SINGAPORE–(BUSINESS WIRE)–Sea Limited (NYSE: SE) (�Sea or the Company) today announced its financial results for the second quarter ended June 30, 2022.
Our solid results for the quarter reflect our continued progress in enhancing efficiency and strengthening our ecosystem, said Forrest Li, Seas Chairman and Group Chief Executive Officer. Shopees unit economics improved significantly driven by gains in both monetization and efficiency across our markets, even as we sustained a healthy growth rate against tough comparisons. At Garena, we saw positive outcomes from our focus on user retention and efforts to bring more engaging experiences to our large global games community, with quarterly active users stable quarter-on-quarter. We also benefited from expanding synergies between Shopee and SeaMoney as our underserved user base adopted more of our financial products and services, resulting in strong growth and narrowing losses at SeaMoney.
Our success has always been defined by our ability to focus on the right thing at the right time, quickly make the right strategic decisions, and remain agile and adaptable in our execution. During the pandemic lockdowns, we rapidly scaled our businesses to answer to the fast-rising market demand for online consumption and services. That allowed us to significantly expand our businesses and total addressable markets, strengthen our market leadership, and scale up more efficiently.
As we navigate the current environment of increased macro uncertainty with that same nimble and decisive approach, we believe it is vital to be thoughtful, prudent, and disciplined. While we have strong resources and are well on-track to achieve our self-sufficiency targets, we are nevertheless rapidly prioritizing profitability and cash flow management. We are confident that this focus, combined with our demonstrated ability to execute, our scale and leadership, and our proven business models, will position us for long-term sustained success.
Second Quarter 2022 Highlights
E-commerce Full Year 2022 Guidance Update
In our efforts to adapt to increasing macro uncertainties, we are proactively shifting our strategies to further focus on efficiency and optimization for the long-term strength and profitability of the e-commerce business. Given this strategic shift, we will be suspending e-commerce GAAP revenue guidance for the full year 2022. We believe such efforts will further strengthen our ability to better capture the long-term growth opportunities in our markets, which we remain highly positive about.
| 1 | We recorded an impairment of goodwill of US$177.3 million in the second quarter of 2022. The impairment was primarily due to the change in carrying amount of goodwill associated with our prior acquisitions, mainly driven by the lower valuations amid the market uncertainties. | |
| 2 | For definitions of total adjusted EBITDA and adjusted EBITDA for digital entertainment, e-commerce and digital financial services segments, please refer to the Non-GAAP Financial Measures section. | |
| 3 | Current and comparative prior period local currency amounts are converted into United States dollars using the same exchange rates, rather than the actual exchange rates during the respective periods. | |
| 4 | GAAP marketplace revenue mainly consists of transaction-based fees and advertising income and revenue generated from other value-added services. GAAP product revenue mainly consists of revenue generated from direct sales. | |
| 5 | Rankings data for data.ai is based on combined data from the Google Play and iOS App Stores, unless otherwise stated. Time spent in app rankings is available for Google Play only. Southeast Asia rankings are based on Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. Latin America rankings are based on Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay. Rankings data for Free Fire includes both Free Fire and Free Fire MAX. | |
| 6 | GAAP revenue for the digital entertainment segment plus change in digital entertainment deferred revenue. This operating metric is used as an approximation of cash spent by our users in the applicable period that is attributable to our digital entertainment segment. | |
| 7 | Quarterly active users for digital financial services segment are defined as users who had at least one financial transaction with SeaMoney products and services during the quarter. Transactions include payments or receipts with our mobile wallet, loan disbursements, maintenance of balance in our banks or purchase of insurance policies on the Shopee platform. |
| Unaudited Summary of Financial Results | |||||||||
| (Amounts are expressed in thousands of US dollars $ except for per share data) | |||||||||
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For the Three Months |
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| 2021 | 2022 |
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| $ | $ | YOY% | ||||||
| Revenue |
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| Service revenue |
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| Digital Entertainment | 1,024,267 |
| 900,258 |
| (12.1 | )% | |||
| E-commerce and other services | 999,658 |
| 1,755,686 |
| 75.6 | % | |||
| Sales of goods | 256,623 |
| 286,655 |
| 11.7 | % | |||
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| 2,280,548 |
| 2,942,599 |
| 29.0 | % | |||
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| Cost of revenue |
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| Cost of service |
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| Digital Entertainment | (292,696 | ) | (260,529 | ) | (11.0 | )% | |||
| E-commerce and other services | (816,748 | ) | (1,329,665 | ) | 62.8 | % | |||
| Cost of goods sold | (240,210 | ) | (262,187 | ) | 9.1 | % | |||
|
| (1,349,654 | ) | (1,852,381 | ) | 37.2 | % | |||
| Gross profit | 930,894 |
| 1,090,218 |
| 17.1 | % | |||
| Other operating income | 72,007 |
| 71,104 |
| (1.3 | )% | |||
| Sales and marketing expenses | (921,362 | ) | (973,767 | ) | 5.7 | % | |||
| General and administrative expenses | (242,992 | ) | (476,045 | ) | 95.9 | % | |||
| Research and development expenses | (172,563 | ) | (370,926 | ) | 115.0 | % | |||
| Impairment of goodwill | – |
| (177,280 | ) | – |
| |||
| Total operating expenses | (1,264,910 | ) | (1,926,914 | ) | 52.3 | % | |||
| Operating loss | (334,016 | ) | (836,696 | ) | 150.5 | % | |||
| Non-operating loss, net | (25,061 | ) | (32,765 | ) | 30.7 | % | |||
| Income tax expense | (75,191 | ) | (64,771 | ) | (13.9 | )% | |||
| Share of results of equity investees | 599 |
| 3,033 |
| 406.3 | % | |||
| Net loss | (433,669 | ) | (931,199 | ) | 114.7 | % | |||
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Net loss excluding share-based compensation and | (321,184 | ) | (569,811 | ) | 77.4 | % | |||
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Basic and diluted loss per share based on | (0.61 | ) | (1.03 | ) | 68.9 | % | |||
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| Change in deferred revenue of Digital Entertainment | 155,863 |
| (182,904 | ) | (217.3 | )% | |||
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| Adjusted EBITDA for Digital Entertainment (1) | 740,944 |
| 333,619 |
| (55.0 | )% | |||
| Adjusted EBITDA for E-commerce (1) | (579,774 | ) | (648,145 | ) | 11.8 | % | |||
| Adjusted EBITDA for Digital Financial Services (1) | (154,986 | ) | (111,517 | ) | (28.0 | )% | |||
| Adjusted EBITDA for Other Services (1) | (23,275 | ) | (72,555 | ) | 211.7 | % | |||
| Unallocated expenses (2) | (7,020 | ) | (7,653 | ) | 9.0 | % | |||
| Total adjusted EBITDA (1) | (24,111 | ) | (506,251 | ) | 1,999.7 | % | |||
| (1) | For a discussion of the use of non-GAAP financial measures, see Non-GAAP Financial Measures. | |
| (2) | Unallocated expenses are mainly related to share-based compensation, impairment of goodwill, and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the Chief Operating Decision Maker (CODM) as part of segment performance. |
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Revenue
Our total GAAP revenue increased by 29.0% to US$2.9 billion in the second quarter of 2022 from US$2.3 billion in the second quarter of 2021.
Cost of Revenue
Our total cost of revenue increased by 37.2% to US$1.9 billion in the second quarter of 2022 from US$1.3 billion in the second quarter of 2021.
Other Operating Income
Our other operating income was US$71.1 million and US$72.0 million in the second quarter of 2022 and 2021, respectively. Other operating income mainly consists of rebates from e-commerce related logistics services providers.
Sales and Marketing Expenses
Our total sales and marketing expenses increased by 5.7% to US$1.0 billion in the second quarter of 2022 from US$0.9 billion in the second quarter of 2021. The table below sets forth breakdown of the sales and marketing expenses of our major reporting segments. Amounts are expressed in thousands of US dollars ($).
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For the Three Months |
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| 2021 |
| 2022 | YOY% | |||
| Sales and Marketing Expenses | $ |
| $ |
| |||
| Digital Entertainment | 82,038 |
| 87,100 | 6.2 | % | ||
| E-commerce | 649,196 |
| 674,120 | 3.8 | % | ||
| Digital Financial Services | 166,270 |
| 162,466 | (2.3 | )% | ||
General and Administrative Expenses
Our general and administrative expenses increased by 95.9% to US$476.0 million in the second quarter of 2022 from US$243.0 million in the second quarter of 2021. This increase was primarily due to increase in allowance for credit losses from our digital financial services business driven by loans receivables growth, higher staff cost as well as higher office facilities and related expenses, to support the business growth.
Research and Development Expenses
Our research and development expenses increased by 115.0% to US$370.9 million in the second quarter of 2022 from US$172.6 million in the second quarter of 2021, primarily attributable to higher staff cost from increased headcount growth, as we invested in our technological capabilities and expanded our service offerings.
Impairment of Goodwill
We recorded an impairment of goodwill of US$177.3 million in the second quarter of 2022, compared to nil in the second quarter of 2021. The goodwill impairment was primarily due to the change in carrying amount of goodwill associated with our prior acquisitions, mainly driven by the lower valuations amid the market uncertainties.
Non-operating Income or Losses, Net
Non-operating income or losses mainly consist of interest income, interest expense, investment gain (loss) and foreign exchange gain (loss). We recorded a net non-operating loss of US$32.8 million in the second quarter of 2022, compared to a net non-operating loss of US$25.1 million in the second quarter of 2021. The non-operating loss in the second quarter of 2022 was primarily due to investment losses recognized amid lower valuations in the broader market.
Income Tax Expense
We had a net income tax expense of US$64.8 million and US$75.2 million in the second quarter of 2022 and 2021, respectively. The income tax expense in the second quarter of 2022 was primarily due to corporate income tax and withholding tax expenses incurred by our digital entertainment segment.
Net Loss
As a result of the foregoing, we had net losses of US$931.2 million and US$433.7 million in the second quarter of 2022 and 2021, respectively.
Net Loss Excluding Share-based Compensation and Impairment of Goodwill
Net loss excluding share-based compensation and impairment of goodwill, was US$569.8 million and US$321.2 million in the second quarter of 2022 and 2021, respectively.
Basic and Diluted Loss Per Share Based on Net Loss Excluding Share-based Compensation and Impairment of Goodwill Attributable to Sea Limiteds Ordinary Shareholders
Basic and diluted loss per share based on net loss excluding share-based compensation and impairment of goodwill, was US$1.03 and US$0.61 in the second quarter of 2022 and 2021, respectively.
Webcast and Conference Call Information
The Companys management will host a conference call today to review Seas business and financial performance.
Details of the conference call and webcast are as follows:
| Date and time: |
7:30 AM U.S. Eastern Time on August 16, 2022 | ||
| Webcast link: | https://event.choruscall.com/mediaframe/webcast.html?webcastid=ToMUCZDA | ||
| Dial in numbers: | US Toll Free: 1-888-317-6003 | Hong Kong: 800-963-976 | |
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| International: 1-412-317-6061 | Singapore: 800-120-5863 | |
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| United Kingdom: 08-082-389-063 |
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| Passcode for Participants: | 7429691 |
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A replay of the conference call will be available at the Companys investor relations website (www.sea.com/investor/home). An archived webcast will be available at the same link above.
About Sea Limited
Sea Limited (NYSE: SE) is a leading global consumer internet company founded in Singapore in 2009. Its mission is to better the lives of consumers and small businesses with technology. Sea operates three core businesses across digital entertainment, e-commerce, as well as digital payments and financial services, known as Garena, Shopee and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest pan-regional e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.
Forward-Looking Statements
This announcement contains forward-looking statements. These statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as may, could, will, expect, anticipate, aim, future, intend, plan, believe, estimate, likely to, potential, confident, guidance, and similar statements. Among other things, statements that are not historical facts, including statements about Seas beliefs and expectations, the business, financial and market outlook, and projections from its management in this announcement, as well as Seas strategic and operational plans, contain forward-looking statements. Sea may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the SEC), in its annual report to shareholders, in press releases, and other written materials, and in oral statements made by its officers, directors, or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Seas goals and strategies; its future business development, financial condition, financial results, and results of operations; the expected growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in the markets where it operates, including segments within those industries; expected changes or guidance in its revenue, costs or expenditures; its ability to continue to source, develop and offer new and attractive online games and to offer other engaging digital entertainment content; the expected growth of its digital entertainment, e-commerce and digital financial services businesses; its expectations regarding growth in its user base, level of engagement, and monetization; its ability to continue to develop new technologies and/or upgrade its existing technologies; its expectations regarding the use of proceeds from its financing activities, including its follow-on equity offerings and convertible notes offerings; growth and trends of its markets and competition in its industries; government policies and regulations relating to its industries, including the effects of any government orders or actions on its businesses; general economic, political, social and business conditions in its markets; and the impact of widespread health developments, including the COVID-19 pandemic, and the responses thereto (such as voluntary and in some cases, mandatory quarantines as well as shut downs and other restrictions on travel and commercial, social and other activities, and the availability of effective vaccines or treatments) and the impact of economies reopening further to the COVID-19 pandemic. Further information regarding these and other risks is included in Seas filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Sea undertakes no obligation to update any forward-looking statement, except as required under applicable law.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with U.
Contacts
For enquiries:
Investors / analysts: ir@sea.com
Media: Martin Reidy, media@sea.com
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