1Q22: Strong execution
? We remain positive on SE with 1Q results showing operating leverage gains
for Shopee and SeaMoney while maintaining strong growth trends.
? Shopee continues to scale well in Brazil. E-commerce growth relatively intact
(midpoint of revised FY22F guidance: 72% yoy) despite macro challenges.
? Garena saw weakness as expected, but early signs of stabilisation were seen
towards end-1Q. DFS the bright spot as SE focuses on driving monetisation.
Solid set of 1Q results
SEA Ltd (SE) reported 1Q22 adjusted revenue of US$2.6bn (-10% qoq, +24% yoy) and
adj. LBITDA of US$510m (1Q21: adj. EBITDA of S$88m). Results were in line with our
expectations but above Bloomberg consensus, with 1Q22 GAAP net loss of US$580m
coming in at 30%/20% of our/consensus loss forecasts.
E-commerce (Shopee) – On track to profitability in SEA + Taiwan
Shopee’s GAAP revenue rose 64% yoy in 1Q22, aided by 39% yoy GMV growth and takerate expansion of 1.5% pts yoy. GPM improved yoy due to faster growth of higher-margin
transaction-based fees and advertising income. Unit economics further improve with
Southeast Asia and Taiwan markets’ EBITDA loss per order (excl. HQ costs) narrowing to
4cts (1Q21: 12cts), SE continues to expect EBITDA breakeven (excl. HQ costs) for these
markets by this year. Brazil’s loss per order also narrowed 45% yoy to US$1.5 (while
managing to grow order volumes at c.200% yoy), and Shopee Brazil was ranked the no.1
app in the shopping category by monthly active user (MAU) in Mar and Apr 2022 by data.ai.
In view of macro uncertainties, Shopee widened its revenue guidance for FY22F to
US$8.5bn-9.1bn (from US$8.9bn-9.1bn). Nevertheless, the midpoint of its guidance points
to continued strong growth at +71.8% yoy.
Gaming (Garena) – Signs of stabilisation observed
Segment bookings fell to US$0.8bn (1Q21: US$1.1bn) due to post-Covid normalisation
and impact of Free Fire India ban. Adj. EBITDA margin contracted due to higher spend to
improve user engagement. SE saw early signs of monthly user trends for Free Fire
stabilising towards the end of 1Q, though the long-term impact of the economy reopening
on Free Fire gamers remains to be seen. SE plans to continue focusing on promoting the
longevity of Free Fire game by introducing more diversified content and game modes.
Fintech (DFS, SeaMoney) – Driving monetisation
Segment GAAP revenue grew 360% yoy, while adjusted EBITDA loss narrowed on both a
qoq and yoy basis as SE rolls out more financial products across markets. SE sees this as
a high-quality revenue driver without significant need of investment to scale. SE has
secured four digital banking licenses to date across the region (with Indo launch seeing
strong traction), paving the way for it to tap into huge market potential from the unbanked
population in Southeast Asia. Maintain Add. Our SOP-based TP is lowered to US$150 as
we lower target multiples across segments in view of rising interest rate environment.