Our thoughts on Sea Group’s 2022 Q4 and FY results

Last night Asia time (7 March), Sea Group released their 2022 Q4 and Full Year results. Prior to the release, it seems the analyst and media community was quite bearish about this particular quarter (you can check the recent TechinAsia and Dealstreetasia coverages). 

The results turned out to be a pleasant surprise – the share price rose 21.84% during the first trading day of the release. (Was there a short squeeze?)

 As usual, here we are sharing some of our thoughts about the latest set of results. You can also refer to Momentum Academy’s recent report “Apples to Apples: Benchmarking Shopee, Grab, GoTo and other major tech platforms”. 

1. It is the first time that a listed tech major from Southeast Asia reports a positive net income (not adjusted EBITDA). Obviously it is a good boost for the region’s tech sector as a whole. Grab has accelerated its profitability timeline in its latest earnings, and it will be interesting to see how GoTo, which has a much weaker net cash position, will report their results and projections later this month;
2. As many investors and market watchers, we have been tracking Shopee’s operations on the ground closely throughout the year. Advertising platforms, sellers and logistics partners were certainly surprised by the drastic reduction in marketing spend since August – and the ensuing reduction in orders in many market segments. From the release, it seems the total GMV held on despite all these.
   
3. Some media aptly described Sea group’s cost cutting measures in 2022 as “ruthless”. We had argued before that efficiency was not (and probably should not) be a top concern when a tech company was in a high growth trajectory and the capital was cheap. However, whether the company was able to make drastic adjustments when time comes would be a great test of leadership;
4. Because of the cost cutting measures, declining share prices and the pressure on the bottom line on managers, many chose to leave during the last year. The layoffs and certain incidents during those were not handled eloquently by the company. The painful period has shown some encouraging results but it is certainly not over yet – how the company can continue to rally and motivate the remaining core to keep going is something worth watching out for;
5. In the earnings call – an analyst asked whether a ‘new social commerce player’ could become a significant threat. It is quite obvious she is referring to TikTokShop. We have been monitoring TikTok’s ecommerce operations in the region and have to say that their growth in 2022 is impressive – reaching more than $10m GMV per day in Indonesia alone by the end of 2022. However, first TikTok Shop has evolved to be more than just social commerce (it has a marketplace in addition to live/short video commerce now and is actively promoting it); second as we argued earlier, all the logistics and payment infrastructure that Shopee has been building could amount to a moat, TikTok has not been doing that yet (even in China); 
6. Another question is whether Pinduoduo’s Temu (check out our Who is Temu report) will enter Southeast Asia soon to compete against Shopee. Temu is probably going to achieve more than S$300m GMV in the US market this month – and focusing on winning the North American market would probably make more sense (especially in Southeast Asia they would need to navigate some sentiments against cross border). That said, we would not be surprised if Temu goes into Brazil soon (SHEIN is already doubling down there). 
7. We recently did a benchmarking between Shopee and Pinduoduo in a private exercise – and it turned out Pinduoduo is, by some metrics, as much as 10 times more efficient. Whether Shopee could ever reach that level is a question mark – given the cultural, operational and managerial complexities in its markets. However, definitely Shopee has a lot of room for further improvement – another test for its leadership, people and organisation. On the other hand, can we argue that Temu, if it ever enters Southeast Asia, will face similar challenges? 
8. Overall the balance sheet remains stable – the company repaid some loans and kept the level of property & equipment relatively constant. There is a slight reduction in the loan book size but it seems a combination of shifting the payment focus and contribution from consumer credit business has managed to make SeaMoney’s adjusted EBITDA positive. 

 

As mentioned above, for more details on how to make sense of the myriad of reported metrics by key platform companies, do refer to our report “Apples to Apples: Benchmarking Shopee, Grab, GoTo and other major tech platforms”.

We will update the report when all the platform companies covered within have reported their FY 2022 financials towards the end of this month – stay tuned!