The triple-digit percentage growth that had made the gaming and e-commerce giant a symbol of Southeast Asia’s internet boom is expected to come to a grinding halt at Sea Ltd., marking a dramatic reversal in the company’s revenue growth trajectory.
According to the consensus forecast of market analysts, the company is projected to report a decrease in revenue of 5.8% compared to the same period last year when it reports its results for the December quarter on Tuesday. This would be the first time in recorded history that market share has decreased, and it is a reflection of a withdrawal from markets in India, South America, and Europe, as well as a salary freeze and other austerity measures taken to prioritize profitability over the expansion of market share.
Even if Sea is able to pull off an unexpected increase in revenue, the company’s fortunes have taken a terrible turn for the worst. Sea was the most successful online company in Southeast Asia and was momentarily the best-performing stock in the world.
The company was supported by the Chinese internet behemoth Tencent Holdings Ltd. and was riding high on a rise in web use during the epidemic phase when investors poured their money into the business two years ago. Since reaching an all-time high of $202.6 billion in October 2021, its value has dropped by around $166 billion as a result of a post-Covid hangover characterized by rising inflation and concerns regarding the possibility of a recession.
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“Interest rates will likely stay higher for longer as inflationary pressures persist, creating a challenging year for the internet sector” in Southeast Asia, said Ju Ye Lee, an economist at Maybank Investment Banking Group in Singapore.
It’s possible that investors in Sea aren’t very concerned with the fast deteriorating growth rate right now; rather, they may be more focused on the bottom line on Tuesday. Through the implementation of harsh measures such as the elimination of thousands of positions and the freezing of salaries pretty much across the board, Sea has been able to reduce its quarterly losses on a constant basis in recent times.
But, the decrease in sales is symbolic of how investors’ love affair with the region’s digital giants is gradually cooling off. This fall was encapsulated by the demise of Zilingo Pte a year ago, in addition to the astounding share selloffs that enveloped Sea’s competitors, ranging from Grab Holdings Ltd. to GoTo Group.
For the time being, investors will be focusing on how effectively Sea’s subsidiaries Garena and Shopee manage their expenses. Yet, over the longer term, they will be interested in hearing about concrete plans to regain some of the rapid growth that made Sea a stock market darling in previous years.
As a result of Shopee arm’s leadership in the industry and its scale, more merchants should be drawn into the higher-margin, transaction-based services, which will assist improve take rates and e-commerce income. These, together with lower staff costs as a result of job cuts and promotional spending, might reduce Sea’s net loss for the fourth quarter to approximately $400 million, compared to the net loss for the fourth quarter of last year, which was $484.8 million.
– Nathan Naidu, analyst
The probable sale of Garena’s Phoenix Labs unit is one of the measures the Sea is taking to save costs. According to a report by GamesBeat, the independent developer of the monster-hunting title Dauntless, based in Vancouver, is getting purchased out by its management. The company was acquired in 2020 for more than $150 million. When asked for a response, a representative of Phoenix Labs stated that the company does not have any additional information to give in addition to what has already been reported on the matter.
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