Shares of Sea Limited (SE, Financial) are soaring today, up 11%, even after the Southeast Asian e-commerce, gaming, and financial services giant reported its sixth consecutive earnings miss in Q2. Over a year ago, SE shifted its focus from profitability to securing its competitive position for its e-commerce platform, Shopee, as rivals started to encroach on its market share. Consequently, the 74% drop in EPS year-over-year in Q2 and the string of bottom-line misses were not surprising. Investors have instead been monitoring top-line growth and its performance relative to competitors.
Key Highlights:
- SE posted a 23% year-over-year sales growth in Q2, reaching $3.81 billion, surpassing analyst estimates for the fourth consecutive quarter. Gross merchandise volume (GMV) increased by 29.1% year-over-year, driven by a 40.3% rise in gross orders. SE noted that retail and consumer spending trends remain healthy across the region.
- SE highlighted Shopee's strong market share in Southeast Asia, noting a significant lead over competitors. The company observed market share consolidation and an industry-wide increase in take-rates. SE projected positive adjusted EBITDA for Shopee starting in Q3 and continuing thereafter. The company also raised Shopee's 2024 two-year GMV growth rate to the mid-20s.
- Shopee's recent success is attributed to initiatives like enhancing price competitiveness, which partly explains the sharp earnings contraction.
- With Shopee on the verge of profitability, SE is now focusing on increasing its advertising take rate, which is currently below the industry average for a mature e-commerce firm. SE has been enhancing its ad platform to attract more sellers, leading to a 20% year-over-year increase in the number of sellers paying for ads.
- SE's other divisions, Digital Financial Services and Digital Entertainment, also showed solid growth. Financial Services revenue grew by 21.4% year-over-year, driven by SeaMoney. Digital Entertainment saw a 21.1% year-over-year increase in bookings, doubling the growth rate from Q1, supported by the popular game Free Fire, which has over 100 million daily active users.
Despite weak bottom-line performance in the short term, SE's Q2 results have been sufficient to sustain its rally, with shares up around 30% from last week's intraday lows. SE reiterated its focus on long-term profitability through its strategic initiatives around Shopee and the strong demand landscape in Southeast Asia, which appears to be materializing in Q3.
