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Raising e-commerce guidance once again

■   Shopee’s strong performance led SE to beat topline growth estimates once again. E-commerce revenue guidance for FY21F raised for the second time.
■   Lack of revised guidance for the gaming segment implies a 4Q slowdown, but SE continues to see longer-term growth opportunities for Free Fire.
■   Reiterate Add and SOP-based TP of US$425.

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3Q21 topline another beat; raising e-commerce guidance
SEA Ltd’s (SE) 3Q21 adjusted revenue of US$2.8bn (+15% qoq, +77% yoy) was 6.5% ahead of our expectations, mainly due to stronger take-rate expansion of its e-commerce unit. 3Q21 adj. LBITDA of US$165m (3Q20: adj. EBITDA of S$120m) fell short of estimates due to elevated sales and marketing spend to drive growth. 9M core net loss made up 88%/79% of our/Bloomberg consensus FY21F estimates. Given the strong performance YTD, SE again raised its FY21F revenue guidance for the e-commerce segment to US$5.0bn-5.2bn (midpoint: +135% yoy), from US$4.7bn-4.9bn previously.

E-commerce (Shopee) the bright spot
Shopee’s revenue grew by 134% yoy to US$1.45bn, as Covid-19 tailwinds aided GMV growth (+81% yoy), while take-rate expanded strongly to 7.1% (3Q20: 5.1%). Adj. LBITDA expanded to US$684m (+127% yoy), though Shopee shared that loss per order narrowed both on a qoq and yoy basis for core markets, Southeast Asia and Taiwan. According to App Annie, Shopee again ranked first in the Shopping category by average monthly active users and total time spent in app in Southeast Asia and Taiwan (this includes Indonesia specifically as well) in 3Q21. Management plans to focus on growing existing core markets in ASEAN as well as new market, Brazil, and test waters in new markets in other parts of the world where local sellers and buyers are underserved.

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Lack of revised guidance for gaming implies a 4Q slowdown
Garena bookings grew by 29% yoy to US$1.22bn, though growth in quarterly active users (QAU) eased to 729m (+0.5% qoq). The lack of upward revision in FY21F gaming segment bookings (US$4.5bn-4.7bn) implies a sequential slowdown in 4Q. Management looks to sustain Free Fire’s user base in existing markets by introducing more game modes, in-game features, and social aspects, while at the same time entering new markets with Free Fire Max (an enhanced version of the game). There will also be an increased focus on content creation (to build up IP) and deeper engagement through offline experiences. Garena is also building up its game pipeline, both through self-development capabilities as well as investment/strategic partnerships with other game studios.

Reiterate Add and TP of US$425
Reiterate Add and SOP-based TP of US$425. We continue to like SE for its solid execution across core businesses, as well as rapidly expanding total addressable market (TAM) through 1) new e-commerce market launches, and 2) growing verticals within the Shopee ecosystem. Potential re-rating catalyst: sustained strong ecommerce growth. Downside risks: execution risk in new business ventures and markets.