1Q22 net loss narrower than street had expected
1Q22 net loss of USD580m (+37% YoY) was less than consensus and what
we had expected. We trim our FY22E e-commerce GAAP revenue by 6% to
USD8.5b, at the lower end of revised guidance as we take a more
conservative view amid macro uncertainties. Free Fire is showing signs of
stabilizing. Our SOTP-based TP is cut 13% to USD140 as we tweak multiples
for the respective businesses. But retain BUY as we believe Sea is a proxy
to ASEAN digitisation via e-commerce and digital financial services growth.
Guidance widened; Strong traction in Brazil
1Q22 e-commerce GAAP revenue rose 64% YoY to USD1.5b. Revenue
guidance widened to USD8.5-9.1b (+71.8% YoY at midpoint) from USD8.9-
9.1b as Sea observes a wider dispersion of outcomes amid macro
uncertainties. Shopee has not yet seen material impact from the Covid-19
lockdowns in China. Moreover, the majority of e-commerce sales are localto-local, and cross border is a minor portion. Shopee Brazil continued to
top rankings for downloads (shopping category) and total time spent. In
March and April, Shopee Brazil was also the top shopping app by monthly
active users – suggesting strong traction in the country. Management
continues to guide for Shopee to reach EBITDA breakeven before HQ costs
in ASEAN + Taiwan this year.
Free Fire stabilizing
1Q22 digital entertainment bookings fell 28% YoY to USD0.8b on
normalisation of users as economies reopened (QPU -23% YoY, ARPPU: -6%).
Sea observes that towards end-1Q22, Free Fire started to show early signs
of stabilizing. Free Fire maintains top global rankings and grossing metrics.
In Indonesia, where SeaMoney has the most comprehensive product suite,
over 30% of quarterly active users used multiple products in 1Q22.
Key risks
We believe key risk to our forecast is if we underestimate investments
needed for Shopee and SeaMoney. Despite widening of the guidance range,
management believes the original e-commerce GAAP revenue guidance is
achievable. An additional risk to the e-commerce business is supply chain
disruptions that may impair inventory availability in 2H22, in our view. But
we see the ability of sellers to multi-source as a mitigating factor.