In an unexpected turn of events, Sea Ltd. witnessed a sharp 22% drop in its stock value following the revelation of a surprise loss in the third quarter. The company, facing heightened competition from giants like Alibaba Group Holding Ltd. and ByteDance Ltd. on its home turf, experienced a market value decline of approximately $6 billion. The reported net loss of $149 million marked a stark contrast to the $322 million profit posted in the previous quarter, significantly deviating from analysts’ expectations of a $100 million profit.
Sea’s Chief Executive Officer, Forrest Li, addressed investors in a post-results call, emphasizing the need for substantial investments in the online retail platform Shopee. This move comes as a response to the intensifying competition from ByteDance’s TikTok, Alibaba’s Lazada, and PDD Holdings Inc.’s Temu. Li asserted that sacrificing short-term profits to build scale in Shopee would position the company favorably in the future.
While Sea fell short of profit expectations, the company did exceed analysts’ projections for revenue growth. Sales for the quarter increased by 4.9% to $3.3 billion, surpassing the average estimate of $3.2 billion.
Sea, traditionally strong in markets like Indonesia, faced challenges from TikTok and other video-oriented shopping services. However, a September decision by Jakarta to force TikTok to shut its shopping service has altered the competitive landscape.
Investors are closely monitoring Sea’s response to the changing dynamics, particularly after the abrupt exit of TikTok from Indonesia’s shopping scene. Concerns linger about the company’s financial performance, especially against the backdrop of a projected slowdown in Southeast Asia’s internet economy.
Citigroup Inc. analysts, including Alicia Yap, cautioned about the prolonged aggressive spending pattern affecting Shopee’s profitability timing, given the dynamic and intense competition in the market.
Sea’s gaming division, centered around Garena, faced challenges in 2023 due to a lack of new blockbuster titles. Despite this, the company plans to restore its marquee title Free Fire to Indian app stores after a surprise ban in 2022.
Sea’s CEO, Forrest Li, had previously focused on cost-cutting measures to achieve profitability. However, the recent setback has prompted a renewed emphasis on investments in Shopee, including efforts to enhance its live-streaming arm, potentially triggering a price war with competitors.
Amidst competition from global giants and local rivals like GoTo Group, owner of Tokopedia, Sea Ltd. faces strategic challenges in maintaining its market position.
