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Sea's (SE) Q4 Loss Narrower Than Estimates, Revenues Up Y/Y

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Sea Limited. SE reported fourth-quarter 2019 non-GAAP loss of 53 cents per share beating the Zacks Consensus Estimate by 14.5% and narrower than a loss of 95 cents reported in the year-ago quarter.

Adjusted revenues of $909.1 million outpaced the Zacks Consensus Estimate by 3.2% and improved 133.5% on a year-over-year basis.

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

Sea Limited Sponsored ADR Price, Consensus and EPS Surprise


Sea Limited Sponsored ADR Price, Consensus and EPS Surprise

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Segment Details    

Adjusted digital entertainment revenues (52.8% of total revenues) of $479.9 million surged 107.4% year over year. This was primarily driven by continued quarterly active user growth and further deepening of paying user penetration, specifically, the consistent strong performance of Free Fire.
Notably, quarterly active users (QAUs) reached 354.7 million, up 64.1% year on year. Quarterly paying users accounted for 9.4% of QAUs in the fourth quarter of 2019. Average revenue per user for the quarter was US$1.40.

Adjusted e-commerce revenues (47.2% of total revenues) were $358.3 million, up 182.3% from the year-ago quarter. This was driven by the continued popularity of Shopee, Sea’s online shopping platform.

Notably, Shopee was ranked number one in the Shopping category by downloads both in Southeast Asia and Taiwan as well as was among the top five downloaded apps worldwide in the same category in 2019.

E-commerce revenue included $283.5 million of marketplace revenue, up 223.6% year on year and $74.7 million of product revenues, up 90.2% from the year-ago quarter’s figure.

Gross orders for the quarter totaled 440.5 million, up 112.9% year over year. Gross merchandise value (GMV) was $5.6 billion, up 64.8% from the year-ago quarter’s figure.

Operating Details

Adjusted EBITDA was $(104.9) million in the fourth quarter compared with $(203.6) million in the year-ago quarter.

Sales and marketing expenses surged 64.7% to $341.7 million in the fourth quarter, driven by launch of new games and marketing, esports and other user engagement activities for the existing games as well as ramping up of brand marketing and higher staff compensation for e-commerce business.

General and administrative expenses increased 25.9% to $109.7 million in the fourth quarter of 2019. This upside was primarily due to the expansion of staff force and the increase in office facilities and related expenses.

Research and development expenses increased 85.7% to $49.5 million in the fourth quarter, primarily due to the increase in research and development staff force.

Total operating loss for the quarter was $230 million compared with $324.9 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2019, the company had cash and cash equivalents of approximately $3.119 billion compared with $3.317 billion as Sep 30, 2019.

Net cash flow from operating activities was $69.9 million as of Dec 31, 2019 compared with $97.7 million as of Sep 30, 2019.


For 2020, the company expects adjusted revenues for digital entertainment to be between $1.9 billion and $2 billion. This reflects the company’s confidence in its ability to continue deepening engagement with gamers globally and to build on the momentum generated in 2019.

Adjusted revenues for e-commerce are expected between $1.7 billion and $1.8 billion for 2020. This reflects the company’s focus on scaling its platform with speed and efficiency, while further deepening monetization.

Zacks Rank & Stocks to Consider

Currently, Sea Limited carries a Zacks Rank #3 (Hold).

Applied Materials, Inc. AMAT, Garmin Ltd. GRMN and Microsoft Corporation MSFT are some better-ranked stocks in the same industry. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Applied Materials, Garmin and Microsoft is currently pegged at 9.9%, 7.4% and 13.2%, respectively.

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