Focus on profitability bears fruit
- A positive set of 3Q22 results with losses narrowing faster vs. expectations, as cost saving measures in Shopee and SeaMoney offset Garena weakness.
- Shopee Asia turned contribution margin positive. Shopee overall guided to reach adj. EBITDA positive by end-FY23F, a year ahead of our forecasts.
- Upgrade from Hold to Add as SE’s focus on profitability starts to bear fruit.
3Q22: Sharp narrowing of losses
Strategic shift to focus on profitability starts to bear fruit, with SE’s 3Q22 non-GAAP net loss of S$370m (-18% qoq, -35% yoy) coming in 20%/25% narrower than our/Bloomberg consensus forecasts. Though this has resulted in a deceleration in topline growth, GAAP revenue of US$3.2bn (+7% qoq, +17% yoy) was in line with expectations. Significant narrowing of losses at Shopee and SeaMoney more than offset weakness in Garena, and we note that losses would have been even lower if one-time severance package and early lease termination costs (US$85m) were excluded. SE continues to focus on improving profitability and limiting cash burn, and reassured investors that it aims to achieve selfsufficiency without relying on any external funding.
E-commerce: Shopee Asia achieved positive contribution margin
Despite flattish e-commerce GMV growth (flat qoq, +14% yoy), strong take-rate increase (+0.9% pts qoq) and optimisation in sales and marketing expenses (esp. on shipping subsidies) have led to segment EBITDA losses narrowing 24% qoq, ahead of estimates. Shopee’s Asia markets achieved contribution margin positive in 3Q22. SE now expects Shopee overall to achieve adj. EBITDA breakeven by end-FY23F, a year ahead of our expectations. This could come at the expense of weak GMV growth in the near-term;
management will only look to reaccelerate growth in a more sustainable manner after achieving groupwide self-sufficiency.
Healthy growth for SeaMoney; Gaming woes continue
SeaMoney saw strong revenue growth of +147% yoy while adj. EBITDA losses narrowed in 3Q22, with more disciplined spend on driving mobile wallet adoption and healthy profitability in credit business. Meanwhile, gaming segment was the only weak spot as bookings further declined (-7% qoq), and adj. EBITDA (-13% qoq) was 9% below our forecast. SE notes that reopening trends continue to have an impact on user engagement, and game spend was further impacted by macro uncertainties hurting discretionary spend. FY22F bookings guidance was lowered to US$2.6bn-2.8bn (from US$2.9bn-3.1bn),
implying further decline of 26% qoq in 4Q22F at the mid-point.
Upgrade from Hold to Add with higher TP of US$75
We upgrade SE from Hold to Add given Shopee’s faster-than-expected narrowing of losses. Our SOP-based TP is raised to US$75 with higher target multiple of 2.9x FY23F P/S for e-commerce (from 2.0x). Potential catalysts include resilient GMV numbers despite profitability push and successful game launches. Downside risks: macro slowdown impacting consumer spend in the region and hurting SE’s topline growth.