Analysis

Sea Limited Posts Mixed Q1 2024 Results

Sea sees all three main segments reporting double-digit top-line growth, but it’s still posting losses on the bottom line.

Sea Limited (SE 3.74%), a growing player in digital entertainment, e-commerce, and digital financial services, released its first-quarter results for 2024 on May 14. The report showcased a mix of strong growth metrics tempered by profitability challenges.

The tech company reported double-digit percentage revenue and bookings growth and operational adjustments made over the past year are reflected in its improved performance. It’s still reported a net loss for the quarter of $23 million, but the figure came close to expectations.

Still, the loss shows there are underlying hurdles to overcome if Sea is to achieve full-year profitability as management projected.

Metric Q1 2024 Q1 2023 Change (YOY)
Total revenue $3.73 billion $3.04 billion 23%
Net income (loss) ($23 million) $87.3 million N/A
E-commerce GMV $23.6 billion $17.4 billion 36.3%
E-commerce revenue $2.7 billion $2.1 billion 33%
Digital financial services revenue $499 million $413 billion 21%
Digital entertainment bookings $512.1 million $462.3 million 11%

Data sources: Company results from Sea Limited. YOY = Year over year. GMV = Gross merchandise volume. EBITDA = Earnings before interest, taxes, depreciation, and amortization.

Company overview

Sea Limited is a tech conglomerate with three main business units: Garena in digital entertainment, Shopee in e-commerce, and SeaMoney in digital financial services. Formed in Singapore, Sea has rapidly expanded across Southeast Asia and other key international markets.

Recently, Sea adjusted its focus to enhance its ecosystem where each segment complements the others. Management emphasizes the importance of synergistic growth across e-commerce, digital financial services, and gaming to drive user engagement and platform efficiency.

Sea’s first-quarter highlights

Shopee, the e-commerce arm, significantly exceeded GMV growth expectations in Q1, underpinned by efficient logistics and increased market penetration. Gross orders grew 56.8% to 2.6 billion, and gross merchandise value (GMV) rose by 36% to $23.6 billion. Shopee’s adjusted EBITDA posted a loss of $21.7 million, down from last year’s profit of $207.7 million. This reflects pressures on short-term profitability amid expansion efforts.

Digital financial services also maintained its double-digit percentage growth trajectory, benefiting from prudent risk management and service expansion. SeaMoney revenue of $499.4 million was up 21% year over year. Its adjusted EBITDA rose by 50.3% to $148.7 million, driven by higher loans outstanding, which increased to $3.3 billion from $2.5 billion. Risk management remained a focus, with non-performing loans past due by more than 90 days staying steady at 1.4%.

The Garena digital gaming business has been a weak spot over the past few years, but it grew bookings by 11% year over year in Q1. Garena’s Free Fire mobile game has regained its title as the most downloaded game in the world. Garena showcased resilience with growth in user engagement as well. Garena remains the most profitable business segment with $292 million in adjusted EBITDA in Q1 from $458 million in revenue.

Sea narrowly missed expectations on the bottom line, but with sales growth of over 20% and other profitability metrics trending in the right direction, the market will attribute the loss to expansion costs. The e-commerce segment’s path to profitability remains in flux but shows promising improvement. Further adjustments in operational efficiency across Sea’s portfolio are vital to overcoming these challenges.

Noteworthy events during the quarter included further development of SPX, Sea’s logistics solution, aimed at cost reduction and service enhancement. Additionally, the company made strategic investments to bolster its position in key markets, particularly in digital financial services with SeaMoney.

Looking forward

Sea’s management remains optimistic about achieving profitability for the full year. The guidance was reiterated without any alterations following the Q1 results, showing confidence in the year’s outlook. Key factors will include continued investment in user acquisition for SeaMoney and further enhancements in Shopee’s services.

Investors should keep an eye on future developments in Garena’s deferred revenue recognition and Shopee’s profitability trajectory. Garena aims to keep updating content and features for Free Fire to sustain high user engagement. Shopee’s continued focus on improving logistics will also be crucial.

JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Sea Limited. The Motley Fool has a disclosure policy.

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