Sea Ltds Adjusted Revenue Up 93.4%, Net Losses Widen In Q2

New York-listed consumer internet company Sea Ltd reported a 93.4 per cent rise in its total adjusted revenue for the second quarter of 2020 to $1.29 billion, buoyed by the strong performance of its digital entertainment and online shopping divisions.

The Singapore-headquartered company’s net losses in the three months ended June widened to $393.5 million in Q2 from $280.1 million during the same period in 2019.

The company posted a gross profit of $200.8 million, up 106.1 per cent year-on-year while total adjusted EBITDA was $7.7 million compared to -$11 million in Q2 2019.

Sea attributed the net losses in the second quarter to a net income tax expense of $27.8 million. The tax expense in Q2 was primarily due to withholding tax and corporate income tax expenses incurred by its digital entertainment segment.

The company’s digital entertainment arm Garena reported revenue of $716.2 million, up 61.6 per cent from a year ago, and an adjusted EBITDA of $436.2 million, up 65.4 per cent year-on-year.

Shopee, its e-commerce unit, also recorded sterling performance in Q2 with adjusted revenue soaring 187.7 per cent to $510.6 million. This included $387 million in marketplace revenue and $131.9 million in product revenue, according to the latest financial report.

Sea has become the world’s best-performing large-cap stock over the 18 months to August, with an 880 per cent rally. Its stock rose 8.7 per cent after it reported strong topline numbers for the second quarter on Tuesday.

Garena continues to soar

The earnings report showed that Garena continues to record accelerated growth in adjusted revenue, active user, and paying user metrics in the second quarter.

Quarterly active users (QAU) reached 499.8 million, up 61 per cent year-on-year, with average adjusted revenue per user steady at $1.4.

Its self-develop game, Free Fire, hit a new peak with daily active users (DAU) of more than 100 million, compared to more than 80 million announced in Q1. The game also ranked third globally by downloads for Google Play in the mobile games category during the said period.

“Garena had another excellent quarter and achieved several historical highs,” Sea Ltd Chairman, Group CEO, and Co-Founder Forrest Li said during the earnings call.

“We reached more people than ever before, with close to 0.5 billion active users around the globe, playing Garena games during the quarter,” he added.

For the entire year, Sea continues to see growth on the gaming side across Southeast Asia, Latin America, and the frontier market where it has a strong footprint in.

Shopee maintains lead

As people turn to online shopping during the coronavirus pandemic, Sea Ltd’s e-commerce unit, Shopee, posted robust growth, with gross orders totalling 615.9 million, growing 150.1 per cent year-on-year.

Shopee’s adjusted revenue as a percentage of the total gross merchandise value (GMV) increased to 6.4 per cent in the second quarter. In Indonesia, where Shopee is the largest e-commerce platform, it registered over 260 million orders in Q2, or a daily average of over 2.8 million orders, up 130 per cent from a year earlier.

Moreover, gross orders for Shopee Mall increased at an even faster pace of more than 210 per cent year-on-year as more and more global and local brands partner with the firm to cater to their increasing and evolving demand for online solutions.

“Our very strong results for the second quarter further demonstrate the constant deepening penetration of e-commerce and our ability to capture this growth,” Li said.

In the digital financial services space, Shopee said the adoption of its SeaMoney offerings rose in the second quarter, with its mobile wallet total payment volume exceeding $1.6 billion. The mobile wallet services also surpassed 15 million quarterly paying users. Indonesia is the largest market for SeaMoney.

Sea Ltd further integrated the mobile wallet services with Shopee. It said more than 45 per cent of gross orders in Indonesia last month were paid using SeaMoney.

“We will continue to invest efficiently in skilling up the SeaMoney business to solidify our leadership position across our markets,” Li added.

The group sees “very strong tailwind” on the e-commerce side and expects Shopee’s growth continuing into the third quarter.

Chief Corporate Officer Yanjun Wang said that while social distancing and strict lockdown were lifted in the middle of the second quarter, Sea continues to see “very strong momentum” in e-commerce adoption.

No more adjusted revenue

Sea also announced it will discontinue the use of adjusted revenue beginning with its earnings release for the third quarter of 2020. In place of adjusted revenue, the company said it will begin disclosing the operating metric “bookings” for its digital entertainment segment.

For its e-commerce, digital financial services, and other services segment, Sea will no longer provide a corresponding metric. The quarter will also be the latest in which Sea will report adjusted revenue.

Instead, Wang said the company will be reporting GAAP revenue for its gaming, e-commerce, and other segments. For gaming, for instance, the company will be using bookings as the operating metric going forward. For e-commerce, Sea will continue to provide sales incentive net-off to add back to the GAAP revenue.