Sea (SE) Incurs Loss in Q3, Gets Top-Line Boost on Free Fire

Sea Limited SE incurred third-quarter 2021 loss of 84 cents per share, which was wider than the year-ago quarter’s reported loss of 69 cents.

However, revenues of $2.7 billion jumped 121.8% on a year-over-year basis.

The Zacks Consensus Estimate for revenues and loss was pegged at $2.81 billion and 67 cents per share, respectively.

The year-over-year upside in revenues can be attributed to growth in the company’s digital entertainment business, especially the self-developed game — Free Fire — and continued monetization efforts in its e-commerce business.

Sea shares have returned 65.8% year to date, outperforming the Zacks Internet Software industry’s decline of 6.5% and the Computer & Technology sector’s return of 28.6%.

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Table of Contents

Top-Line Details

Sea operates three core businesses across digital entertainment, e-commerce plus digital payments and financial services, known as Garena, Shopee and SeaMoney, respectively.

Digital entertainment (Garena) revenues of $1.1 billion surged 93.2% year over year. This was primarily driven by continued quarterly active-user growth and further deepening of paying-user penetration, driven by the consistent strong performance of Free Fire.

Notably, quarterly active users (QAUs) reached 729 million, up 27.4% year over year. Quarterly paying users of 93.2 million soared 42.7% year over year, reflecting 12.8% of QAUs in the third quarter.

Average bookings per user for the reported quarter were $1.70, unchanged year over year. Bookings surged 29.2% year over year to $1.2 billion.

E-commerce (Shopee) and other services revenues were $1.3 billion, up 167.6% from the year-ago quarter.

E-commerce revenues included $1.2 billion of marketplace revenues, up 151.4% year over year. Marketplace revenues primarily consist of transaction-based fees, as well as advertising income and revenues generated from other value-added services.

Product revenues, which primarily consist of revenues generated from direct sales, surged 82.2% year over year to $0.3 billion.

Gross orders for the quarter under review totaled 1.7 billion, up 123.2% year over year. Gross merchandise value was $16.8 billion, up 80.6% year over year.

Finally, sales of goods soared 81.9% year over year to $279.6 million in the third quarter of 2021.

Regarding the digital financial services segment, mobile wallet total payment volume for the third quarter surpassed $4.6 billion. Further, quarterly paying users for mobile wallet services surpassed 39.3 million in the third quarter.

Operating Details

Gross profit surged a whopping 147.5% year over year to $1 billion in third-quarter 2021.

Adjusted EBITDA loss was $165.5 million against EBITDA of $120.4 million in the year-ago quarter.

Digital Entertainment adjusted EBITDA was $715.1 million, up 22.3% year over year. Adjusted EBITDA represented 58.6% of bookings for the third quarter of 2021, compared with 61.9% for the third quarter of 2020.

E-commerce adjusted EBITDA loss was $683.8 million compared with loss of $301.6 million for the third quarter of 2020. Adjusted EBITDA loss per order was $0.41, unchanged year over year.

Balance Sheet

As of Sep 30, 2021, Sea had cash and cash equivalents of $11.12 billion.

Guidance

For 2021, e-commerce revenues are expected between $5 billion and $5.2 billion, representing 135.3% growth from 2020 at the midpoint of the guidance.

Zacks Rank & Upcoming Earnings to Watch

Sea currently carries a Zacks Rank #3 (Hold).

Investors interested in the Computer & Technology sector are eagerly awaiting earnings releases from players like salesforce CRM, Hewlett Packard HPE and Cisco Systems CSCO.

salesforce, a Zacks Rank #1 (Strong Buy) stock, is scheduled to release third-quarter fiscal 2022 results on Nov 30. The Zacks Consensus Estimate for earnings stands at 92 cents per share, unchanged over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

salesforce shares have returned 38% year to date, underperforming the Zacks Computer-Software industry’s rise of 43.8%. However, the stock has outperformed the Computer & Technology sector’s return of 28.6% year to date.

Hewlett Packard is set to release its fourth-quarter fiscal 2021 results on Nov 30. The Zacks Consensus Estimate for earnings is pegged at 49 cents per share, unchanged over the past 30 days. Hewlett Packard also sports a Zacks Rank #1.

Hewlett Packard shares have returned 23% year to date compared with the Zacks Computer-Integrated Systems industry’s growth of 4.6% and the Computer & Technology sector’s return of 28.6%.

Cisco Systems, a Zacks Rank #2 (Buy) stock, is scheduled to release first-quarter fiscal 2022 results on Nov 17. The Zacks Consensus Estimate for earnings stands at 81 cents per share, unchanged over the past 30 days.

Cisco shares have returned 27.3% year to date against the Zacks Computer – Networking industry’s rally of 25.6%. The stock has underperformed the Computer & Technology sector’s return of 28.5% year to date.

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