Sea Q1 Earnings Preview: Forecasted Revenue Surge from E-commerce and Digital Finance

Sea is set to release its first-quarter 2024 results on May 14. S&P Global data shows an expected USD 3.6 billion revenue, up 18.4% YoY, with EPS at USD 0.03, down 79.9% YoY.

Bloomberg data forecasts 20.5% YoY growth for the e-commerce sector to reach USD 2.5 billion.

The stability of the Southeast Asian e-commerce market will be beneficial for Shopee. Last year, e-commerce competition in Southeast Asia intensified, with Alibaba Group increasing its investment in Lazada, and Temu entering the market with the support of J&T Express, a veteran in Southeast Asian logistics. However, Bank of America analysts stated in their April report that competition in Sea's Shopee e-commerce business is stabilizing, and they pointed out that Sea's business is positioned to defend its market share in Southeast Asia. Meanwhile, Loop Capital noted that following the merger of TikTok and Tokopedia, the decision to increase commission rates in order to comply with Indonesian regulatory requirements is also a key factor favorable to Sea. Loop believes this signals that the shift to sustained profitable growth is "finally underway."

The Citi analyst suggests that seasonal promotions, coupled with robust purchasing activity leading up to the Chinese New Year and Ramadan, have led to a strong beginning of the year for Shopee. In Muslim-majority countries such as Indonesia, Malaysia, and Brunei, Ramadan is a key time for e-commerce, featuring numerous promotions and special deals that keep the sector bustling with activity all year round. Citi is confident that Shopee is well-positioned to realize a high-teen percentage increase in annual gross merchandise volume and to re-attain profitability by the latter half of 2024.

The synergy impact of Shopee, through the enhancement of service quality, strengthened price competitiveness, and reinforced content ecosystem, is anticipated to drive the e-commerce division's growth trajectory, thereby boosting its Gross Merchandise Volume (GMV). During the conference call in March, Forrest Li, the chairman and group CEO of Sea, stated that the company's e-commerce branch is projected to experience growth in the high teens throughout 2024. "We are going to execute even better in 2024, given the foundations we built during the last year, especially on aspects like service quality and price competitiveness, "he said

However, the challenging macroeconomic environment, inflation, and rising interest rates are expected to impact Sea's revenue in the upcoming reported quarter negatively.

Bloomberg data forecasts a 4.9% YoY decline for digital entertainment sector to reach USD 513.4 million.

Sea's digital entertainment business is expected to reap the rewards of increased user engagement. Free Fire peaked at over 100 million daily active users in Q4 2023 and is expected to continue growing its user base and bookings in the upcoming quarterly report. Yanjun Wang, Sea's group chief corporate officer, stated in March that the company anticipates double-digit growth year on year for Free Fire in 2024, regarding both user numbers and bookings. After the ban was lifted in India, Free Fire returned in September 2023. Sea has partnered with Yotta from the Hiranandani Group to adapt the game locally in India. The Indian version will feature a localized infrastructure to meet local regulatory standards and player expectations, with local servers to improve game performance and provide a seamless experience. Wang said that Free Fire is being tailored to Indian users' tastes. Sources indicate most of these adjustments are complete, signaling a strong potential for Garena in India's gaming sector.

Additionally, advancements in artificial intelligence are expected to bolster the operational capabilities of Free Fire on the Garena platform. Wang mentioned that Garena is integrating more AI technology into its development processes to diversify its range of genres and broaden its content offerings.

Bloomberg's consensus estimate for Q1 2024 digital financial services revenue is $503.9 million, a 22.1% increase year-over-year.

Sea's digital financial services sector may experience growth due to the diversification of its overall service offerings, expanding to a broader user base. SeaMoney is expected to become the main growth driver for the sector in the upcoming quarterly earnings, with sustained investment in acquiring credit service users and expansion into digital banking and insurance services anticipated to boost SeaMoney's profitability in the first quarter.

In early 2024, CEBUANA Lhuillier partnered with SeaMoney to bolster support for Micro, Small, and Medium Enterprises (MSMEs) in the Philippines. The collaboration with Shopee allows MSMEs to access "Buy Now, Pay Later" options via SPayLater. SeaMoney's BNPL service gained a trust mark from the Singapore Fintech Association, enhancing its credibility amid concerns over misuse. Moreover, Shopee had already been offering motorcycle and car insurance through its app. In April, Allianz partnered with SeaMoney to launch a new travel insurance offering on the e-commerce platform.