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Sea Ltd raised the earnings forecast for its e-commerce business after quarterly sales topped estimates, a signal that robust demand from Southeast Asian consumers is helping it fend off rivals.
The company’s shares jumped about 10% in pre-market trading after it predicted US$1 billion in adjusted earnings before interest, taxes, depreciation and amortization for online-retail arm Shopee this year. It had previously forecast at least US$880.6 million, and analysts were expecting US$980.7 million on average.
The guidance hike suggests Shopee, Sea’s biggest business, is managing to ward off fierce competition from ByteDance Ltd’s TikTok, Alibaba Group Holding Ltd’s Lazada and upstarts like Temu in Southeast Asia’s rapidly growing e-commerce market. Yet margins remain thin as Sea spends to expand in markets such as Brazil and contends with challenges such as potential regulatory hurdles in Indonesia and cost increases caused by the conflict in the Middle East.
To widen its take rate, the share of merchandise sales earned as revenue, Shopee is increasingly relying on its advertising business. The company made 70% more from ads in the second quarter, mainly from charging sellers higher fees compared with last year, chief executive officer Forrest Li said on a conference call.
“We still see opportunities to increase our take rate,” Li said.
Second-quarter revenue for the company as a whole rose 48% to US$7.8 billion, topping the US$7.1 billion average analyst estimate. Adjusted Ebitda for the three months through June advanced 11% to US$917 million, while earnings on that basis at Shopee climbed 12% to US$255 million.
Through Monday, shares of Sea had lost 10% this year as investors assessed the impact of intense competition and rising oil prices on its operations.
The company has increased development spending and made structural shifts after Li declared that a trillion-dollar market capitalisation was possible if Sea doubled down on artificial intelligence. Li is betting the AI investments can underpin the company’s next phase of growth much as the rise of PCs and smartphones helped propel Shopee and Sea’s gaming unit Garena.
Earlier this year, Sea released a generative-AI companion chatbot called Migoo across regions including the US, marking one of the company’s most significant steps into the technology yet. Mostly, the Singaporean internet firm has embedded the new technology in small ways like through product recommendations and seller tools, as well as through partnerships. It joins a growing number of companies like rival Alibaba that are investing in AI to catalyse growth while competition in their core business intensifies.
