Sea Ltd shares jump 41% after renewed focus on profitability

Sea Limited logo seen displayed on a smartphone screen.

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Shares of Sea Limited jumped 41% following the announcement of its third-quarter financial results on Tuesday, after the company said it would renew its focus on profitability rather than outright growth.

In early morning Asia time, the stock was trading at around $62.70 after hours. Its previous close was $45.80.

“Given the significant uncertainties in the macroeconomic environment, we have completely shifted our mindset and focus from growth to achieving self-sufficiency and profitability as soon as possible, without depending on any external funding,” said Forrest Li, Chairman and CEO of Sea Group. Limit.

Shares of Sea Ltd are down more than 70% since the start of the year. The company owns online shopping platform Shopee and gaming arm Garena, two of its major money-making divisions.

The company fell deeper into the red in the third quarter ending in September, when the adjusted EBITDA loss was $358 million. This compares to the loss of $166 million in the same period last year. EBITDA is a measure of profitability that shows earnings before interest, taxes, depreciation and amortization.

In a bid to stem losses, the Singapore-based tech giant has laid off more than 7,000 employees, or about 10% of its workforce, in the past six months, according to local media.

In September, its senior management also announced that it would waive salaries “until the company achieves self-sufficiency”.

E-commerce and fintech see revenue increase, but gaming declines

The e-commerce and financial services units recorded a year-over-year increase in EBITDA for the third quarter ending in September, but were offset by a disappointing performance in game sales.

Shopee’s adjusted EBITDA loss was $495.7 million, improving 27.5% year-over-year, “due to strong revenue growth and operating cost efficiency improvements”.

“We are currently working towards achieving adjusted EBITDA breakeven point for Shopee as a whole by the end of 2023,” Li said.

EBITDA loss from its digital financial services unit, which includes Shopee Pay and its buy now, pay later service SPAyLater, narrowed to $67.7 million, a 57.4% improvement from a year ago, “primarily due to more focused sales and marketing spend for the mobile wallet business.”

Cramer Flash Round: I prefer Sea Limited to Coupang

Meanwhile, its games arm Garena saw adjusted EBITDA drop about 60% year-over-year to $289.9 million for the third quarter.

“Garena plans to launch new games,” Li said at the press conference. Free Fire, a global hit, struggled after India banned the game in early 2022.

The sea has also fallen his Garena’s expected full-year 2022 bookings would be between $2.6 billion and $2.8 billion, compared to previous guidance of between $2.9 billion and $3.1 billion dollars, due to “increasing macroeconomic uncertainties”.

Reduce expansion

Sea said it did not intend to provide 2023 guidance for its business, given continued macroeconomic uncertainties.

The Singapore-based company has faced several setbacks this year, including investor Tencent Holdings the reduction of its stake in the company, the banning of the Free Fire gaming app by India and the closure of Shopee’s operations in Latin America, including markets in Argentina, Chile, Colombia and the Mexico.

The tech company also pulled out of India and France to focus on key markets in Brazil, Southeast Asia and Taiwan in March.

The revenues of Sea Ltd.  in the first quarter exceed estimates, but losses increase

“Brazil continues to be a growing market and we will continue to invest in the market,” Li said on the conference call.

After these setbacks and billions in accumulated losses, she realized that chasing after growth was not a sustainable strategy. Sea’s adjusted EBITDA loss for fiscal 2021 was $593.6 million, compared to adjusted EBITDA profit of $107 million in 2020.

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