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Sea Limited Reports First Quarter 2019 Results

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SINGAPORE–(BUSINESS WIRE)–Sea Limited (NYSE: SE) (“Sea” or the “Company”) today announced its financial results for the quarter ended March 31, 2019.

First Quarter 2019 Highlights

1 Latin America rankings data for App Annie is based on Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay. No monthly active user data available for Uruguay.

1 Marketplace revenue mainly consists of transaction-based fees and advertising income and revenue generated from other value-added services.

2 Product revenue mainly consists of revenue generated from direct sales.

Unaudited Summary of Financial Results

 

(Amounts are expressed in thousands of US dollars “$”)

         
For the Three Months

ended March 31,

2018       2019  
$ $ YOY%
 
Revenue
Service revenue
Digital Entertainment 110,658 173,399 56.7 %
E-commerce and other services 32,451 130,663 302.6 %
Sales of goods 11,935       47,804   300.5 %
155,044 351,866 126.9 %
 
Cost of revenue
Cost of service
Digital Entertainment (63,572 ) (84,642 ) 33.1 %
E-commerce and other services (70,793 ) (174,365 ) 146.3 %
Cost of goods sold (12,154 )     (53,403 ) 339.4 %
(146,519 )     (312,410 ) 113.2 %
Gross profit 8,525       39,456   362.8 %
Other operating income 729 3,453 373.7 %
Sales and marketing expenses (152,149 ) (177,978 ) 17.0 %
General and administrative expenses (44,487 ) (75,628 ) 70.0 %
Research and development expenses (10,712 )     (28,509 ) 166.1 %
Total operating expenses (206,619 )     (278,662 ) 34.9 %
Operating loss (198,094 ) (239,206 ) 20.8 %
Non-operating loss, net (18,247 ) (442,780 )(1) 2,326.6 %
Income tax credit (expense) 755 (7,205 ) (1,054.3 )%
Share of results of equity investees (583 )     (418 ) (28.3 )%
Net loss (216,169 )     (689,609 ) 219.0 %
Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes (186,702 )     (237,290 ) 27.1 %
 
Adjusted revenue of Digital Entertainment (2) 146,030 393,306 169.3 %
Adjusted revenue of E-commerce (2) 33,744 149,191 342.1 %
Adjusted revenue of Digital Financial Services (2) 3,923 2,836 (27.7 )%
Revenue of Other Services 13,342       33,485   151.0 %
Total adjusted revenue (2) 197,039       578,818   193.8 %
 
Adjusted EBITDA for Digital Entertainment (2) 55,004 225,816 310.5 %
Adjusted EBITDA for E-commerce (2) (179,649 ) (235,253 ) 31.0 %
Adjusted EBITDA for Digital Financial Services (2) (8,570 ) (11,912 ) 39.0 %
Adjusted EBITDA for Other Services (2) (9,868 ) (8,484 ) (14.0 )%
Unallocated expenses (3) (1,591 )     (2,130 ) 33.9 %
Total adjusted EBITDA (2) (144,674 )     (31,963 ) (77.9 )%

(1) This was primarily due to fair value loss of $436.1 million on the 2017 convertible notes as our share prices during the quarter significantly exceeded the conversion prices of the 2017 convertible notes.

(2) For a discussion of the use of non-GAAP financial measures, see “Non-GAAP Financial Measures.”

(3) Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the Chief Operation Decision Maker (“CODM”) as part of segment performance.

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Revenue

The table below sets forth revenue and adjusted revenue generated from our reported segments. Amounts are expressed in thousands of US dollars (“$”).

  For the Three Months ended March 31,      
2018     2019
$   % of

revenue

$   % of

revenue

YOY%
 
Revenue
Service revenue
Digital Entertainment 110,658 71.4 173,399 49.3 56.7 %
E-commerce and other services 32,451 20.9 130,663 37.1 302.6 %
Sales of goods 11,935 7.7 47,804 13.6 300.5 %
Total revenue 155,044 100.0 351,866 100.0 126.9 %
 
2018 2019
$

% of total

adjusted

revenue

$

% of total

adjusted

revenue

YOY%
 
Adjusted revenue
Service revenue
Digital Entertainment 146,030 74.1 393,306 67.9 169.3 %
E-commerce and other services 39,074 19.8 137,615 23.8 252.2 %
Sales of goods 11,935 6.1 47,897 8.3 301.3 %
Total adjusted revenue 197,039 100.0 578,818 100.0 193.8 %
 

Our total revenue increased by 126.9% to US$351.9 million in the first quarter of 2019 from US$155.0 million in the first quarter of 2018. Our total adjusted revenue increased by 193.8% to US$578.8 million in the first quarter of 2019 from US$197.0 million in the first quarter of 2018. These increases were mainly driven by the growth in each of the segments detailed as follows:

Cost of Revenue

Our total cost of revenue increased by 113.2% to US$312.4 million in the first quarter of 2019 from US$146.5 million in the first quarter of 2018.

Other Operating Income

Our other operating income increased by 373.7% to US$3.5 million in the first quarter of 2019 from US$0.7 million in the first quarter of 2018. The increase was primarily due to an increase in sponsorship from partners who participated in our events and tournaments.

Sales and Marketing Expenses

Our total sales and marketing expenses increased by 17.0% to US$178.0 million in the first quarter of 2019 from US$152.1 million in the first quarter of 2018. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars (“$”).

    For the Three Months

ended March 31,

   
2018     2019 YOY%
Sales and Marketing Expenses $   $
 
Digital Entertainment 16,243 19,989 23.1%
E-commerce 127,198 147,897 16.3%
    For the Three Months

ended March 31,

2018     2019
Digital Entertainment $ $
 
Sales and marketing expenses 16,243 19,989
Adjusted revenue 146,030 393,306
Sales and marketing expenses as a percentage of adjusted revenue 11.1% 5.1%

Sales and marketing expenses as a percentage of adjusted revenue decreased to 5.1% in the first quarter of 2019 from 11.1% in the first quarter of 2018 as we continue to improve the efficiency of our marketing efforts.

    For the Three Months

ended March 31,

2018     2019
E-commerce $ $
 
Sales and marketing expenses 127,198 147,897
GMV 1,941,403 3,529,326
Sales and marketing expenses as a percentage of GMV 6.6% 4.2%

Sales and marketing expenses as a percentage of GMV decreased to 4.2% in the first quarter of 2019 from 6.6% in the first quarter of 2018 as we continue to improve the efficiency of our marketing efforts.

General and Administrative Expenses

Our general and administrative expenses increased by 70.0% to US$75.6 million in the first quarter of 2019 from US$44.5 million in the first quarter of 2018. This increase was primarily due to the expansion of our staff force and the increase in office facilities and related expenses.

Research and Development Expenses

Our research and development expenses increased by 166.1% to US$28.5 million in the first quarter of 2019 from US$10.7 million in the first quarter of 2018, primarily due to the increase in research and development staff force.

Non-operating Income or Losses, Net

Non-operating income or losses consist of interest income, interest expense, investment gain (loss), fair value change for the 2017 convertible notes and foreign exchange gain (loss). We recorded a net non-operating loss of US$442.8 million in the first quarter of 2019, compared to a net non-operating loss of US$18.2 million in the first quarter of 2018. This was primarily due to fair value loss of US$436.1 million on the 2017 convertible notes as our share prices during the quarter significantly exceeded the conversion prices of the 2017 convertible notes.

Income Tax Expense

We had a net income tax expense of US$7.2 million in the first quarter of 2019 and net income tax credit of US$0.8 million in the first quarter of 2018. The income tax expense in the first quarter of 2019 was primarily due to withholding tax and corporate income tax expenses incurred by our digital entertainment segment, partially offset by deferred tax assets recognized during the period.

Share of Results of Equity Investees

We had share of loss of equity investees of US$0.4 million in the first quarter of 2019, compared with US$0.6 million in the first quarter of 2018.

Net Loss

As a result of the foregoing, we had net losses of US$689.6 million and US$216.2 million in the first quarter of 2019 and 2018, respectively. The higher net losses were primarily due to fair value loss of US$436.1 million recognized in the quarter arising from fair value accounting treatment for the 2017 convertible notes issued before our IPO.

Net Loss Excluding Share-based Compensation and Changes in Fair Value of the 2017 Convertible Notes

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$237.3 million and US$186.7 million in the first quarter of 2019 and 2018, respectively.

Webcast and Conference Call Information

The Company’s management will host a conference call today to review Sea’s business and financial performance.

Details of the conference call and webcast are as follows:

Date and time:   8:00 PM U.S. Eastern Time on May 21, 2019
8:00 AM Singapore / Hong Kong Time on May 22, 2019
   
Webcast link:

https://services.choruscall.com/links/se190521.html

 
Dial in numbers: US Toll Free: 1-888-317-6003 Hong Kong: 800-963-976
International: 1-412-317-6061 Singapore: 800-120-5863
United Kingdom: 08-082-389-063
 

Passcode for Participants: 9462467

A replay of the conference call will be available at the Company’s investor relations website (https://www.seagroup.com/investor/financials). An archived webcast will be available at the same link above.

About Sea Limited

Sea’s mission is to better the lives of the consumers and small businesses of our region with technology. Our region includes the key markets of Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore. Sea operates three businesses across digital entertainment, e-commerce, and digital financial services, known as Garena, Shopee, and AirPay, respectively.

Forward-Looking Statements

This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident,” “guidance,” and similar statements. Among other things, statements that are not historical facts, including statements about Sea’s beliefs and expectations, the business, financial and market outlook, and projections from its management in this announcement, as well as Sea’s strategic and operational plans, contain forward-looking statements. Sea may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the “SEC”), in its annual report to shareholders, in press releases, and other written materials, and in oral statements made by its officers, directors, or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Sea’s goals and strategies; its future business development, financial condition, financial results, and results of operations; the growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in the region, including segments within those industries; changes in its revenue, costs or expenditures; its ability to continue to source, develop and offer new and attractive online games and to offer other engaging digital entertainment content; the growth of its digital entertainment, e-commerce and digital financial services businesses and platforms; the growth in its user base, level of user engagement, and monetization; its ability to continue to develop new technologies and/or upgrade its existing technologies; growth and trends of its markets and competition in its industries; government policies and regulations relating to its industries; and general economic and business conditions in the region. Further information regarding these and other risks is included in Sea’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Sea undertakes no obligation to update any forward-looking statement, except as required under applicable law.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures to help evaluate our operating performance:

Contacts

For enquiries:
Martin Reidy
Investors / analysts: ir@seagroup.com
Media: media@seagroup.com

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