Yahoo Finance Sea Surges 12% After Lifting Outlook During TikTok, Lazada Fight
(Bloomberg) -- Sea Ltd.’s shares rose their most since March 2023 after raising its online retail sales outlook, suggesting the Southeast Asia e-commerce leader is successfully countering hard-charging rivals TikTok and Lazada.
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The company’s US stock rose almost 12% after it forecast the value of goods sold by e-commerce arm Shopee will rise in the “mid-20%” range this year, up from a “high teens” pace predicted in March. The Singapore-based firm also said the division should turn profitable on an adjusted basis in the September quarter, after posting results that topped analysts’ estimates.
The forecast alleviates some concerns about the prospects for Shopee, which is trying to fend off competition from ByteDance Ltd.’s TikTok and Alibaba Group Holding Ltd.’s Lazada. Investors are watching closely to see if Shopee’s higher merchant fees can boost margins without hurting its lead against those deep-pocketed conglomerates. Newer contenders like Shein and PDD Holdings Inc.’s Temu are also targeting Southeast Asia, a region of about 675 million people where more shoppers are moving online.
“The certainty of the profit timing provides a strong signal that management is confident of defending its position despite competition,” Citigroup analyst Alicia Yap said in a research report.
Sea Gains as Revenue, Net Income Beats Estimates: Street Wrap
In a show of its dominance, Shopee has raised the commissions it charges merchants in many core markets by about a third since the start of the year. The hikes, which bring Shopee’s fees far above its rivals, show that Sea feels secure in its own efforts to become a crucial partner to merchants, helped by the e-commerce pioneer’s broad user base and well established delivery services.
After plunging over the past two years, Sea’s stock had gained about 65% in 2024 as investors have assessed the company’s chances against tough competition. Still, the shares remain far below their historic highs.
Sea swung back into the black in the three months through June with a net income of about $80 million, after losses in the preceding three quarters. Analysts estimated $60 million on average. Sales rose 23% to $3.8 billion.
Shopee’s gross merchandise volume, or the value of goods sold, climbed a higher-than-estimated 29% to $23.3 billion in the second quarter. Sea also said it expects Shopee to post earnings before interest, taxes, depreciation and amortization in the third quarter of this year — it previously expected Shopee to reach that milestone within the second half. The company as a whole is targeting its second straight annual profit this year.
Investors have also focused on Sea’s efforts to improve its profitability in the cut-throat market, after it slashed thousands of jobs in a brutal cost-cutting drive in recent years. Second-quarter sales and marketing expense rose to $774.8 million, and the company has also boosted research and development spending to add live-streaming and artificial intelligence features.
What Bloomberg Intelligence Says
Sea’s upgraded full-year gross-merchandise-value growth target to mid-20% from the high-teens is testament to its market leadership in Southeast Asian e-commerce, despite greater rivalry from the likes of Temu. GAAP revenue soared 23% in 2Q, sustaining the 1Q pace. E-commerce drove the bulk of 2Q’s top-line gain with a record take rate of 12.1%, signaling Sea’s scale advantage in logistics, product pricing and an established marketplace. Those could help stem user churn and lure more merchants into high-margin advertising services, putting the business on track for a 2H breakeven.
The pace of digital-entertainment segment sales could improve on the likely “Need for Speed” launch on mobile in East Asia in September. Cross-pollination between fintech and e-commerce units is fueling Sea’s loan book.
— Nathan Naidu, analyst
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The company’s gaming arm Garena, known for its hit Free Fire, has helped Sea’s profit margins. Yet it has struggled to come up with new titles to increase sales. Revenue at the unit fell 18% to $435.6 million, missing estimates. Bookings, which measure the amount of products and services sold during the period, climbed 21% to $536.8 million.
Sea’s digital banking division has become one of its key pillars of expansion. Revenue at its financial services arm grew 21%, as it battles the region’s incumbents as well as new entrants including Standard Chartered Plc’s Trust Bank and a venture owned by Grab Holdings Ltd. and Singapore Telecommunications Ltd. called GXS Bank. Last month, it appointed a new chief to steer its budding Singapore bank.
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