Asian tech conglomerate Sea Ltd (NYSE:SE) reported solid results for its third quarter and said it would increase its focus on profitability. As a result, Sea stock price soared over 36% on Tuesday to hit a 2-month high.
Forrest Li, chairman and group CEO of Sea Limited, said:
“Given the significant uncertainties in the macro environment, we have entirely shifted our mindset and focus from growth to achieving self-sufficiency and profitability as soon as possible, without relying on any external funding.”
Li and other top executives decided earlier this year they would give up salaries “until the company reaches self-sufficiency.”
How Did Sea Perform in Q3?
While Sea’s shares saw a significant jump, the owner of Shopee and game developer Garena said its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss increased to $358 million, up from $166 million in the year-ago quarter.
The company’s e-commerce and financial services businesses reported EBITDA growth in Q3, although that performance was overshadowed by weak sales in the gaming division. Sea’s shopping platform Shopee reported an adjusted EBITDA loss of $495.7 million, up 27.5% year-over-year, thanks to robust topline growth and more efficient operating costs. Li added:
“We are currently working towards adjusted EBITDA breakeven for Shopee overall by the end of 2023.”
Sea’s digital financial services business, which manages Shopee Pay and its buy now pay later solution SPayLater, said its EBITDA loss is down 57.4% to $67.7 million year-over-year, driven by “more targeted sales and marketing spending for the mobile wallet business.”
On the other hand, Garena, game developer and organizer of esports events in Southeast Asia, reported an adjusted EBITDA drop of 60% to $289.9 million in Q3 compared to the same period last year.
Li said Garena’s battle royale mobile game Free Fire struggled since it was banned in India at the start of the year. The company’s CEO said Garena intends to release new games in the future.
Additionally, Sea trimmed its bookings forecast for Garena for the full fiscal 2022 to the range of $2.6 billion and $2.8 billion, down from the previous outlook of $2.9 billion to $3.1 billion, citing growing “macro uncertainties.”
The global consumer internet company said it would not provide any guidance for the next year due to the market’s reaction to current macro conditions.
Weak Macro Continues to Weigh on Business
Sea has grappled with numerous challenges in 2022, such as its investor Tencent (HK:0700) trimming its stake in the tech company. Furthermore, India banned Sea’s battle royal game Free Fire, even though it was one of the most downloaded games in the country. The game was banned as part of orders by Indian authorities to block China-linked apps.
Additionally, Garena’s Shopee platform shut down operations in several countries in Latin America, including Argentina, Mexico, Colombia, and Chile. Sea also exited India and France to ramp up operations in key markets like Brazil, Southeast Asia, and Taiwan.
Moreover, Bloomberg News reported recently that the company reduced its workforce by 10%, or 7,000 employees, in the past six months in an effort to cut costs and win back investors’ confidence.
Most recently, Sea laid off around 100 employees at Shopee, and those affected began receiving notices Monday, according to Bloomberg. The latest reductions come as a part of multiple workforce cuts that started back in June.
These headwinds pushed down Sea’s stock value by nearly 90% since peaking in 2021 as tough macroeconomic conditions, including record-high inflation and aggressive interest rate hikes, weighed on the company’s profitability prospects.
The latest workforce reductions affected multiple divisions, including recruitment, training, and human resources functions in China and Singapore. Those include employees responsible for hiring and training across Shopee and its digital financial services business SeaMoney, which manages ShopeePay.
According to Bloomberg, Sea’s managers have been instructed to hire new employees with more caution as the company braces for an economic slump.
Sea said in a statement:
“As part of the previously communicated exercise to optimize operating efficiency, we continue to carefully review our business projects and priorities in line with our goal of achieving self-sufficiency. We are also working to support our affected colleagues during this transition.”
The company ended 2021 with more than 67,000 people on its payroll.
Summary
Sea stock price exploded higher yesterday after the company said it would revive its focus on profitability in an attempt to win investors back. Sea shares were down nearly 90% at one point in October, reflecting the company’s struggles to deliver profitability and higher margins in current macroeconomic conditions.