Sea Limited Reports First Quarter 2020 Results

“Our company’s mission is to better the lives of consumers and small businesses through technology - and I believe that this mission is more important now than ever given the disruptions we are all facing as a result of the coronavirus crisis,” said Forrest Li, Sea’s Chairman and Group Chief Executive Officer.

“We are fortunate to be in a strong position to play a part in helping our communities navigate these challenging times and get back on the road to recovery. In addition to contributing funds and essential medical equipment to the frontline fight against the virus, we are doing everything we can to support economic recovery across our markets, leveraging the strengths of our platforms as market leaders in the digital economy. Among many other efforts we made to empower our communities, we launched SME recovery programs, including providing special assistance to small businesses to onboard our platforms, accelerated the growth of the staple and essential goods segment of our e-commerce platform to meet increased consumer demand, and quickened the pace of the rollout of our mobile wallet services to facilitate our users’ growing need for online transactions. Through these efforts to harness the benefits of the digital economy, we are helping our communities better navigate near-term turbulence and, at the same time, building even stronger bonds with consumers and merchants across our platforms and the broader communities in our ecosystem.

“The coronavirus crisis is driving a step change in the growth of the digital economy globally, materially accelerating a shift to online lifestyles that is broad, deep, and, in our view, irreversible. We believe that Sea, as a market leader in some of the key sectors of the digital economy, is gaining and will continue to gain a disproportionate share of the resulting growth in our markets. Like all businesses, Sea has been stress-tested by the crisis. Our robust performance through the first quarter and beyond, as we responded to surges in user demands and navigated significant disruption, underlines the fundamental strength, resilience, and adaptability of our business. We believe this will, in the long run, enable us to capture the further accelerated and expanded growth opportunities presented to all of our core businesses across our markets.”

First Quarter 2020 Highlights

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Total adjusted EBITDA was US$(69.9) million compared to US$(32.0) million for the first quarter of 2019.

Digital Financial Services Update

Our digital financial services offerings experienced accelerated growth in the first quarter, spurred by the rapid and accelerating adoption of digital options by consumers and businesses in our region, as well as Shopee’s sustained, fast growth and deepening integration with SeaMoney.

Our mobile wallet total payment volume (“TPV”) for the first quarter exceeded US$1 billion, a milestone we achieved about a year after we started to integrate the mobile wallet service with our Shopee platform. Moreover, quarterly paying users for our mobile wallet services surpassed 10 million for the first quarter of 2020. In the month of April 2020, more than 40% of Shopee’s gross orders in Indonesia, our largest market for SeaMoney, were paid using our mobile wallet service. We continued to rapidly expand our suite of online and offline third-party use cases and partnerships. For instance, in March 2020, we joined forces with Google to offer our mobile wallet as a payment option for the Google Play Store in Thailand.

As a result of the accelerating expansion of the digital economy, and rising demand for online and contactless payments, we believe SeaMoney’s long-term market opportunities are rapidly expanding. We are therefore highly confident in SeaMoney’s growth prospects, and fully focused on maximizing the significant long-term growth potential of SeaMoney.

¹ Rankings data for App Annie is based on combined data from the Google Play and iOS App Stores, unless otherwise stated. Southeast Asia rankings are based on Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. Latin America rankings are based on Argentina, Brazil, Chile, Colombia, Mexico and Uruguay.

² Marketplace revenue mainly consists of transaction-based fees and advertising income and revenue generated from other value-added services.

³ Product revenue mainly consists of revenue generated from direct sales.

Unaudited Summary of Financial Results

 

(Amounts are expressed in thousands of US dollars “$” except for per share data)

⁽¹⁾ This was primarily due to fair value loss of $436.1 million on the 2017 convertible notes as our share prices during the quarter significantly exceeded the conversion prices of the 2017 convertible notes.

⁽²⁾ For a discussion of the use of non-GAAP financial measures, see “Non-GAAP Financial Measures.”

⁽³⁾ Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the Chief Operating Decision Maker (“CODM”) as part of segment performance.

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Revenue

The table below sets forth revenue and adjusted revenue generated from our reported segments. Amounts are expressed in thousands of US dollars (“$”).

		For the Three Months ended March 31,
		2019								2020
		$				% of revenue				$				% of revenue				YOY%
Revenue
Service revenue
Digital Entertainment			173,399				49.3				369,683				51.7				113.2	%
E-commerce and other services			130,663				37.1				266,545				37.3				104.0	%
Sales of goods			47,804				13.6				78,692				11.0				64.6	%
Total revenue			351,866				100.0				714,920				100.0				103.2	%

		2019								2020
		$				% of total adjusted revenue				$				% of total adjusted revenue				YOY%
Adjusted revenue
Service revenue
Digital Entertainment			393,306				67.9				512,424				56.1				30.3	%
E-commerce and other services			137,615				23.8				322,804				35.3				134.6	%
Sales of goods			47,897				8.3				78,692				8.6				64.3	%
Total adjusted revenue			578,818				100.0				913,920				100.0				57.9	%

Our total revenue increased by 103.2% to US$714.9 million in the first quarter of 2020 from US$351.9 million in the first quarter of 2019. Our total adjusted revenue increased by 57.9% to US$913.9 million in the first quarter of 2020 from US$578.8 million in the first quarter of 2019. These increases were mainly driven by the growth in each of the segments detailed as follows:

Cost of Revenue

Our total cost of revenue increased by 62.6% to US$508.1 million in the first quarter of 2020 from US$312.4 million in the first quarter of 2019.

Other Operating Income

Our other operating income increased by 633.2% to US$25.3 million in the first quarter of 2020 from US$3.5 million in the first quarter of 2019. The increase in our other operating income was mainly due to the rebates from e-commerce related logistic services provided by third parties.

Sales and Marketing Expenses

Our total sales and marketing expenses increased by 73.2% to US$308.3 million in the first quarter of 2020 from US$178.0 million in the first quarter of 2019. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars (“$”).

General and Administrative Expenses

Our general and administrative expenses increased by 67.8% to US$126.9 million in the first quarter of 2020 from US$75.6 million in the first quarter of 2019. This increase was primarily due to higher staff compensation and benefit costs as well as increase in office facilities and related expenses.

Research and Development Expenses

Our research and development expenses increased by 126.5% to US$64.6 million in the first quarter of 2020 from US$28.5 million in the first quarter of 2019, primarily due to the increase in research and development staff force.

Non-operating Income or Losses, Net

Non-operating income or losses consist of interest income, interest expense, investment gain (loss), fair value change for the 2017 convertible notes and foreign exchange gain (loss). We recorded a net non-operating income of US$11.2 million in the first quarter of 2020, compared to a net non-operating loss of US$442.8 million in the first quarter of 2019. The net non-operating loss in the first quarter of 2019 was primarily due to a fair value loss of US$436.1 million arising from the fair value accounting treatment for the 2017 convertible notes.

Income Tax Expense

We had a net income tax expense of US$23.2 million and US$7.2 million in the first quarter of 2020 and 2019, respectively. The income tax expense in the first quarter of 2020 was primarily due to withholding tax and corporate income tax expenses incurred by our digital entertainment segment.

Net Loss

As a result of the foregoing, we had net losses of US$280.8 million and US$689.6 million in the first quarter of 2020 and 2019, respectively.

Net Loss Excluding Share-based Compensation and Changes in Fair Value of the 2017 Convertible Notes

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$239.4 million and US$237.3 million in the first quarter of 2020 and 2019, respectively.

 

Basic and Diluted Loss Per Share Based on Net Loss Excluding Share-based Compensation and Changes in Fair Value of the 2017 Convertible Notes Attributable to Sea Limited’s Ordinary Shareholders

Basic and diluted loss per share based on net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$0.52 and US$0.64 in the first quarter of 2020 and 2019, respectively.

 

Webcast and Conference Call Information

The Company’s management will host a conference call today to review Sea’s business and financial performance.

Details of the conference call and webcast are as follows:

Passcode for Participants: 7099128

A replay of the conference call will be available at the Company’s investor relations website (https://www.seagroup.com/investor/financials). An archived webcast will be available at the same link above.

For enquiries, please contact:

About Sea Limited

Sea Limited (NYSE: SE) is a leading global consumer internet company founded in Singapore in 2009. Our mission is to better the lives of consumers and small businesses with technology. We operate three core businesses across digital entertainment, e-commerce, as well as digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest pan-regional e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.

Forward-Looking Statements

This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident,” “guidance,” and similar statements. Among other things, statements that are not historical facts, including statements about Sea’s beliefs and expectations, the business, financial and market outlook, and projections from its management in this announcement, as well as Sea’s strategic and operational plans, contain forward-looking statements. Sea may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the “SEC”), in its annual report to shareholders, in press releases, and other written materials, and in oral statements made by its officers, directors, or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Sea’s goals and strategies; its future business development, financial condition, financial results, and results of operations; the growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in the markets where it operates, including segments within those industries; changes in its revenue, costs or expenditures; its ability to continue to source, develop and offer new and attractive online games and to offer other engaging digital entertainment content; the growth of its digital entertainment, e-commerce and digital financial services businesses and platforms; the growth in its user base, level of user engagement, and monetization; its ability to continue to develop new technologies and/or upgrade its existing technologies; growth and trends of its markets and competition in its industries; government policies and regulations relating to its industries; general economic and business conditions in its markets; and the impact of widespread health developments, including the recent global coronavirus pandemic, and the responses thereto (such as voluntary and in some cases, mandatory quarantines as well as shut downs and other restrictions on travel and commercial, social and other activities) which could materially and adversely affect, among other things, the business and manufacturing activities of its sellers, merchants and logistics providers, the global supply chain including those of its sellers’ and merchants’, and consumer discretionary spending. Further information regarding these and other risks is included in Sea’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Sea undertakes no obligation to update any forward-looking statement, except as required under applicable law.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures to help evaluate our operating performance:

These non-GAAP financial measures have limitations as analytical tools. None of the above financial measures should be considered in isolation or construed as an alternative to revenue, net loss/income, or any other measure of performance or as an indicator of our operating performance. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to Sea’s data. We compensate for these limitations by reconciling the non-GAAP financial measures to their nearest U.S. GAAP financial measures, all of which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on any single financial measure.

The tables below present selected financial information of our reporting segments, the non-GAAP financial measures that are most directly comparable to GAAP financial measures, and the related reconciliations between the financial measures. Amounts are expressed in thousands of US dollars (“$”) except for number of shares & per share data.

 

⁽¹⁾ For the first quarter of 2020, revenue of $263,195 included marketplace revenue of $185,930 and product revenue of $77,265 net of sales incentives. For the first quarter of 2019, revenue of $142,694 included marketplace revenue of $95,566 and product revenue of $47,128 net of sales incentives.

⁽²⁾ For the first quarter of 2020, adjusted revenue of $313,973 included marketplace revenue of $236,708 and product revenue of $77,265. For the first quarter of 2019, adjusted revenue of $149,191 included marketplace revenue of $101,970 and product revenue of $47,221.

⁽³⁾ A combination of multiple business activities that does not meet the quantitative thresholds to qualify as reportable segments are grouped together as “Other Services.”

⁽⁴⁾ Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the CODM as part of segment performance.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Amounts expressed in thousands of US dollars (“$”) except for number of shares & per share data

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⁽¹⁾ Fair value loss of $436.1 million on the 2017 convertible notes was recorded as our share prices significantly exceeded the conversion prices of the 2017 convertible notes.

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars (“$”)

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UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars (“$”)

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UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars (“$”)

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UNAUDITED SEGMENT INFORMATION

The Company has three reportable segments, namely digital entertainment, e-commerce and digital financial services. The Chief Operating Decision Maker (“CODM”) reviews the performance of each segment based on revenue and certain key operating metrics of the operations and uses these results for the purposes of allocating resources to and evaluating the financial performance of each segment. Amounts are expressed in thousands of US dollars (“$”).

⁽¹⁾ A combination of multiple business activities that does not meet the quantitative thresholds to qualify as reportable segments are grouped together as “Other Services.”

⁽²⁾ Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the CODM as part of segment performance.