Daily Brief Singapore: Sea and more

In today’s briefing:

Shopee Enters a New Era of Slower GMV Growth and Higher Fees for Sellers
Sea Ltd: Free Fire’s Downfall, Shopee’s Struggles, Is Fintech the Next Challenge?
[Sea Limited (SE US, SELL, TP US$60) Target Price Change]: Cut Gaming Revenue and Margin Forecast

Shopee Enters a New Era of Slower GMV Growth and Higher Fees for Sellers

Shopee, Southeast Asia’s largest e-commerce player, has been on a strict financial diet to reach profitability in the last year.
That’s been welcome news for shareholders of its listed parent, Sea Ltd, but more challenging for sellers on the platform who have faced lower sales growth and higher selling costs after years of heavily subsidised operations.
In this blog post we report on the most important figures from Shopee’s newly published Q1-2023 results (released 16 May) as well as the key implications for e-commerce sellers in Southeast Asia.

Sea (SE US)‘s shares dropped by 18% as its operating profit fell short of consensus by around 60% at $125m, compared to the expected $311m.
Shopee’s revenue shows improvement due to increased monetization, but there are no signs of exponential growth potential in operating profit.
Projected decline in paying users poses further downside for Free Fire, while the previously positive fintech segment underperformed in Q1 with revenue and operating profit below expectations.

SE reported C1Q23 revenue/non-GAAP net income in-line/(37%) vs. cons., and (3.2%)/(31%) vs. our est. Profit miss is mainly due to the 53% YoY decline in game revenue
We suggest that 1) game development and S&M cost cutting, as well as 2) disappointing game content updates during 1Q23, lead to the weak result;
In the long run, we still expect Shopee growth to be SE’s major issue, as TikTok continues to grow rapidly. We maintain SELL and cut TP to US$ 60.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network