Weak Gaming outlook amid robust E-commerce & Fintech
- 4Q21 group revenue of US$3.2bn (+18% q-o-q, +106% y-o-y) was inline while adj group EBITDA loss of (US$492m) was higher than our (US$390m) estimate due to weaker Gaming.
- Raise FY22F/23F group rev by 7% each – higher guidance for E-commerce & Fintech revenue to more than offset weaker Gaming, although EBITDA losses might widen
- Management expects EBITDA breakeven for Southeast & Taiwan E-commerce in 2022F and Fintech in 2023, should renew faith in its expansion plans.
- BUY call maintained with TP under review. Trading at less than 5x FY22F revenue vs 7.4x historical average.
4Q21 Gaming revenue was inline but EBITDA was lower and paying users dropped sharply. Gaming bookings of US$1.1bn (-10% q-o-q) was inline and Gaming EBITDA of US$603m (-16% q-o-q) was lower than our US$650m-700m estimate due to drop in margins to 56% from 59% in 3Q21. Quarterly paying users dropped sharply from 93.2m in 3Q21 to 77.2m. This was mainly due to users spending less time due to economy re-opening in 4Q21 as lockdowns had boosted the numbers exceptionally over 2Q20-3Q21 as shown below. Garena’s quarterly active users (QAU) as of 4Q21 stood at 654.0m where the QPU as a % of QAU was recorded at 11.8% (12.8% in 3Q21).
Quarterly paying users plunged 17% q-o-q to 77.2m accounting for 11.8% of the quarterly active users in 4Q21
Source: Company, DBS Bank
4Q21 E-commerce revenue and EBITDA losses were inline. E-commerce revenue of US$1.6bn (+10% q-o-q, +89% y-o-y) and E-commerce EBITDA loss of (US$878m) vs (US$684m) in 3Q21 was inline. 4Q21 take rate stood at 8.8%, rising from 8.6% in the preceding quarter. Shopee’s adj EBITDA loss per order in 4Q21 rose to US$0.45 (US$0.41 in 3Q21), largely attributable to rising contribution from Brazil where revenue was up 326% y-o-y to over US$70m (~5% of group e-commerce). In Southeast Asia and Taiwan, adjusted EBITDA loss per order was 15 cents, an improvement from 21 cents in 4Q21. This is the first time, Sea Ltd has disclosed this breakdown along the expected lines.
Quarterly take rates continues to rise, rose to 8.8% in 4Q21
Source: Company, DBS Bank
Fintech performance was better than expected. Fintech revenue of US$197.5m (+49% q-o-q, +711% y-o-y) was 24% ahead of our US$160m estimate while fintech EBITDA loss of (US$149m) was lower than our (US$220m) estimate. The total payment volume (TPV) in 4Q21 stood at US$4.9bn (+11% q-o-q, +70% y-o-y). Resultantly, take rate from digital financial services in 4Q21 was at 4.0%, rising from 3.0% recorded in 3Q21 while the number of quarterly active users rose 17% q-o-q to 45.8m during the quarter. Indonesia accounted for 20% of the user base.
Overall, 2022 revenue guidance is robust despite weaker than expected Gaming. Management has guided for Gaming booking of ~US$3bn below our US$4.5bn expectations, E-commerce revenue of ~US$9bn above our US$8bn estimate while fintech revenue of ~US$1.2bn above our US$0.8bn estimate.Management expects EBITDA breakeven for Southeast & Taiwan e-commerce in 2022F and fintech in 2023; should renew faith in its expansion plans