Sea Misses Profit Forecasts as Costs Outpace a 43% Jump in Revenue

Revenue for the three months to September 30 rose 43.4% to US$8.6 billion, the company said in its results release on Tuesday. Diluted earnings per share were US$0.78, up from US$0.59 a year earlier. According to Investing.com, analysts had expected earnings per share of US$0.99 and revenue of about US$8.1 billion, and the New York-listed shares fell 8.89% in pre-market trading after the release.

The gap between sales and earnings is the story of the quarter. Total adjusted EBITDA rose 28.9% to US$931.3 million, well behind the growth in revenue. Bloomberg attributed the profit miss to higher spending on AI and cloud technology as Sea defends its position in a crowded Southeast Asian e-commerce market. Sea's release does not break out AI or cloud spending, and it lists AI, cloud and infrastructure work only among the risks in its forward-looking statements.

The cost lines show where the money went. Sales and marketing expenses rose 64% to US$1.9 billion. Provisions for credit losses climbed 82.3% to US$681.5 million as the loan book expanded. General and administrative costs rose 25.1% to US$425.2 million, while research and development grew only 5.4% to US$301.7 million. Cost of revenue rose 37.2% to US$4.6 billion, which the company attributed mainly to Shopee's logistics costs as order volumes grew. Sea's Other Services segment posted an adjusted EBITDA loss of US$83.9 million, wider than a year earlier.

Shopee itself had a strong quarter. Gross orders rose 25.5% to 4.5 billion and gross merchandise volume increased 23.3% to US$39.7 billion. Revenue grew 41.3% to US$6.1 billion, with core marketplace revenue up 50.6% to US$4.6 billion, while value-added services revenue was flat at US$724.4 million. The unit's adjusted EBITDA rose 44.7% to US$269.2 million.

"Shopee delivered another strong quarter, again achieving new record highs in both top- and bottom-line metrics," chairman and chief executive Forrest Li said in the release.

Monee, the digital finance business, grew revenue 63.9% to US$1.6 billion. Consumer and SME loans outstanding rose 60% to US$12.6 billion, of which US$11.2 billion was on the balance sheet. The share of loans more than 90 days past due edged up to 1.3% from 1.1% a year earlier, and the unit's adjusted EBITDA grew a more modest 15.5% to US$298.3 million. Sea said it is extending credit to more everyday spending, both on Shopee and elsewhere.

At Garena, bookings rose 5.9% to US$890.0 million and revenue increased 28.6% to US$840.1 million, with adjusted EBITDA up 45.9% to US$458.2 million. Quarterly active users were broadly unchanged at 671.7 million, while paying users rose 4.1% to 68.6 million. The company credited its Free Fire title for the growth in bookings.

Sea has nearly used up its existing US$1 billion share buyback, having repurchased 11.1 million shares for US$997.2 million. Its board approved a further US$1 billion authorisation on November 9, with no expiry date. The company did not give financial guidance for the fourth quarter.