It is worth noting that during the toughest times for Chinese markets and companies right now, it is Sea that is getting the beating due to lower-than-expected growth and disappointed results overall. Sea reported that “sales grew a lower-than-expected 5.2% in the second quarter, when it pulled back on shopping promotions and gaming revenue plunged 41%”. Sea’s CEO Forrest Li said that it “intends to expand Sea’s online shopping arm, Shopee, and that “such investments will have impact on our bottom line and may result in losses.”” It is worth noting that stocks of Sea in New York plunged as much as 29% as soon as this was announced. It is also reported that such a sentiment from the market was because of “reporting disappointing revenue and outlining plans to increase investment in e-commerce, a strategic shift that could erode margins and trigger a price war with TikTok and Alibaba”.
Citigroup analyst Alicia Yap said in a note, downgrading the stock to neutral from buy, that “There is a lack of visibility on the investment’s effectiveness,” and also mentioned that “A brutal battle could be just starting.” It is also reported that the spending plans irked “investors long accustomed to watching price-based competition wipe out margins. Singapore-based Sea last year embarked on an aggressive cost-cutting drive to reverse years of losses, pivoting to a focus on the bottom-line as revenue growth decelerated from the triple-digit percentage rates of just two years ago. The company froze salaries and slashed hundreds of millions of dollars in sales and marketing expenses to achieve positive cash flows”.
Ahead of the results, Nathan Naidu, an analyst at Bloomberg, wrote “Sea’s e-commerce expansion in Latin America could kick sales growth back into high gear after a deliberate slowdown to achieve breakeven,” and added that “Sea should be able to sustain profits after a third consecutive quarter of net income in 2Q — despite missing consensus sales by 3% and e-commerce revenue by 6% — on continued cost discipline and e-commerce monetization”. It is worth noting that Singapore’s Sea became popular due to its Free Fire title in the Gaming world and currently owns Shopee as well.
