SINGAPORE - Shares of Sea soared in US trading after it reported a surprise profit on Tuesday, energising investors who had hoped the gaming and e-commerce giant would pull off one of the biggest turnaround efforts the region’s fledgling tech sector has ever witnessed.
The stock gained 22 per cent on Tuesday to close at US$80.06, adding US$8 billion (S$10.8 billion) to its market value after the Singapore-based company said net income was US$426.8 million in the fourth quarter, helped by drastic cost reductions. Analysts expected a loss of US$434 million on average.
Sea’s stunning 22 per cent pop tacked on more than US$900 million to the personal wealth of founder Forrest Li, a vindication for the China-born Internet tycoon who presided over the worst year in his company’s history.
That means Mr Li is now worth about US$5.3 billion, according to the Bloomberg Billionaires Index, putting him back on par with peers such as Kakao’s Mr Brian Kim and Shein impresario Gu Xiaoqing.
The initial optimism belies the scale of the task ahead for Mr Li, a gaming enthusiast who in 2009 founded a company that has come to symbolise South-east Asia’s internet ascendancy.
At the time, investors piled into the company, which is backed by Chinese Internet giant Tencent Holdings, briefly making it the world’s best-performing stock. Then came a post-Covid-19 hangover, when fears of a global recession wiped out more than US$160 billion of its value from a 2021 peak of more than US$200 billion. Sea fired thousands, froze salaries and pledged to rein in spending.
Much of the profit reported on Tuesday came from brutal cost cuts – a more than US$700 million reduction in marketing expenses alone – and on-paper gains from the way it accounted for debt and certain types of expenses. During a post-release conference call, several analysts questioned whether the company had a plan to rejuvenate growth – suggesting concerns about whether a pullback in spending might jeopardise the top line in the future.
Sea still faces deep-pocketed competitors in all of its main businesses, from Alibaba Group Holding’s Lazada to TikTok Shop in e-commerce and a slew of up-and-comers in digital finance. Revenue at Sea’s gaming unit fell 33 per cent during the fourth quarter, suggesting consumers remain unwilling to spend on entertainment while basic living costs are soaring.
And while its e-commerce division, underpinned by regional mall Shopee, grew revenue by 32 per cent, gross merchandise value climbed just over 7 per cent on a constant currency basis.
For now, investors are celebrating Sea’s getting into the black – something it would have achieved even after stripping out the one-time gains.
Mr Li, who has vowed to forsake his salary until his company stabilises, warned on Tuesday the macroeconomic environment remained murky and Sea was ready to adjust its approach if needed.
But the billionaire – who years ago named himself after the eternally optimistic iconic movie character played by Tom Hanks – also expressed confidence of a turnabout in 2023 because of growing Internet penetration across the region.
“It has not been an easy journey,” Mr Li told analysts on Tuesday’s call. “We took the hard path, but we believe this is the right path to achieve long-term success.” BLOOMBERG