Fall of world’s hottest stock costs Sea founders US$32 billion

Mr Forrest Li is now worth just a little more than US$3 billion as Sea shares have slid 87 per cent from their peak. PHOTO: SINGAPORE NATIONAL OLYMPIC COUNCIL (SNOC)

SINGAPORE – Sea’s pain was supposed to be short term.

The maker of wildly successful battle royale game Free Fire knew that the pandemic-fuelled boost in users was over, but chief executive officer Forrest Li was still optimistic earlier in 2022 that problems would be short-lived. He considered his company to be internally strong and had taken steps to maximise long-term potential – including spending more on growth. 

Instead, Sea is now dealing with an economic slowdown and surging inflation, as well as intensifying competition and a broader tech sell-off. The gaming and e-commerce giant has slashed jobs, shuttered operations in some European and Latin American markets, and reduced expenses.

After a brief moment in 2021 as Singapore’s richest person with a US$22 billion (S$30.2 billion) fortune, Mr Li’s wealth has plummeted, according to the Bloomberg Billionaires Index. He is now worth just a little over US$3 billion as Sea shares have slid 87 per cent from their peak.

Co-founders Gang Ye and David Chen are down a combined US$13.5 billion, with Mr Ye’s wealth – once US$12 billion – now about US$2 billion and Mr Chen no longer a billionaire. 

Along with other top executives, the three have given up their salaries until the company reaches “self-sufficiency”, without specifying when that might be.

It is a stark reversal for what once was the world’s hottest stock. Now, analysts estimate Sea’s quarterly loss will widen when it posts results on Tuesday.

“Challenges are abundant,” said head of research Ke Yan at Singapore-based DZT Research. “It has to prove that e-commerce can be profitable. Then it needs to show that it is able to launch more hit games to drive the growth in the gaming segment. It is not conclusive for now.”

Mr Li is among the billionaires whose wealth surged at an eye-popping rate during Covid-19 before crashing as the world moved on from the pandemic. Zoom Video Communications founder Eric Yuan, the father-son duo behind used-car dealer Carvana, and Moderna chief executive Stephane Bancel saw similar declines in fortunes. 

A native of Tianjin, China, Mr Li moved to Singapore after finishing an MBA at Stanford University and founded Sea – then called Garena – as an online games provider in 2009. 

Emboldened by the global success of Free Fire, the company branched out into e-commerce. Its Shopee platform is now driving growth, accounting for more than half of the US$2.9 billion in second-quarter revenue. In late 2020, Sea won a digital-banking licence in Singapore to accelerate its push into financial technology. 

But soon came a series of setbacks, just as Sea’s expansion led to mounting losses. In January, Tencent Holdings, its biggest backer, trimmed its stake and India announced the following month it would ban Free Fire. Shopee pulled out from the India market, as well as from France and Argentina, among others. 

A Sea representative declined to comment. 

While Mr Li was still optimistic in March, he has since changed his tone. He conceded in September that the current difficulties were not a “quickly passing storm” and are likely to persist into the medium term.

With weaker gaming demand and Shopee’s reduced reach, analysts estimate Sea’s adjusted loss before interest, taxes, depreciation and amortisation will widen to US$453.6 million in the third quarter, data compiled by Bloomberg shows. Revenue is projected to grow to US$3 billion from US$2.7 billion a year earlier.

Ark Investment Management founder Cathie Wood is among those who have exited: Three of her funds have been offloading Sea shares, with just one still holding the stock.

While the cost cuts show the company has put a new focus on profitability, investors will scrutinise Sea more closely than its regional peers because it is a more mature business, said Bloomberg Intelligence analyst Nathan Naidu.

Sea has been publicly traded since 2017, while ride-hailing and delivery firm Grab Holdings and Indonesia’s biggest tech firm, GoTo Group, listed only in the past year.

“Investors are potentially starting to look at Sea as less of a growth stock,” Mr Naidu said. “There’s a lot more pressure on Sea to achieve profits.” BLOOMBERG

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