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Sea (SE) Incurs Loss in Q1, Gets a Top-Line Boost on Free Fire

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Sea Limited SE incurred first-quarter 2020 non-GAAP loss of 52 cents per share, missing the Zacks Consensus Estimate by 73.3%. However, the figure was narrower than the year-ago quarter’s reported loss of 64 cents.

Adjusted revenues of $913.9 million too lagged the Zacks Consensus Estimate by 0.8% but jumped 57.9% on a year-over-year basis.

The year-over-year upside can be attributed to growth in the company’s digital entertainment business, especially the self-developed game — Free Fire — and the continued monetization efforts in its e-commerce business.

Top-Line Details    

Sea operates three core businesses across digital entertainment, e-commerce plus digital payments and financial services known as Garena, Shopee and SeaMoney, respectively.

Adjusted digital entertainment (Garena) revenues of $512.4 million surged 30.3% year over year, accounting for 56.1% of the top line. This was primarily driven by continued quarterly active user growth and further deepening of paying user penetration, driven by consistent strong performance of Free Fire.

Sea Limited Sponsored ADR Price, Consensus and EPS Surprise

Sea Limited Sponsored ADR Price, Consensus and EPS Surprise
Sea Limited Sponsored ADR Price, Consensus and EPS Surprise

Sea Limited Sponsored ADR price-consensus-eps-surprise-chart | Sea Limited Sponsored ADR Quote


Per App Annie data, cited by Sea, Free Fire was the highest grossing mobile game in Latin America and in Southeast Asia during the first quarter of 2020. In India, monthly paying users represented more than 10% of monthly active users.

Notably, quarterly active users (QAUs) reached 402.1 million, up 48% year over year. Quarterly paying users of 35.7 million soared 72.5% year over year, reflecting 8.9% of QAUs in the first quarter. Average revenue per user for the reported quarter was $1.30, down from $1.40 in the year-ago quarter.

Moreover, in the quarter under review, Sea organized more than double the number of esports tournaments online for Free Fire compared with the level recorded in first-quarter 2019. These tournaments accumulated more than 90 million views.

Adjusted e-commerce (Shopee) revenues were $322.8 million, up 134.6% from the year-ago quarter, accounting for 35.3% of revenues.

E-commerce revenues included $236.7 million of marketplace revenues, up 132.1% year over year. Marketplace revenues primarily consist of transaction-based fees and advertising income and revenues generated from other value-added services.

Product revenues, which primarily consist of revenues generated from direct sales, surged 63.6% year over year to $77.3 million.

Gross orders for the quarter under review totaled 429.8 million, up 111.2% year over year. Gross merchandise value (GMV) was $6.2 billion, up 74.3% year over year.

Finally, adjusted sales of goods soared 64.3% year over year to $78.7 million in the first quarter of 2020.

Shopee’s Popularity Spurs Growth

In Indonesia, Shopee registered more than 185 million orders or above 2 million orders on daily average basis, reflecting a skyrocketing increase of 122.6% year over year in the first quarter.

Shopee also ranked first in Indonesia by average monthly active users, downloads and total time devoted to apps on Android in the Shopping category during the March quarter, per App Annie.

Moreover, both in Southeast Asia and Taiwan, Shopee claimed the number one spot in the Shopping category by average monthly active users and the total time spent on Android apps, according to App Annie data.

Shopee also occupied the number one slot in the Shopping category by downloads in Southeast Asia, and was among the top three worldwide in terms of downloads in the same category, going by the App Annie data.

In early May, Sea in partnership with Proctor & Gamble launched a region-wide campaign called “Show Me My Home”.

Digital Financial Services Details

SeaMoney’s strengthening integration with Shopee aided Sea’s digital financial services business.

Mobile wallet total payment volume (TPV) for the first quarter surpassed $1 billion, marking a milestone that the company achieved within a year after it started to consolidate the mobile wallet service with Shopee platform.

Further, quarterly paying users for mobile wallet services exceeded the 10-million mark in the first quarter. In April 2020, more than 40% of Shopee’s gross orders in Indonesia was paid using mobile wallet service.

Notably, in March, Sea partnered Alphabet GOOGL division Google to offer its mobile wallet as a payment option for the Google Play Store in Thailand.

Operating Details

Gross profit surged a whopping 424.1% year over year to $206.8 million in first-quarter 2020. This massive growth was driven by a solid revenue contribution from Sea’s self-developed game.

Adjusted EBITDA loss was $69.9 million compared with the loss of $32 million in the year-ago quarter.

Sales and marketing expenses flared up 73.2% year over year to $308.3 million in the first quarter. Digital entertainment sales and marketing expenses increased 34.1% year over year due to esports and other user engagement activities’ enhancement-related spending. Higher spending-related brand marketing drove e-commerce sales and marketing expense by 39.3%.

General and administrative expenses shot up 67.8% to $126.9 million. This year-over-year growth was attributed to higher staff compensation and benefits costs as well as a spike in office facilities and related expenses.

Research and development expenses soared 126.5% to $64.6 million.

Operating loss was $267.7 million compared with loss of $239.2 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2020, the company had cash and cash equivalents of $2.60 billion compared with $3.12 billion as of Dec 31, 2019.

Net cash used in operating activities was $223.7 million in the reported quarter compared with $17.8 million in the year-ago period.

Zacks Rank & Stocks to Consider

Sea currently carries a Zacks Rank #3 (Hold). Anaplan PLAN and NVIDIA NVDA are some better-ranked stocks in the broader computer and technology sector. While Anaplan sports a Zacks Rank #1 (Strong Buy), NVIDIA carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA and Anaplan are set to report quarterly results on May 21 and 26, respectively.

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