Sea Limited surges to 52-week high. What’s driving the turnaround?

What happened?

Shares of Sea Limited have surged this year.

Since the beginning of 2024, the gaming and e-commerce company’s shares have shot up by 92.3% and are trading close to their 52-week high.

Investors are feeling bullish for good reason.

Earlier, we saw that the company reported its first-ever full year of profits. 

Sea Limited recently announced its first quarter 2024 (1Q 2024) earnings that saw broad-based growth across all its three divisions.

We dig a little deeper into the company’s latest earnings report to determine if it can carry on this momentum.

What you need to know about Sea Limited’s earnings

#1 – Higher marketing expenses led to a net loss

For 1Q 2024, Sea Limited enjoyed a 22.8% year on year jump in its revenue to US$3.7 billion, led by a 30.6% year-on-year increase in revenue from its e-commerce division (Shopee) to US$2.95 billion.

Its Digital Entertainment division, led by Garena, saw revenue dip by 15.1% year on year to US$458.1 million.

This decline was offset by a near-35% year on year jump in the sale of goods to US$326.2 million.

With the cost of goods sold rising at a faster pace than revenue, the company’s gross profit increased by just 9.7% year on year to US$1.55 billion.

Of note, sales and marketing expenses nearly doubled year on year to US$769.6 million, with CEO Forrest Li alluding to this increase as he told employees to “gear up for a fight” last September with regards to Shopee.

Because of the higher spending, operating profit plunged by 43.2% year on year to US$71.1 million.

Sea Limited reported a net loss for 1Q 2024 of US$23 million, reversing the net profit of US$87.3 million a year ago.

#2 – Garena galloping back to growth

Although Garena saw its divisional revenue fall year on year for 1Q 2024, there could be better days to come.

Free Fire, the company’s most popular game, saw its average monthly active users (MAU) jump 24% year on year.

Quarterly active and paying users also climbed year on year as can be seen below.

Garena saw quarterly active users increase by 21% year on year to 594.7 million while the quarterly paying user ratio also improved from 7.7% a year ago to 8.2% in the last quarter.

The increase in this ratio translates to a 28.8% year-on-year jump in quarterly paying users from 37.9 million to 48.8 million.

Free Fire continues to reign above other mobile games as one of the largest user scale and is effective in attracting new players.

For 1Q 2024, the game ranked as the most downloaded game globally according to Sensor Tower.

Management continued to introduce different play modes and launch new content to keep players engaged – two new version updates “Chaos” and “Mechadrake” were introduced in January and April 2024, respectively.

#3 – Shopee chalked up highest-ever orders and GMV

Over at Shopee, the e-commerce division recorded its highest-ever orders, gross merchandise value (GMV) and revenue for 1Q 2024.

Evidently, the increased spending as communicated by Forrest Li helped the division to stay competitive and allowed orders and GMV to carry on rising.

Gross orders leapt up 62.5% year on year to 2.6 billion while GMV shot up 36.4% year on year to US$23.6 billion.

Shopee has also set several operational priorities for the remainder of this year.

The e-commerce outfit is aiming to enhance its price competitiveness, strengthen its content ecosystem, and improve buyer service quality.

#4 – Loans gaining traction for SeaMoney

Sea Limited’s digital financial services division, SeaMoney, also enjoyed strong growth momentum.

Consumer and SME (small and medium enterprise) loans active users surged 42% year on year to more than 18 million in 1Q 2024.

SeaMoney also saw healthy loan growth with total consumer and SME loans hitting US$3.3 billion as of 31 March 2024, up 29% year on year.

Another piece of good news is that the division is also seeing its non-performing loans (NPL) ratio come down steadily.

Back in 1Q 2023, the NPL ratio stood at 1.7% but it has come down to 1.4% for 1Q 2024 and remained constant over the last three quarters.

Management is taking a prudent approach to continuously fine-tune its risk model for each market as the company gains more users and data.

The objective is to grow SeaMoney’s business while ensuring that the NPL ratio is maintained.

What would Beansprout do?

It appears that investors’ optimism was justified.

Although Sea Limited reported a loss for 1Q 2024, the key reason can be attributed to heightened spending to maintain Shopee’s strong position in the e-commerce space.

Despite the loss for 1Q 2024, CEO Forrest Li maintained his expectation for 2024 to be another profitable year for Sea Limited.

The company is firing on all three cylinders with improvements seen across all its operating metrics.

Most importantly, Garena seems to have turned the corner concerning quarterly paying users and is now enjoying a year-on-year rise.

This bodes well for the performance of Sea Limited in the coming quarters. 

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