(Bloomberg) — Sea Ltd. swung back to a loss in the third quarter, hit by flagging consumption and intensifying competition from Alibaba and TikTok on its home turf.
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The stock fell 13% in early New York trading — the biggest intraday decline in three months — after the company posted a net loss of $149 million, compared with a profit of $322 million the previous quarter. Southeast Asia’s largest internet firm reported a 4.9% rise in sales from a year earlier to $3.3 billion, versus the average estimate of $3.2 billion.
The results may stoke concerns that the US-listed company is sacrificing margins to stave off a charge from ByteDance Ltd.’s TikTok and Alibaba Group Holding Ltd.’s Lazada, or newer entrants such as PDD Holdings Inc.’s Temu. Sea plunged its most on record after founder Forrest Li declared in August his company will invest more in online retail arm Shopee and live-streaming to counter those platforms, which are appealing to younger shoppers.
“Sea’s investments in e-commerce unit Shopee, the reason it posted a loss after three profit-making quarters, may intensify,” Nathan Naidu, an analyst at Bloomberg Intelligence, said in a note. “The net loss might linger in the current quarter.”
Till recently, Sea’s strongest markets including Indonesia seemed under siege from TikTok and a new breed of video-oriented shopping services, which used popular influencers to sell a range of wares to an engaged, growing online population. But in September, Jakarta effectively forced TikTok to shut its shopping service, acting on a growing backlash from smaller merchants against the Chinese-owned platform.
Investors have been looking for clues since then on whether that abrupt exit will rekindle Sea. Before Indonesia, the market feared the Singaporean company — which reported more than a decade of losses after its 2009 founding — will sink back into the red. Compounding the situation are expectations that Southeast Asia’s internet economy will log its slowest growth on record this year, the result of an economic downturn with uncertain outcomes.
Sea’s other big business, the gaming division centered around Garena, has shrunk rapidly in 2023 given a lack of new blockbuster titles. But it recently said it would restore its marquee title Free Fire to Indian app stores after a surprise 2022 ban.
Read more: Sea, Grab Face Slowest Southeast Asia Online Growth in Years
What Bloomberg Intelligence Says
Marketing costs surged 12.4% year over year in 3Q, after declining for a fourth consecutive quarter in 2Q, vs. single-digit growth in gross merchandise value and revenue. Top-line growth should speed up in 4Q on incentive and marketing spending to entice shoppers and live-streamers, costs that could intensify as it regains lost market share and captures year-end shopping demand.
– Nathan Naidu, analyst
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Li’s company had overhauled its business to focus on profitability earlier this year. Sea embarked on an aggressive cost-cutting drive to reach profit, pivoting to a focus on the bottom-line as revenue growth decelerated from the triple-digit percentage rates it enjoyed as recently as two years ago. The company froze salaries and slashed hundreds of millions of dollars in expenses to achieve positive cash flows.
To jumpstart growth, Li said in August he intends to ramp up investments into e-commerce arm Shopee. He is stepping up efforts to build out its live-streaming arm, an offensive move that could erode margins and trigger a price war with TikTok and Alibaba. He argued that was necessary to defend its market share.
Beyond deep-pocketed competitors Alibaba and ByteDance, local rivals such as GoTo Group are also piling the pressure on Sea. GoTo, owner of Indonesian e-commerce contender Tokopedia, almost doubled its net revenue during the June quarter.
Read more: Sea’s Path to Profit Paved With Layoffs, Single-Ply Toilet Paper
(Updates with comment from analyst in fourth paragraph)
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