Sea Investors Look to First Earnings Since IPO for GrowthBy
The Singapore-based company will release its first financial report Wednesday, with sales expected to reach $94.5 million in the three months ended September, according to the average of analysts’ estimates, as the company builds on its core games business. That’s a 4.4 percent increase from a year earlier, according to data compiled by Bloomberg.
Sea is counting on growth at the Garena games business to remain strong and fund investment in e-commerce that has led to wider losses. The company, which also has digital payments, counts Chinese powerhouse Tencent Holdings Ltd. among its biggest investors and distributes the WeChat owner’s titles in the region. Analysts are bullish on the stock, with five of the six tracked by Bloomberg recommending buying Sea shares, while Morgan Stanley has the equivalent of a hold.
“Digital entertainment growth should accelerate in the second half of this year amid new title releases such as Arena of Valor, in partnership with Tencent, and as it begins recognizing record deferred revenue,” Bloomberg Intelligence analysts Matthew Kanterman and Andrew Eisenson wrote Nov. 16. “E-commerce sales should continue ramping up amid early monetization efforts.”
The net loss for the quarter is expected to be $156.6 million, according the average estimate of three analysts surveyed by Bloomberg News. That compares with a year-earlier loss of $65.6 million.
Sea’s share price has bounced around since their New York debut. After selling stock in the IPO at $15 apiece, shares surged 8.4 percent on the first day of trading, rising to an intraday high of $16.99. It has since fallen to as low as $13.62 before closing Friday back at the IPO price, giving the company a market valuation of $4.9 billion. Sea’s American depositary receipts rose 3.3 percent to $15.49 in New York Monday.
The Garena games business still accounts for more than 90 percent of total revenue, with the titles offered for free but Sea getting revenue when players buy virtual items like armor, weapons or special skills. The e-commerce business makes money from commissions and advertising, while collecting fees from payments.
“Strong growth potential in Southeast Asia, arising from increasing smartphone penetration and per capita GDP, has set Sea on a promising course for growth,” Morgan Stanley analysts led by Grace Chen said in a Nov. 14 report. “But its cash burn from e-commerce, coupled with intensifying competition, lead us to rate it equal-weight.”
Sea was founded by Forrest Li as an online gaming company in 2009 under the Garena name before he rebranded to reflect its regional ambition and diversification. Sea branched out with a digital payments service called AirPay in 2014 and the mobile shopping business Shopee in 2015.
The e-commerce unit competes in Southeast Asia with Lazada Group SA, a rival controlled by Chinese behemoth Alibaba Group Holding Ltd.