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Sea Limited (SE) Beats Q4 Earnings and Revenue Estimates

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Sea Limited SE reported fourth-quarter 2018 adjusted loss of 81 cents per share, narrower than the Zacks Consensus Estimate loss of 85 cents. The company had posted a loss of 90 cents per share in the year-ago quarter.  

Adjusted revenues surged 136.6% year over year to $389.3 million, beating the Zacks Consensus Estimate of $297.3 million.  

Robust performance of the company’s game and expanding e-commerce presence drove top-line growth in the reported quarter.

Quarter Details

Adjusted revenues from Digital Entertainment (59.4% of total revenues) jumped 63.1% year over year to $231.4 million. This upside was driven by the company’s large user base and ramped up efforts to monetize from the games.

Moreover, active users reached 216.2 million, up 146.2% year over year.

E-commerce and other services revenues (30.4% of total revenues) on an adjusted basis was $126.9 million compared with $9.3 million reported in the year-ago quarter. Sea’s expanding e-commerce marketplace drove this segment’s performance.

Notably, gross merchandise value (GMV) was $3.4 billion, an increase of 117% year over year. Additionally, gross orders jumped 110.5% on a year-over-year basis to 206.9 million.

Robust growth of Sea’s Shopee platform aided top-line growth in the reported quarter. Notably, the company also set a new record for 12 million orders on a single day within 24 hours on December 12. Moreover, Shopee recorded 83.8 million orders in the fourth quarter, a daily average of $0.9 million in Indonesia.

Further, the sales of goods revenues (10.2% of total revenues) increased from $0.5 million in the year-ago quarter to $39.7 million in the reported quarter. This was attributed to the company’s increasing product offerings.  

Full-Year Details

For 2018, Sea recorded revenues of $1.1 billion compared with $553.6 million in 2017. Net loss per share was $2.84 per share compared to loss of $2.72 per share posted in 2017.

The company witnessed growing traction in its self-developed game, Free Fire. Notably, the game reached 350 million registered users and 40 million daily active users in 2018. Moreover, it was the fourth most downloaded game globally across the Apple App Store and the Google Play Store combined in 2018, per App Annie.

The company also rolled out its first global eSports tournament for Free Fire, the Free Fire World Cup in 2018.

Gross merchandise value (GMV) of the company’s e-commerce platform for 2018 was $10.3 billion. Moreover, total active buyers were 49.9 million in the reported quarter, up 130.3% year over year.

Per App Genie, Shopee was the most downloaded app in the Shopping category in Southeast Asia and Taiwan in 2018.

Operating Details

Cost of goods sold in the quarter under review flared up 188.1% year over year to $291.2 million. The growth was primarily attributed to an increase in cost of revenues for Digital Entertainment, e-commerce, and other services.

Gross loss was $7.9 million compared with a gross profit of $23.5 million in the year-ago quarter.

Total sales and marketing expenses increased 32.6% year over year to $207.5 million due to a 36.7% rise in marketing expenses related to the e-commerce platform.

General and administrative expenses jumped 68.4% to $87.2 million driven by the company’s expanding staff force, increase in office facilities and other related expenses.

Moreover, research and development expenses soared 207.3% to $26.6 million due to an increase in research and development staff force as the company expanded its product offerings.

Adjusted EBITDA loss was $203.6 million compared to year-ago quarter’s loss of $140.2 million in the year-ago quarter.

2019 Guidance

Sea expects Digital entertainment revenues to be between $1.2 billion and $1.3 billion for 2019, marking year-over-year growth of 81.5-96.7%.

Revenues for e-commerce are anticipated to be between $630 million and $660 million, representing year-over-year growth of 116.7-127.0%.

The company expects sales and marketing expenses to decline in absolute dollar terms in 2019, on the back of increasing efficiency of Shopee.  

Zacks Rank & Stocks to Consider

Sea currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector include Gogo Inc. GOGO, Symantec Corporation SYMC and Synopsys, Inc. SNPS. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Gogo, Symantec and Synopsys is projected at 12%, 7.9% and 10%, respectively.

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