E-COMMERCE and gaming company Sea recorded a US$23 million net loss for the first quarter ended Mar 31 – a result investors cheered, though it reversed the company’s year-ago US$87.3 million profit.

Sea’s Q1 revenue growth beat analyst expectations to rise 22.8 per cent to US$3.7 billion. Of this, US$2.7 billion came from the company’s e-commerce segment, marking a record high in quarterly revenue for its platform Shopee.

On the basis of adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda), Sea’s Q1 bottom line stood at US$401.1 million, surpassing analysts’ US$221.8 million estimate.

Investors sent New York-listed Sea’s share price up 5.4 per cent to US$67.96 at the market open on Tuesday (May 14), or 9.30 pm Singapore time.

Sea chief executive Forrest Li said in an earnings call that the company has a “clear road map for profitable growth”, and is “well on track” to deliver its full-year guidance.

Logistics improvement

Shopee’s record quarterly revenue came on the back of a new high in gross merchandise value (GMV), which grew 36.3 per cent to US$23.6 billion.

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In the earnings call, Sea’s management acknowledged that seasonality was a factor – with both the Lunar New Year and Ramadan falling within Q1. But they also cited other factors that drove growth, such as Shopee’s development of live-streaming capabilities and its own logistics service, SPX Express.

More than half of Shopee’s orders in Asia are delivered by SPX Express; in Brazil, the figure is about 70 per cent, a Sea executive said in the call.

Said Li: “We have put a lot of hard work into SPX Express, and today, it is one of the fastest and the most intensive logistics operators in our market... In the first quarter, about 70 per cent of SPX Express orders in Asia would deliver within three days of order placements.”

SPX Express’ cost per order fell in Q1 as it achieved scale, said Li. Another change was having Shopee directly manage the return and refund process, which has reduced resolution times, he noted.

Shopee’s top line growth was, however, accompanied by an adjusted Ebitda loss of US$21.7 million in the segment, reversed from the year-ago US$207.7 million Ebitda.

The profitability of the e-commerce business was weighed down by a doubling in sales and marketing costs in the quarter to US$675.9 million.

This also fed into higher overall operating expenses for Sea, which rose 14.8 per cent to US$1.5 billion in Q1.

Optimism on gaming, loans

On the digital-entertainment front, Sea’s top line growth was less rosy: revenue from its gaming arm, Garena, fell 15.1 per cent to US$458.1 million.

The company noted a rise in quarterly paying users, up 29.8 per cent to 48.9 million. But the average number of bookings per user was down at US$0.86, from US$0.94 the year before.

That said, Li expressed confidence in Garena’s popular Free Fire game as a growth engine, and its potential to turn “evergreen”.

Sea’s third business segment, digital financial services, also grew during the quarter. Revenue was up 21 per cent to US$499.4 million, while adjusted Ebitda stood at US$148.7 million, up 50.3 per cent.

The revenue growth was driven by growth in loans, with the outstanding consumer and SME (small and medium-sized enterprise) loans principal at US$3.3 billion as at Mar 31, up 28.7 per cent. The non-performing loans ratio – those past due by more than 90 days – was 1.4 per cent, unchanged from the previous quarter.

Noting that Sea is now in a growth trajectory after a few tough years of macroeconomic challenges, Li said: “Going through this period has made us leaner, fitter and savvier.”