Sea Ltd, the Singapore-based tech giant that operates e-commerce platform Shopee, gaming arm Garena, and digital payments service SeaMoney, saw its market value plunge by more than $10 billion on Monday, after reporting disappointing second-quarter earnings. The company’s shares fell by 23% to close at $40.59, the lowest level since November 2022. The stock has lost more than half of its value since reaching a record high of $92.35 in March 2023.
What Went Wrong for Sea Ltd?
One of the main reasons for Sea Ltd’s dismal performance was the slowdown in its gaming business, which accounts for more than half of its revenue. The company’s flagship game, Free Fire, a battle royale shooter that has been a hit in emerging markets, faced increased competition from rivals such as PUBG Mobile and Call of Duty Mobile. Sea Ltd reported that its quarterly active users for digital entertainment declined by 8% year-on-year to 725.5 million, while its quarterly paying users dropped by 11% to 79.8 million.
Another factor that dragged down Sea Ltd’s earnings was the rising cost of expanding its e-commerce and fintech segments, which are still operating at a loss. The company’s sales and marketing expenses surged by 147% year-on-year to $1.2 billion, while its general and administrative expenses jumped by 101% to $582.4 million. Sea Ltd’s operating loss widened to $684.4 million, compared to $436.9 million a year ago.
The company also faced regulatory uncertainties in some of its key markets, such as India and Indonesia, where it has been investing heavily to grow its user base and market share. In India, the government has imposed stricter rules on foreign e-commerce players, such as requiring them to disclose the country of origin of their products and limiting their flash sales and discounts. In Indonesia, the central bank has tightened its oversight on digital payment providers, requiring them to obtain licenses and comply with minimum capital requirements.
How Will Sea Ltd Recover from the Setback?
Despite the disappointing results, Sea Ltd remains optimistic about its long-term prospects and growth potential. The company raised its full-year guidance for e-commerce revenue by 4.5% to $15.5 billion, and for digital entertainment bookings by 2.6% to $6 billion. The company also announced a $7.2 billion equity and convertible bond offering, which it plans to use for strategic investments and potential acquisitions.
Sea Ltd’s CEO Forrest Li said that the company is confident in its ability to capture the opportunities in its markets, which are still underpenetrated and have huge room for growth. He said that the company will continue to invest in innovation and user experience, as well as in expanding its product offerings and geographic reach.
Some analysts also remain bullish on Sea Ltd’s outlook, citing its diversified portfolio of businesses and strong competitive position in Southeast Asia and beyond. They believe that the company’s gaming business will rebound from the temporary weakness, as it launches new titles and updates for its existing games. They also expect that the company’s e-commerce and fintech segments will benefit from the increasing adoption of online shopping and digital payments, especially amid the Covid-19 pandemic.