Our strategy for e-commerce is driven by the principle that maximising the long-term profitability of the business will generate the greatest returns to our shareholders in the long run,” said Sea’s Chairman and Group CEO Forrest Li in a statement.
As maximising long-term profitability requires scale and strong market leadership, the firm looks at three key operational factors: growth, current profitability, and market share gain, he continued.
“In this current period, we will prioritise investing in the business to increase our market share and further strengthen our market leadership. We now have scale, a deep understanding of our markets, and strong localised execution across diverse geographies.” Li said.
The CEO added that the firm’s profitability in the past quarters has significantly improved both its cash reserves and operational efficiency. “We see a very good opportunity to build our e-commerce content ecosystem efficiently, especially in live streaming.”
In the company’s previous quarter earnings call, Sea’s top executives said that the firm is ramping up investments in its e-commerce division to maintain its market leadership position amid tightening competition, even if it hurts profits in the near term.
In this quarter, Sea saw its sales and marketing expenses rise by 12.4% YoY to $918 million from $816.7 million in Q3 2022. The figure also represents about 86% increase from $493 million in Q2 2023.
Sales and marketing expenses for e-commerce jumped by 49.7% YoY for the third quarter this year to $861 million, compared to $575 million in the same period last year.
However, its total operating expenses were down in Q3 to $1.57 billion from $1.7 billion in the same period last year, although the figure was higher than $1.17 billion in Q2 2023.
Shopee reported negative EBITDA
Shopee, the company’s e-commerce arm, remained the biggest revenue driver for the group as it booked GAAP revenue of $2.2 billion in the third quarter of 2023, up 16.2%% YoY. This included $1.9 billion of GAAP marketplace revenue, which consists of core marketplace and value-added services revenues.
While it had recorded positive adjusted EBITDA in three previous quarters, Shopee recorded negative EBITDA of $346.5 million in Q3 2023.
Nevertheless, Shopee still saw its gross orders increase by 23.6% quarter-on-quarter and 13.2% YoY.
The marketplace platform booked $20.1 billion of GMV for the quarter, increasing by 5.1% YoY and 11.2% QoQ
Gaming shows improvement
Sea’s digital entertainment business reported revenue of $592.2 in Q3, which was up 11.9% QoQ, but down about 33% from $892.9 million for the same period in 2022. Its adjusted EBITDA was $234 million for the quarter, compared to $239.5 million in Q2.
Meanwhile, bookings for the Garena business unit were $447.9 million, as compared to $443.1 million for the previous quarter, and $664.7 million for the Q3 last year.
Garena reported 544.1 million quarterly active users in the July to September 2023 period, which was down slightly from 568.2 million in the same period last year.
Its quarterly paying users were 40.5 million in Q3 this year, down around 21% from 51.5 million in the corresponding period last year.
It is noteworthy that Garena’s flagship gaming title Free Fire made a return to its largest market in India in September under the banner of Free Fire India. This development may help the business improve in the last quarter of this year.
Financial services going strong
On the fintech front, GAAP revenue surged by 36.5% YoY to $446.2 million in Q3. It reported $165.7 million adjusted EBITDA in the third quarter of 2023, as opposed to a loss of $67.7 million in the same period last year.
As of September 30, 2023, the segment reported total loans receivable of $2.4 billion, net of allowance for credit losses of $288.1 million. Its nonperforming loans over the past 90 days stood at around 1.6%.
In the company’s financial report, the CEO said that the firm is excited to see ecosystem developments in the growth of diversified user engagement through live streaming, short-form videos, and affiliate programs.
“Given these positive developments and trends, we have started, and will continue, to ramp up our investments in growing the e-commerce business across our markets,” said Li.
