Sea in $13.6 billion wipe-out lays hard road back from tech crash

SINGAPORE - Sea’s historic 29 per cent tumble on Tuesday erased close to US$10 billion (S$13.6 billion) from its market value, wiping out a quarter of co-founder Forrest Li’s fortune overnight while darkening the shopping and gaming leader’s prospects.

South-east Asia’s largest Internet firm recorded its biggest single-day plunge after

reporting revenue that missed analysts’ estimates

, a rude check to a company that overhauled its business to focus on profitability just months ago.

In a surprise shift, Mr Li told analysts on Tuesday that Sea intends to boost investment in the hyper-competitive e-commerce arena, which may result in losses for Shopee and the group as a whole going forward.

Investors did not take that well. The resultant sell-off erased US$1 billion from Mr Li’s net worth, valued mainly based on his stake and options in the firm, according to the Bloomberg Billionaires Index.

Mr Li, once Singapore’s richest person with a US$20 billion hoard, is now worth US$2.9 billion. Mr Gang Ye and Mr David Chen, Sea’s co-founders, lost a combined US$700 million. Mr Ye’s wealth currently stands at about US$1.9 billion while Mr Chen lost his billionaire status.

The question now is whether Mr Li’s manoeuvre will help Sea tackle aggressive competition from Alibaba Group Holding’s Lazada as well as new entrants such as ByteDance’s TikTok, whose live-streamed shopping bonanzas are winning over users in key markets such as Indonesia. The risk is that Sea, which reported losses for more than a decade after its founding in 2009, will sink back into the red after just three profitable quarters.

“There is a lack of visibility on the investment’s effectiveness,” Citigroup analyst Alicia Yap said in a note, downgrading the stock to neutral from buy. “A brutal battle could be just starting.”

The unprecedented retreat in Sea’s stock reversed much of the progress made since late 2022 and again put the Singapore-based company on the back foot.

Once the world’s best-performing stock, the company’s capitalisation now stands at US$23 billion – down about US$180 billion from a November 2021 peak when Sea and other Internet shares globally were surging.

Mr Li’s comments spooked investors long accustomed to watching price-based competition wipe out margins. Sea in 2022 embarked on an

aggressive cost-cutting drive

to reach profit, pivoting to a focus on the bottom line as revenue growth decelerated from the triple-digit percentage rates of just two years ago. The company froze salaries and slashed hundreds of millions of dollars in sales and marketing expenses to achieve positive cash flows.

Sea’s second-quarter sales rose just 5.2 per cent to US$3.1 billion, trailing the US$3.2 billion analysts estimated on average. Its e-commerce arm Shopee increased sales 21 per cent – the slowest pace on record. Alibaba grew its international commerce business 41 per cent in the June quarter.

To jumpstart growth, Mr Li now intends to ramp up investments in Shopee. He is stepping up efforts to build out its live-streaming arm, an offensive move that could erode margins and trigger a price war with TikTok and Alibaba.

Mr Li is trying to reassure investors those efforts are necessary to defend its market share against rivals.

Sea has been growing its live-streaming feature, rolling out several campaigns in Indonesia, he said on Tuesday. “We have also broadened our assortment of products for our core categories, such as fashion, health and beauty, to further enhance our competitive moat in the long term,” he said.

Whether that is enough remains to be seen. Beyond deep-pocketed competitors Alibaba and ByteDance, local rivals such as GoTo Group are also piling the pressure on Sea. GoTo, owner of Indonesian e-commerce contender Tokopedia, on Tuesday said its net revenue almost doubled in the latest quarter.

Investor confidence “has been hammered, and the share price is likely to be range bound”, Ms Yap wrote. BLOOMBERG