Sea's Loss Widens on Boost in Spending for E-Commerce Push

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  • Shopee made up 78 percent of sales and marketing expenses
  • Initial public offering in October providing cash cushion

Sea Ltd., the parent of gaming company Garena, reported that its loss more than doubled in the third quarter on surging marketing costs at mobile-shopping unit Shopee.

In its first earnings announcement as a public enterprise, the Singapore-based gaming and e-commerce company said its net loss was $132.8 million, compared with $65.6 million a year earlier and the $156.6 million loss projected, on average, in a survey of three analysts. Total consolidated revenue rose 3.9 percent to $94.1 million in the period through Sept. 30, in line with predictions.

Founder and Chief Executive Officer Forrest Li is relying on a steady flow of revenue from Sea’s online gaming business to fund investments in e-commerce and digital payments. While concerns about profitability loom, the company’s initial public offering in New York raised about $884 million after Sea pitched itself as an emerging growth company with operations in Southeast Asia and Taiwan.

“The market share does turn into monetization,” Sea President Nick Nash said in a conference call, adding that Shopee is now the largest e-commerce firm in Taiwan and Indonesia in terms of daily orders. “We want to grow this orchard in a patient way. There is no point trying to grow a Christmas tree in three months.”

Read more: How Sea is still acting like a startup.

Sea’s American depositary receipts fell 1.9 percent in extended trading. They fell 4.6 percent to $14.78 at the close in New York Tuesday, before the results were released. The share price has fluctuated since the public debut. After selling stock in the IPO at $15 apiece, it jumped 8.4 percent on the first day of trading, before falling as low as $13.73.

Sea said sales and marketing expenses more than doubled from a year earlier to $131.6 million, with 78 percent of that devoted to Shopee. Sea is forecasting Shopee’s gross merchandise value to reach $3.8 billion to $4 billion in 2017. Shopee’s third-quarter GMV was $1.1 billion, up from $333.3 million a year earlier.

“As GMV nears $4 billion and possibly doubles again next year and as monetization efforts expand to the rest of its markets of operations, it should begin turning closer to profitability in the e-commerce business,” said Matthew Kanterman, a Bloomberg Intelligence analyst.

About 85 percent of Sea’s total revenue during the third quarter came from the games unit, Garena, with the rest coming from the e-commerce and digital payments business. Sea had $581.5 million in cash and cash equivalents at the end of September, which doesn’t include proceeds from the IPO held in October. 

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