Sea’s market decline hits US$132 billion as gaming arm faces slowdown

Sea expects e-commerce sales to rise to US$8.9 billion to US$9.1 billion in 2022. PHOTO: SEA LIMITED

SINGAPORE (BLOOMBERG) - Sea Ltd., once the hottest stock in the world, has lost more than US$130 billion in market value from its peak last year after a disappointing earnings report that added to its woes. 

The Singapore-based company gave a muted forecast for its digital entertainment unit and its shares fell 13 per cent in U.S. trading. That cut US$11 billion from its market valuation, pushing its total decline to US$132 billion from its high in October.

Investors balked as the mobile gaming company forecast US$2.9 billion to US$3.1 billion in bookings at its digital gaming arm, set to be its first decline ever. That compares with last year’s bookings of US$4.6 billion. 

Sea said it expects e-commerce revenue growth to continue unabated as it expands in Latin America, trying to reassure investors after losing half its market value in a matter of months.

The Singapore-based company expects e-commerce sales, its main source of revenue, to rise to US$8.9 billion (S$12.1 billion) to US$9.1 billion this year from US$5.1 billion last year, according to its statement on Tuesday.

Bookings at Sea's other major business, the gaming division, which is facing headwinds in India, are set to decline for the first time ever.

Total revenue in the fourth quarter more than doubled to US$3.2 billion. Net loss widened to US$617.6 million from US$523.6 million as Sea spent more to gain market share in new geographies.

Sea is trying to cement its early success in Brazil, where it launched its online shopping business in 2019. Still, the company is facing intense competition from Latin American e-commerce giant MercadoLibre.

Meanwhile, the online-shopping arm is pulling out of France, retreating from a major market just months after launching its maiden foray into Europe. The unit, Shopee, will focus on South-east Asia, Taiwan and Brazil, Sea said.

Other markets are unaffected, said Shopee in a statement on Wednesday (March 2). “Following a short-term, preliminary pilot, we have decided not to continue the Shopee service in France... we continue to adopt an open-minded and disciplined approach to exploring new markets,” it added.

ST understands that the pilot had been a small scale trial.

Sea pulling out of a market where they see dim hopes after a pilot is a good sign, said DBS Bank analyst Sachin Mittal. “It reflects a more disciplined approach with focus on profitability,” he added.

It will take much more than the French market departure to have a significant repercussion on Sea, said Associate Professor Lawrence Loh from the National University of Singapore (NUS) Business School.

Acknowledging that the French online retail market is probably a challenging and unique setting for any foreign players to enter, Prof Loh added that consumer behaviour in the French retail market may be different as many still prefer to shop in physical retail shops.

“While the Free Fire issue is still being settled in India, Sea is fundamentally still a strong company. It has core strengths in its products, technologies and human capital, particularly leadership,” he said.

Business at Shopee surged during the coronavirus pandemic, with 2021 sales more than doubling as shoppers moved online. Sea went public in 2017 and quickly became the most valuable company in South-east Asia. It briefly surrendered that position last week amid a broader tech selloff and concerns about India's abrupt ban on its most popular mobile gaming title, Free Fire.

While its digital entertainment booking outlook isn’t entirely unexpected due to slowing user growth and taking into consideration the negative impact from fast growth market India, the magnitude of the decline was still a shock, Citigroup Inc. analysts wrote in a note.

Gross merchandise value, the sum of transactions across its e-commerce platforms, rose 77 per cent to US$62.5 billion last year.

Sea forecasts US$2.9 billion to US$3.1 billion in bookings at its digital gaming arm, saying online activity will moderate as economies reopen after the pandemic. That compares with last year's bookings of US$4.6 billion.

"We have taken into consideration" the market opening and "unexpected government actions" in India, Ms Yanjun Wang, Sea's group chief corporate officer, said on a conference call. "That means we are giving back some of the gains we made partially during Covid-19 and with additional discounts to reflect the situation in India, which is highly uncertain. At this point, given the uncertainty we are facing, it's probably more art than science for us."

Additional reporting by Rosalind Ang 

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