Soochow Securities: SEA's e-commerce competitiveness continues to be highlighted; earnings are expected to improve
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$Sea(SE.US$ faces industry headwinds in 2022. In the long run, there is still more room for development in Southeast Asia and Latin America Internet markets, and the company's strong localized operational capabilities and ecological synergies remain. Therefore, Soochow Securities remains its earnings forecast and expects the company's 2022-2024 adjusted net income attributable to equity of $-2.2B/-1.4B/-100M, corresponding to an adjusted EPS of $-3.88/-2.43/-0.25, maintaining Sea at a Buy rating.
$Sea(SE.US$ faces industry headwinds in 2022. In the long run, there is still more room for development in Southeast Asia and Latin America Internet markets, and the company's strong localized operational capabilities and ecological synergies remain. Therefore, Soochow Securities remains its earnings forecast and expects the company's 2022-2024 adjusted net income attributable to equity of $-2.2B/-1.4B/-100M, corresponding to an adjusted EPS of $-3.88/-2.43/-0.25, maintaining Sea at a Buy rating.
Key takeaways:
1. Digital entertainment business remains under pressure in the short term, but revenue and subscriber curve may start to flatten out.
Although the offline economic recovery and some regional policies have affected the performance of Free Fire, the company's top self-published game, its monthly user trend hasn't shown any signs of stabilization at the end of Q1. According to Sensor Tower, Free Fire's net revenue QoQ decline from May to July narrowed significantly, and MAU grew slightly in July. The company's headline games, such as Honor of Kings and Call of Duty, also show stable net revenue performance.
2. Market share of e-commerce business continues to increase; expect the release of platform value to enhance profitability.
According to Sensor Tower, shopee MAU YoY growth slowed in 2022Q2, but has started to pick up slightly since May. Macro factors such as inflation in overseas markets have influenced consumers' willingness to shop in the short term, adversely affecting the growth rate of e-commerce business. However, considering the company's stable market position in Southeast Asia, strong growth momentum in Latin America, and staff contraction of some inefficient businesses, the company's overall profitability is expected to continue to optimize.
Shopee's position as a leader in Southeast Asia is stable. 2022Q2 shopee's MAU growth in Southeast Asia is solid, and its DAU market share among shopping APPs in Indonesia is leading and rising steadily. At the same time, the company has increased its commission rate in some markets. The overall profitability of Southeast Asia is expected to continue to strengthen.
Brazil is expected to contribute significant growth as its market share steadily increases. 2022Q2 Shopee's MAU growth in Brazil remains relatively fast, and its DAU market share among shopping apps in Brazil has risen steadily, surpassing Mercado Libre (the former local e-commerce leader) since February. The Latin American market is expected to contribute a significant incremental volume to shopee. In addition, Shopee's user growth in the European Polish market is also impressive.
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