Naughty and Nice ER Review: SE

If there were a theme song for the SE ER it would be this:…

But with a few minor adjustments:

Here they come to save the day - Shopee (eCommerce) and SeaMoney (Fintech) are here to save the day!

Even though both of those company divisions came in slightly below expectations, overall growth was phenomenal and the future seems bright for both. Still - after getting kicked out of India, and perhaps trying to spread themselves to thin trying to invade South America, a lot of things have to go right for a company trying to be all things to all people. In an economic environment that now focuses on profit over growth Sea Limited has work to do.

All in all, it was not a bad quarter, if only for the reason that the company didn’t do as bad as analysts had projected and came out swinging on the Conference Call by focusing on profitability going forward. If they can do what they say they can do - then SE has a great deal of upside for investors.

Sea Limited - Asian eCommerce, Digital Entertainment and Fintech King in the Making?

A Few Data Points:

Current Price: $80.21
Range: 54.06 - 372.70
About 78% Below its High
Market Cap: $44.9B
EV/Revenue: 2.62
YTD Momentum: -64%

SE Reported Q1 2022 Yesterday:……

  • During the first quarter, our group GAAP revenue grew 64% year-on-year to reach $2.9 billion: ATTA BOY!

  • We generated gross profit of $1.2 billion, an increase of 81% year-on-year. While the company needs work in this area it does represent progress: ATTA BOY!

  • The company produced a prodigious swing in EBITDA results going from 88.1 in the year ago Qtr to a
    (509.9) figure this QTR: Big Fat OH POOP!

  • Operating Expenses surged higher: OH POOP!

  • Digital Entertainment did better than expected but is confronting comparisons to higher pandemic
    results. Getting kicked out of India did not help: OH POOP!

As we flagged last quarter, we have seen softening in user base and bookings compared to the lockdown periods during the pandemic, which was further impacted by Free Fire continuing to be unavailable across app stores in India.

  • Shopee delivered $1.5 billion in revenue, growing 64% year over year. Gross orders grew 71% and GMV increased 39% versus the same quarter last year: ATTA BOY!

  • Digital entertainment adjusted EBITDA was $431 million compared to $717 million for the first quarter of 2021: OH POOP!

  • E-commerce adjusted EBITDA loss was $743 million: OH POOP!

Meanwhile, given the current environment of elevated macro uncertainties, we now see a wider range of scenarios and outcomes for Shopee this year. While we believe, that our previous guidance is still achievable, we are revising our e-commerce guidance to correspondingly reflect our expectations around the upcoming macro uncertainties. We now expect e-commerce GAAP revenue to be between $8.5 billion and $9.1 billion, representing 72% year-on-year growth at the midpoint of the guidance.

This represents a slight reduction on the low side for Shopee Guidance: OH POOP!

Note: According to someone called Shopee ranked first in the Shopping category globally by downloads in the first quarter.

  • SeaMoney’s adjusted EBITDA loss also narrowed both quarter-on-quarter and year-on-year, while GAAP revenue grew close to 350% compared to last year. Quarterly active users grew more than 78% year-on-year: ATTA BOY

  • The total payment volume of our mobile wallet was $5.1 billion in the first quarter, an increase of 49% year-on-year. Over the past few years, we have successfully leveraged the Shopee ecosystem to build leading mobile wallet positions across our markets: ATTA BOY!

  • Returning to our consolidated numbers. We recognized a net non-operating loss of $6 million in the first quarter of 2022 compared to a net non-operating loss of $23 million in the first quarter of 2021. We had a net income tax expense of $82 million in the first quarter of 2022, which was primarily due to corporate income tax and withholding tax recognized in our digital entertainment business.

As a result, net loss excluding share-based compensation was $445 million in the first quarter of 2022, as compared to $320 million for the same period in 2021: OH POOP!


LIST and RANKING Assignments: Purgatory #3

SE is a company with vast potential but comes with some big challenges as well as a number of headwinds. Should a lot of things go right and management can execute effectively, investor returns could be monumental. At its current price - despite the pop after yesterdays report, I believe the company is undervalued.

Just my humble opinion.

All the Best,