Singapore-based e-commerce and gaming giant Sea Ltd. on Tuesday reported a net loss of $434 million for the second quarter of this year, widening its loss by 10.2% from $394 million a year ago as spending on sales and marketing, and R&D rose significantly.
The NYSE-listed company booked revenues of $2.28 billion, up 159% from $882 million in the same quarter last year, driven by growth in its main business units — Shopee and Garena.
“The markets that Shopee operates in are highly diverse. The consistent trend we see is that the potential for future digitalisation remains high in our market,” said Sea’s founder Forrest Li in an earnings call.
Shopee’s revenues surge
Sea’s e-commerce segment Shopee accounted for the largest share of the group’s revenue. The unit raked in $1.16 billion in revenue, up 161% from $443 million a year ago. However, the division’s operating loss also widened from $345 million to $628 million in the same period.
Shopee’s Brazil operations, launched in late-2019, have been witnessing traction. Its app ranked first by downloads in the shopping category and total time spent on the app, said Sea Ltd citing App Annie data. The Shopee app also ranked second by average monthly active users in Q2 2021 in the Latin American nation.
Shopee also launched in Mexico in February this year and is set to launch in Chile and Colombia. It created social media pages targeted at these cities in June.
In an earnings call, Sea’s chief corporate officer Yanjun Wang said the company sees significant potential for growth in Latin America, despite incumbent MercadoLibre’s dominance. “These markets still have a very low level of e-commerce penetration,” she said, adding that the strategy to tackle the market is similar to what Sea has deployed in Southeast Asia.
Sea would focus on top performing categories – fashion, health and beauty, home and living, and long-tail high-margin goods, as well as attracting local businesses to join the platform, and being mobile-friendly and social-focused. Wang also noted that Shopee raised its take rate in Brazil to about 12% and 18% for certain sellers to adopt its free shipping programme.
Shopee said that it has become profitable on an adjusted EBITDA basis in Malaysia — the second geography in which it has clocked this achievement after Taiwan.
All’s well at gaming arm Garena
Garena continued to be the firm’s top performer in terms of profitability.
Unlike Shopee and the payments division SeaMoney, Garena is profitable and clocked $598 million in operating income — up nearly fourfold from $167 million a year ago. The unit clocked a revenue of $1.02 billion in the second quarter this year, compared with $384 million in the same quarter last year.
The number of users active on Garena’s platforms has also gone up by 45% to 725 million in Q2 of this year. The pool of users who pay on Garena has also expanded by 85% to 92 million in the period. Quarterly paying users now account for 12.7% of all players, compared with 10% in the same period last year.
Its top-performing game title Free Fire hit over 1 billion downloads on Google Play. It also ranked third globally by average monthly active users for mobile games on Google Play in Q2 2021, and was the highest-grossing mobile game in Southeast Asia, Latin America, and India in the same period, according to App Annie data.
According to analytics firm Sensor Tower, Garena’s mobile shooting game Free Fire overtook Tencent’s PUBG Mobile as the top battle royale game in the US in the first quarter of this year, after it generated about $100 million in revenue while Tencent’s game made $68 million.
Garena made small investments in foreign mobile gaming studios this year. It led a €3 million ($3.5 million) seed round in Spanish mobile game developer UnusuAll, and also invested in San Francisco-based Double Loop Games, and France-based PopScreen Games in January 2021.
Fintech arm in the red
Sea’s digital payments business SeaMoney, which runs the ShopeePay wallet, logged an operating loss of $160 million, widening from $99.2 million in Q2 2020. Revenues in the division stood at $89 million in Q2, compared with $11.7 million in the year-ago period.
Total payment volume rose 150% year-on-year to $4.1 billion in the second quarter of this year.
Profitability
As a group, Sea’s expenditure rose sharply. Operating expenses grew to $1.26 billion in the second quarter of this year, compared with $574 million in the same quarter last year as it spent more on sales and marketing, and R&D.
Sales and marketing expenses increased by 139% to $921.4 million in the second quarter of this year, from $386.3 million a year ago. The company said it spent more on esports events-related expenses to deepen its ties with the gaming community, and e-commerce marketing incentives to capture the market during a period where there were many holidays.
“It is more of a managed outcome as we look at market opportunities,” Wang said. During the holiday periods, for instance, “investment for growth …is very efficient.”
Without giving specifics, Wang said the second quarter saw a significant increase in the number of sellers advertising on their platform, but added there is still more room for growth. “[It’s] still very early stage for us. I think advertisement take rate is still slow.”
R&D expenses also increased by 129% to $172.6 million in the second quarter of 2021, up from $75.3 million in the second quarter of 2020 as the group ramped up hiring.
Sea’s lack of profitability — it has always been in the red since it listed on NYSE in 2017 — has not been a hurdle for its stock price movement. The Tencent-backed company’s shares closed at $290.50 on Monday, with a market capitalisation of $152.3 billion. Its share price has risen nearly 50% since the start of the year.
The company said it was raising its guidance for its Shopee and Garena arm for the full year. It expects Garena’s bookings to come in at between $4.5 billion and $4.7 billion in 2021, and Shopee’s GAAP revenue will be between $4.7 billion and $4.9 billion this year.