Sea Ltd.’s E-Commerce Unit Returns to Profitability, Stock Soars
A Turning Point for Shopee
Sea Ltd.’s stock has reached its highest point in over two years, driven by the company’s e-commerce business returning to adjusted profitability. This milestone marks a significant turning point for Shopee, Sea’s online retail arm, as it faces intense competition from Chinese rivals Alibaba Group Holding Ltd. and ByteDance Ltd.’s TikTok.
Strong Q3 Results Boost Confidence
The Singapore-based company reported impressive Q3 results, with overall net income exceeding estimates at $153.3 million and a 31% increase in revenue to $4.3 billion. These figures alleviate concerns about Shopee’s prospects, particularly in Southeast Asia, where it is battling for dominance.
Gaming Unit Supports E-Commerce Growth
Sea’s smaller but more profitable gaming unit, Garena, has been instrumental in supporting the company’s finances as it builds out its e-commerce operations. The volatile e-commerce market has led to fluctuations in Sea’s share price, but the company is now focused on convincing investors of its long-term earnings potential.
Confidence in Merchant Retention
Despite fierce competition, Sea has raised commissions for merchants in many core markets by about a third since the start of the year. This move demonstrates the company’s confidence in its ability to attract and retain merchants, thanks to its broad user base and well-established delivery services.
E-Commerce Gross Merchandise Volume Soars
Shopee’s e-commerce gross merchandise volume climbed 25% to $25.1 billion in Q3, exceeding estimates. The company expects to reach a billion active users for e-commerce, although no specific timeframe has been given.
Analysts Weigh In
UOB Kay Hian analysts have raised their price target for Sea’s stock and maintained a buy rating, citing Shopee’s leadership in Asian markets and the positive impact of recent commission hikes. Citigroup analyst Alicia Yap praised the company’s operating efficiency and management execution in balancing growth and profitability.
Expanding Profitability
Sea’s profit is expected to expand further as its game-publishing business recovers and its e-commerce unit continues to improve. A strong player base in its Free Fire game and a shift toward local marketplace models are expected to drive digital entertainment segment bookings higher. Additionally, financial services are expected to provide an additional profit boost.
International Expansion
Beyond Southeast Asia, Shopee is gaining traction in Brazil, where the number of average monthly active buyers grew by nearly 40% year-on-year last quarter. The company has broken even in this market on an adjusted Ebitda basis, marking a significant milestone in its international expansion.
Leave a Reply