Singapore, a leading internet company, Sea Ltd., experienced a significant increase in stock value following the release of positive quarterly results and a promising outlook for 2024. The company’s US shares surged as high as 14%, ending the day up 5.6%, marking its highest point since August. With better-than-expected growth in e-commerce gross merchandise volume (GMV) by 29%, Sea now anticipates a high teens increase in GMV for the year, aiming to achieve profitability before interest, taxes, depreciation, and amortization.
The quarterly results have eased concerns about the competitive landscape for Sea’s online retail platform, Shopee, which faces stiff competition from the likes of TikTok, Lazada, and newer players in the Southeast Asian market. Despite challenges, Sea remains confident in maintaining its market share while strategically managing expenditure. Analysts also noted Sea’s efforts to reduce shipping subsidies, improve monetization rates, increase commission rates, and boost ad revenue, leading to a swift improvement in earnings before interest, taxes, depreciation, and amortization.
While adjusted earnings for the fourth quarter showed a decline from the previous year due to increased marketing spending, Sea exceeded analyst predictions and reported a 4.8% rise in sales. However, the company continues to face high marketing costs, driven by aggressive promotions from competitors such as TikTok Shop and Temu. Despite the slowdown in growth rates compared to previous years, Shopee continues to attract buyers as online shopping gains popularity in the region of over 650 million people.
Sea’s gaming arm, Garena, is experiencing sustained demand for its popular title Free Fire, with user numbers expected to grow double digits in the coming year. The gaming division’s revenue declined in the fourth quarter due to the absence of a new blockbuster hit. To combat intense competition, Sea’s CEO has emphasized the need to increase investments in Shopee and enhance its live-streaming capabilities, despite potential margin pressures and price wars with competitors like TikTok and Alibaba.
In a bid to reach profitability, Sea undertook a cost-cutting initiative in 2022, focusing on the bottom line as revenue growth slowed. The company implemented salary freezes and expense reductions to achieve positive cash flows. Analysts suggest that Sea’s reinvestment in Southeast Asian e-commerce is crucial to defending its market share from emerging competitors like TikTok Shop and Temu, which may impact profits as digital banks expand their presence in the market.
Overall, Sea’s performance in the face of intense competition and evolving market dynamics demonstrates its commitment to innovation and strategic growth initiatives. As the company navigates challenges and opportunities in the ever-changing digital landscape, investors are closely watching Sea’s strategies to maintain its competitive edge and drive sustainable growth in the future.