Sea Limited (NYSE:SE) (“Sea” or the “Company”) today announced
its financial results for the fourth quarter and full year ended
December 31, 2017.
“We made excellent progress in all of our businesses in the
fourth quarter,” stated Forrest Li, Chairman and Group Chief
Executive Officer of Sea. “Garena, our digital entertainment
business, launched its first self-developed mobile game, Free Fire.
Shopee, our e-commerce platform, continued to grow robustly across
all of our markets, as we forged ahead in our mission to support
millions of sellers across the region, and empower consumers.
AirPay, our digital financial services platform, further
strengthened its payment infrastructure. We remain deeply committed
to serving as a key enabler to our region’s rapid digital
evolution.”
Fourth Quarter 2017 Key Metrics
- Group
- Total adjusted revenue was US$164.5
million, up 72.8% year-on-year from US$95.2 million for the fourth
quarter of 2016 and up 8.3% quarter-on-quarter from US$151.9
million for the third quarter of 2017.
- Total adjusted EBITDA was US$(140.2)
million, compared to US$(56.0) million for the fourth quarter of
2016 and US$(99.7) million for the third quarter of 2017.
- Digital Entertainment
- Adjusted revenue was US$141.9 million,
up 59.2% year-on-year from US$89.1 million for the fourth quarter
of 2016 and up 5.3% quarter-on-quarter from US$134.7 million for
the third quarter of 2017.
- Adjusted EBITDA was US$52.6 million, an
increase of 216.4% year-on-year from US$16.6 million for the fourth
quarter of 2016 and up 16.7% quarter-on-quarter from $45.1 million
for the third quarter of 2017.
- Quarterly active users (“QAU”) was 87.8
million, an increase of 74.2% year-on-year from 50.4 million for
the fourth quarter of 2016 and up 27.2% quarter-on-quarter from
69.0 million for the third quarter of 2017.
- Average revenue per user (“ARPU”) was
US$1.6 compared to US$1.8 for the fourth quarter of 2016 and US$2.0
for the third quarter of 2017.
- E-Commerce
- Gross merchandise value (“GMV”) was
US$1.6 billion, an increase of 206.1% year-on-year from US$515.8
million for the fourth quarter of 2016 and up 48.3%
quarter-on-quarter from US$1.1 billion for the third quarter of
2017.
- Gross orders for the quarter was 98.3
million, an increase of 243.7% year-on-year from 28.6 million for
the fourth quarter of 2016 and up 49.2% quarter-on-quarter from
65.9 million for the third quarter of 2017.
- Adjusted revenue for the quarter was
US$9.3 million, up 61.6% quarter-on-quarter from US$5.8 million.
There was no e-commerce adjusted revenue for the fourth quarter of
2016.
- Adjusted EBITDA was US$(175.4) million,
compared to US$(59.2) million for the fourth quarter of 2016 and
US$(130.0) million for the third quarter of 2017.
- Sales and marketing as a percentage of
GMV stood at 8.5%, for both the fourth quarters of 2016 and 2017,
and improved from 9.7% for the third quarter of 2017.
- Digital Financial Services
- Gross transaction value of our digital
financial services as a whole (“GTV”) grew 310.7% year-on-year from
US$250.2 million and 129.3% quarter-on-quarter from US$448.2
million to reach US$1.0 billion.
Full Year 2017 Key Metrics
- Group
- Total adjusted revenue was US$553.6
million, up 58.6% year-on-year from US$348.9 million for the full
year of 2016.
- Total adjusted EBITDA was US$(332.1)
million, compared to US$(130.1) million for the full year of
2016.
- Digital Entertainment
- Adjusted revenue was US$495.9 million,
up 49.7% year-on-year from US$331.3 million for the full year of
2016.
- Adjusted EBITDA was US$174.9 million,
an increase of 104.6% year-on-year from US$85.5 million for the
full year of 2016.
- E-Commerce
- GMV was US$4.1 billion, an increase of
257.5% year-on-year from US$1.2 billion for the full year of
2016.
- Gross orders was 244.8 million, an
increase of 231.7% year-on-year from 73.8 million for the full year
of 2016.
- Adjusted revenue was US$17.7
million.
- Adjusted EBITDA was US$(444.3) million,
compared to US$(169.7) million for the full year of 2016.
- Sales and marketing as a percentage of
GMV was 8.3% compared to 11.0% for the full year of 2016.
- Digital Financial Services
- GTV grew 249.2% year-on-year from
US$614.4 million to reach US$2.1 billion.
Strategic Business Updates
Digital Entertainment
Garena enjoyed healthy growth this quarter, buoyed by factors
including the continued growth of one of the leading mobile games
in the region, Arena of Valor. Our mobile game business has been a
key beneficiary of the increasing smartphone penetration in the
region. For instance, Arena of Valor has achieved 10 million daily
active users (“DAU”). Moreover, we continue to complement this
franchise through a growing e-sports league, video streaming
options and other ancillary services.
Another important milestone this quarter was the launch of our
fully self-developed game, Free Fire, on December 4, 2017. Free
Fire is a “battle royale” type of mobile game developed in-house by
Garena. The game was launched on both the iOS App Store and Google
Play Store in many markets around the world and has achieved 6
million DAUs. We are committed to expanding our game development
capabilities further, while continuing to build our position as the
partner of choice in our markets for the world’s leading game
development studios.
E-Commerce
Shopee achieved robust growth in both GMV and gross orders in
each of our markets in the fourth quarter of 2017. This growth was
driven primarily by our on-the-ground efforts to attract new buyers
and sellers in our focus categories.
Shopee has focused much of its innovation on launching
value-added services to our ever-expanding seller base,
particularly for brands that use our Shopee Mall platform. We
continue to expand our support for sellers by offering them
integrated logistics and payments solutions as well as fulfilment
and other services.
We have begun monetization by rolling out performance-based
advertising tools in all of our markets. In Taiwan and in our
cross-border transactions, we have also started to charge
transaction-based commissions to sellers.
Digital Financial Services
We continue to focus our efforts on building up the
infrastructure to support our existing platforms and to improve
user experience. One of our recent initiatives in this area is the
deeper integration of AirPay with Shopee.
Other Developments
Retirement of Director and Group President and Election of
New Director
The Company’s Group President and Director, Nicholas A. Nash,
plans to retire from his position as the Group President at
the end of 2018. During the period before his retirement, Mr.
Nash will continue to advise the Company’s Group Chief Executive
Officer on the Company’s long-term strategic priorities. Concurrent
with announcing his retirement, Mr. Nash has also retired from the
Company’s board as of February 23, 2018. On February 24, 2018, the
Company’s board elected Tony Tianyu Hou to serve as a director. Mr.
Hou is also the Group Chief Financial Officer of the Company.
Amendment of Equity Incentive Plan
The Company has amended its Amended and Restated Incentive Plan
(the “Plan”), effective on February 24, 2018, to increase the
maximum number of its Class A ordinary shares (“Ordinary Shares”)
that may be delivered under the Plan from 53,000,000 shares to
83,000,000 shares (the “ESOP Pool Size”), and to increase the ESOP
Pool Size on the first day of year 2019, 2020, 2021 and 2022 by 5%
of the total number of Ordinary Shares outstanding on that day
immediately before such annual increase. Sea intends to use such
increases in the ESOP Pool Size to make equity grants to its
management team and other employees, so as to better attract global
talents and more closely align the interest of its employees with
the Company and its shareholders.
Summary of Financial Results
(Amounts are expressed in thousands of US
dollars “$”)
For Three Month For Full
Year ended December 31, ended December 31,
2016 2017 2016 2017 $
$ YOY% $ $ YOY% (unaudited) (unaudited) (unaudited)
(unaudited)
Revenue Digital Entertainment 82,407
106,323 29.0% 327,985 365,167 11.3% Others 6,054 18,281
202.0% 17,685 49,023 177.2% 88,461 124,604 40.9% 345,670
414,190 19.8%
Cost of revenue Digital Entertainment
(47,298) (60,240) 27.4% (185,314) (217,986) 17.6% Others (15,879)
(40,819) 157.1% (47,284) (108,892) 130.3% (63,177)
(101,059) 60.0% (232,598) (326,878) 40.5%
Gross
profit 25,284 23,545 (6.9)% 113,072 87,312
(22.8)% Other operating income 415 2,157 419.8% 2,103 3,497 66.3%
Sales and marketing expenses (61,763) (156,418) 153.3% (187,372)
(425,974) 127.3% General and administrative expenses (41,304)
(51,754) 25.3% (112,383) (137,868) 22.7% Research and development
expenses (5,786) (8,671) 49.9% (20,809) (29,323)
40.9%
Total operating expenses (108,438) (214,686)
98.0% (318,461) (589,668) 85.2%
Operating loss
(83,154) (191,141) 129.9% (205,389) (502,356) 144.6% Non-operating
income (loss), net 15,150 (62,283) (511.1)% 8,503 (46,153) (642.8)%
Income tax expense 1,047 (8,730) (933.8)% (8,546) (10,745) 25.7%
Share of results of equity
investees
(5,279) (986) (81.3)% (19,523) (1,912) (90.2)%
Net
loss (72,236) (263,140) 264.3% (224,955)
(561,166) 149.5%
Adjusted net loss (1) (61,981)
(251,563) 305.9% (196,114) (532,530) 171.5% Adjusted
revenue of Digital
Entertainment (1)
89,132 141,883 59.2% 331,252 495,878 49.7% Adjusted revenue of
E-Commerce (1) - 9,319 - - 17,717 - Revenue of Digital Financial
Services 1,709 4,102 140.0% 5,892 16,270 176.1% Revenue of Other
Services 4,345 9,213 112.0% 11,793 23,719 101.1%
Total adjusted revenue (1) 95,186 164,517 72.8%
348,937 553,584 58.6% Adjusted EBITDA for Digital
Entertainment (1)
16,626 52,607 216.4% 85,492 174,939 104.6% Adjusted EBITDA for
E-Commerce (1) (59,188) (175,414) (196.4)% (169,716) (444,280)
(161.8)% Adjusted EBITDA for Digital
Financial Services (1)
(9,240) (7,551) 18.3% (33,682) (36,697) (9.0)% Adjusted EBITDA for
Other Services (1) (2,495) (7,276) (191.6)% (9,276) (18,190)
(96.1)% Unallocated expenses (2) (1,708) (2,579) (51.0)%
(2,937) (7,887) (168.5)%
Total adjusted EBITDA (1)
(56,005) (140,213) (150.4)% (130,119) (332,115)
(155.2)%
(1) For a discussion of the use of non-GAAP financial measures,
see “Non-GAAP Financial Measures.”(2) Unallocated expenses are
mainly relating 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 December 31, 2017 Compared to Three Months
Ended December 31, 2016
Revenue
The table below sets forth revenue generated from our reported
segments. Amounts are expressed in thousands of US dollars
(“$”).
For the Three Months ended December 31,
2016 2017 $
% ofrevenue
$
% ofrevenue
YOY% (unaudited) (unaudited)
Revenue Digital Entertainment
82,407 93.2 106,323 85.3 29.0% E-Commerce - - 4,966 4.0 - Digital
Financial Services 1,709 1.9 4,102 3.3 140.0% Other Services 4,345
4.9 9,213 7.4 112.0% 88,461 100.0 124,604 100.0 40.9%
2016 2017 $
% of totaladjustedrevenue
$
% of totaladjustedrevenue
YOY% (unaudited) (unaudited) Adjusted revenue of Digital
Entertainment 89,132 93.6 141,883 86.2 59.2% Adjusted revenue of
E-Commerce - - 9,319 5.7 - Revenue of Digital Financial Services
1,709 1.8 4,102 2.5 140.0% Revenue of Other Services 4,345 4.6
9,213 5.6 112.0%
Total adjusted revenue 95,186 100.0 164,517
100.0 72.8%
Our total revenue increased by 40.9% to US$124.6 million in the
fourth quarter of 2017 from US$88.5 million in the fourth quarter
of 2016. Our total adjusted revenue increased by 72.8% to US$164.5
million in the fourth quarter of 2017 from US$95.2 million in the
fourth quarter of 2016. These increases were mainly driven by the
growth in each of the segments detailed as follows:
- Digital Entertainment: Revenue
increased by 29.0% to US$106.3 million in the fourth quarter of
2017 from US$82.4 million in the fourth quarter of 2016. Adjusted
revenue increased by 59.2% to US$141.9 million in the fourth
quarter of 2017 from US$89.1 million in the fourth quarter of 2016.
This increase was primarily due to the growth of our QAUs to 87.8
million in the fourth quarter of 2017 from 50.4 million in the
fourth quarter of 2016, as we launched new games and expanded our
existing games into new markets, which in turn increased the number
of our paying users. In the fourth quarter of 2017, we have revised
our estimation on certain games’ revenue recognition period
(including Arena of Valor’s), using average paying user lives
instead of game licensing periods of the respective games. The
change in estimation was based on management’s best understanding
of the user behaviours reflected in the data that management
collected over time. The impact of such changes was accounted for
prospectively and was not significant to our digital entertainment
revenue had we not made such changes. We believe changing the
estimation reflects the economic essence of the respective games
better and provides better quality financial reporting.
- E-Commerce: We began monetizing our
e-commerce business in 2017. In the fourth quarter of 2017, our
e-commerce revenue was US$5.0 million. Our e-commerce adjusted
revenue was US$9.3 million in the same period.
- Digital Financial Services: Revenue
increased by 140.0% to US$4.1 million in the fourth quarter of 2017
from US$1.7 million in the fourth quarter of 2016. This increase
was primarily attributable to the addition of use cases to our
AirPay platform and a further deepening of our market
penetration.
- Other Services: Revenue increased by
112.0% to US$9.2 million in the fourth quarter of 2017 from US$4.3
million in the fourth quarter of 2016. This increase was primarily
due to ancillary services we provide to our e-commerce platform
users.
Cost of Revenue
Our total cost of revenue increased by 60.0% to US$101.1 million
in the fourth quarter of 2017 from US$63.2 million in the fourth
quarter of 2016. This increase was in line with the overall growth
of our businesses:
- Digital Entertainment: Cost of revenue
increased by 27.4% to US$60.2 million in the fourth quarter of 2017
from US$47.3 million in the fourth quarter of 2016. This increase
was primarily due to an increase in royalty payments to game
developers as well as in other costs directly associated with our
digital entertainment segment which were largely in line with the
revenue growth of our business.
- Others: Cost of revenue for our other
segments combined increased by 157.1% to US$40.8 million in the
fourth quarter of 2017 from US$15.9 million in the fourth quarter
of 2016. This increase was primarily due to bank transaction fees
driven by GMV growth from our e–commerce business, as well as
higher staff compensation and benefit costs.
Sales and Marketing Expenses
Our total sales and marketing expenses increased by 153.3% to
US$156.4 million in the fourth quarter of 2017 from US$61.8 million
in the fourth quarter of 2016. This increase was in line with the
overall growth of our businesses. The table below sets forth the
breakdown of our sales and marketing expenses of our two major
reporting segments. Amounts are expressed in thousands of US
dollars (“$”).
For the Three Monthsended
December 31,
2016 2017 YOY%
Sales and Marketing
Expenses $
(unaudited)
$
(unaudited)
Digital Entertainment 13,335 16,854 26.4% E-Commerce 43,990 134,961
206.8%
- Digital Entertainment: Sales and
marketing expenses increased by 26.4% to US$16.9 million in the
fourth quarter of 2017 from US$13.3 million in the fourth quarter
of 2016. This increase was primarily due to the launch of new games
and our continued efforts to expand our existing games into new
markets, which in turn enlarged our user base and increased the
number of our paying users.
For the Three Months ended
December 31,
2016 2017 Digital Entertainment $
(unaudited)
$
(unaudited)
Sales and marketing expenses 13,335 16,854 Adjusted revenue 89,132
141,883 Sales and marketing expenses as a percentage of adjusted
revenue 15.0% 11.9%
Sales and marketing expenses as a percentage of adjusted revenue
decreased to 11.9% in the fourth quarter of 2017 from 15.0% in the
fourth quarter of 2016 as we continue to improve the efficiency of
our marketing efforts.
- E-Commerce: Sales and marketing
expenses increased by 206.8% to US$135.0 million in the fourth
quarter of 2017 from US$44.0 million in the fourth quarter of 2016.
The increase in marketing efforts was aligned with our strategy to
fully capture the market growth opportunity and was primarily
driven by shipping and other promotions on our platform in order to
increase user base and enhance user engagement.
For the Three Months
endedDecember 31,
2016 2017 E-Commerce $
(unaudited)
$
(unaudited)
Sales and marketing expenses 43,990 134,961 GMV 515,791 1,578,599
Sales and marketing expenses as a percentage of GMV 8.5% 8.5%
Sales and marketing expenses as a percentage of GMV was 8.5% in
the fourth quarter of 2016 and 2017. It improved from 9.7% in the
third quarter of 2017.
General and Administrative Expenses
Our general and administrative expenses increased by 25.3% to
US$51.8 million in the fourth quarter of 2017 from US$41.3 million
in the fourth quarter of 2016. This increase was primarily due to
an expansion of our staff force, an increase in office facilities
and related expenses, as well as an increase in professional fees
and other expenses.
Research and Development Expenses
Our research and development expenses increased by 49.9% to
US$8.7 million in the fourth quarter of 2017 from US$5.8 million in
the fourth quarter of 2016, primarily due to an increase in
research and development staff force as we expanded and enriched
our product offerings.
Non-operating Income or Losses, Net
Non-operating income or losses consists of interest income,
interest expense, investment gain (loss), fair value change for
convertible promissory notes and foreign exchange gain (loss). The
amount was a net non-operating loss of US$62.3 million in the
fourth quarter of 2017, compared to a net non-operating gain of
US$15.2 million in the fourth quarter of 2016. This was primarily
due to a charge of fair value loss of US$52.0 million from the fair
value accounting treatment for the convertible promissory notes and
interest expense on those convertible promissory notes recognized
in the fourth quarter of 2017; while an investment gain was
recognized in the fourth quarter of 2016 due to the disposal of an
associated company.
Income Tax Expense
We had an income tax expense of US$8.7 million in the fourth
quarter of 2017 which was primarily due to the corporate income
taxes and withholding tax expenses recognized for our digital
entertainment segment. The income tax benefit in the fourth quarter
of 2016 was mainly driven by a reduction in statutory withholding
tax rate in one of our markets.
Share of Results of Equity Investees
We had share of losses of equity investees of US$1.0 million in
the fourth quarter of 2017, compared with US$5.3 million in the
fourth quarter of 2016. This is primarily due to lower losses we
picked up following the disposal of an associated company in
2017.
Net Loss
As a result of the foregoing, we had net losses of US$263.1
million and US$72.2 million in the fourth quarter of 2017 and 2016,
respectively.
Adjusted Net Loss
Adjusted net loss, which is net loss adjusted to remove
share-based compensation expenses, was US$251.6 million and US$62.0
million in the fourth quarter of 2017 and 2016, respectively.
Full Year Ended December 31, 2017 Compared to Full Year Ended
December 31, 2016
Revenue
The table below sets forth revenue generated from our reported
segments. Amounts are expressed in thousands of US dollars
(“$”).
For the Full Year ended December 31,
2016 2017 $
% ofrevenue
$
% ofrevenue
YOY% (unaudited) (unaudited)
Revenue Digital Entertainment
327,985 94.9 365,167 88.2 11.3% E-Commerce - - 9,034 2.2 - Digital
Financial Services 5,892 1.7 16,270 3.9 176.1% Other Services
11,793 3.4 23,719 5.7 101.1% 345,670 100.0 414,190 100.0 19.8%
2016 2017 $
% of totaladjustedrevenue
$
% of totaladjustedrevenue
YOY% (unaudited) (unaudited) Adjusted revenue of Digital
Entertainment 331,252 94.9 495,878 89.6 49.7% Adjusted revenue of
E-Commerce - - 17,717 3.2 - Revenue of Digital Financial Services
5,892 1.7 16,270 2.9 176.1% Revenue of Other Services 11,793 3.4
23,719 4.3 101.1%
Total adjusted revenue 348,937 100.0
553,584 100.0 58.6%
Our total revenue increased by 19.8% to US$414.2 million for the
full year ended December 31, 2017 from US$345.7 million for the
full year ended December 31, 2016. Our total adjusted revenue
increased by 58.6% to US$553.6 million for the full year ended
December 31, 2017 from US$348.9 million for the full year ended
December 31, 2016. These increases were mainly driven by the growth
in each of the segments detailed as follows:
- Digital Entertainment: Revenue
increased by 11.3% to US$365.2 million for the full year ended
December 31, 2017 from US$328.0 million for the full year ended
December 31, 2016. Adjusted revenue increased by 49.7% to US$495.9
million for the full year ended December 31, 2017 from US$331.3
million in the full year ended December 31, 2016. This increase was
primarily due to the growth of our user base in 2017, as we
launched new games and expanded our existing games into new
markets, which in turn increased the number of paying users.
- E-Commerce: We began monetizing our
e-commerce business in 2017. For the full year ended December 31,
2017, our e-commerce revenue was US$9.0 million. Our e-commerce
adjusted revenue was US$17.7 million in the same period.
- Digital Financial Services: Revenue
increased by 176.1% to US$16.3 million for the full year ended
December 31, 2017 from US$5.9 million for the full year ended
December 31, 2016. This increase was primarily attributable to the
addition of use cases to our AirPay platform and a further
deepening of our market penetration.
- Other Services: Revenue increased by
101.1% to US$23.7 million for the full year ended December 31, 2017
from US$11.8 million for the full year ended December 31, 2016.
This increase was primarily due to ancillary services we provide to
our e-commerce platform users.
Cost of Revenue
Our total cost of revenue increased by 40.5% to US$326.9 million
for the full year ended December 31, 2017 from US$232.6 million for
the full year ended December 31, 2016. This increase was in line
with the overall growth of our businesses:
- Digital Entertainment: Cost of revenue
increased by 17.6% to US$218.0 million for the full year ended
December 31, 2017 from US$185.3 million for the full year ended
December 31, 2016. This increase was primarily due to an increase
in royalty payments to game developers as well as in other costs
directly associated with our digital entertainment business which
were in line with the increased revenue in this segment.
- Others: Cost of revenue for our other
segments combined increased by 130.3% to US$108.9 million for the
full year ended December 31, 2017 from US$47.3 million for the full
year ended December 31, 2016. This increase was primarily due to
bank transaction fees driven by GMV growth from our e-commerce
business, as well as higher staff compensation and benefit
costs.
Sales and Marketing Expenses
Our total sales and marketing expenses increased by 127.3% to
US$426.0 million for the full year ended December 31, 2017 from
US$187.4 million for the full year ended December 31, 2016. This
increase was in line with the overall growth of our businesses. The
table below sets forth the breakdown of our sales and marketing
expenses of our two major reporting segments. Amounts are expressed
in thousands of US dollars (“$”).
For the Full Year ended December
31,
2016 2017 YOY%
Sales and Marketing
Expenses $
(unaudited)
$
(unaudited)
Digital Entertainment 44,030 61,472 39.6% E-Commerce 126,220
339,768 169.2%
- Digital Entertainment: Sales and
marketing expenses increased by 39.6% to US$61.5 million for the
full year ended December 31, 2017 from US$44.0 million for the full
year ended December 31, 2016. This increase was primarily due to
the launch of new games and our continued efforts to expand our
existing games into new markets, which in turn enlarged our user
base and increased the number of our paying users.
For the Full Yearended December
31,
2016 2017 Digital Entertainment $
(unaudited)
$
(unaudited)
Sales and marketing expenses 44,030 61,472 Adjusted revenue 331,252
495,878 Sales and marketing expenses as a percentage of adjusted
revenue 13.3% 12.4%
Sales and marketing expenses as a percentage of adjusted revenue
decreased to 12.4% for the full year ended December 31, 2017 from
13.3% for the full year ended December 31, 2016 as we continue to
improve the efficiency of our marketing efforts.
- E-Commerce: Sales and marketing
expenses increased by 169.2% to US$339.8 million for the full year
ended December 31, 2017 from US$126.2 million for the full year
ended December 31, 2016. The increase in marketing efforts was
aligned with our strategy to fully capture the market growth
opportunity and was primarily driven by shipping and other
promotions on our platform in order to increase user base and
enhance user engagement.
For the Full Year ended December
31,
2016 2017 E-Commerce $
(unaudited)
$
(unaudited)
Sales and marketing expenses 126,220 339,768 GMV 1,150,270
4,112,732 Sales and marketing expenses as a percentage of GMV 11.0%
8.3%
Sales and marketing expenses as a percentage of GMV decreased to
8.3% for the full year ended December 31, 2017 from 11.0% for the
full year ended December 31, 2016.
General and Administrative Expenses
Our general and administrative expenses increased by 22.7% to
US$137.9 million for the full year ended December 31, 2017 from
US$112.4 million for the full year ended December 31, 2016. This
increase was primarily due to an expansion of our staff force, an
increase in office facilities and related expenses, as well as an
increase in professional fees and other expenses.
Research and Development Expenses
Our research and development expenses increased by 40.9% to
US$29.3 million for the full year ended December 31, 2017 from
US$20.8 million for the full year ended December 31, 2016,
primarily due to an increase in research and development staff
force as we expanded and enriched our product offerings.
Non-operating Income or Losses, Net
Non-operating income or losses consists of interest income,
interest expense, investment gain (loss), fair value change for
convertible promissory notes and foreign exchange gain (loss). The
amount was a net non-operating loss of US$46.2 million for the full
year ended December 31, 2017, compared to a net non-operating gain
of US$8.5 million for the full year ended December 31, 2016. This
is primarily due to a charge of fair value loss of US$52.0 million
from the fair value accounting treatment for the convertible
promissory notes and interest expenses on those convertible
promissory notes, partially offset by an investment gain arising
from the disposal of and a net gain arising from re-measurement of
our investments in 2017; while an investment gain was recognized in
2016 due to the disposal of an associated company.
Income Tax Expense
We had an income tax expense of US$10.7 million for the full
year ended December 31, 2017, compared with an income tax expense
of US$8.5 million for the full year ended December 31, 2016. This
was primarily due to higher corporate income tax and withholding
tax expenses recognized for our digital entertainment segment in
2017 which was in line with the growth of the business.
Share of Results of Equity Investees
We had share of losses of equity investees of US$1.9 million for
the full year ended December 31, 2017, compared with US$19.5
million for the full year ended December 31, 2016. This is
primarily due to lower losses we picked up following the disposal
of an associated company in 2017.
Net Loss
As a result of the foregoing, we had net losses of US$561.2
million and US$225.0 million for the full year ended December 31,
2017 and 2016, respectively.
Adjusted Net Loss
Adjusted net loss, which is net loss adjusted to remove
share-based compensation expenses, was US$532.5 million and
US$196.1 million for the full year ended December 31, 2017 and
2016, respectively.
Guidance
For the full year of 2018, we currently expect total adjusted
revenue to be US$730 million to US$770 million, representing 31.9%
to 39.1% growth from 2017.
We currently expect our e-commerce GMV to be between US$7.5
billion to US$8.0 billion for the full year of 2018, representing
82.4% to 94.5% growth from 2017.
Webcast and Conference Call Information
Mr. Forrest Li, Founder, Chairman and Group Chief Executive
Officer; Mr. Nick Nash, Group President; Mr. Tony Hou, Group Chief
Financial Officer; and Mr. Alan Hellawell, Group Chief Strategy
Officer, 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: 7:00 PM U.S. Eastern Time on 27 February 8:00
AM Singapore/ Hong Kong Time on 28 February 2018 Webcast
link:
http://mms.prnasia.com/SE/20180227/default.aspx
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: 0677787
A replay of the conference call will be available at the
Company’s investor relations website
(http://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 platforms
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 and results of operations; the
growth in, and market size of, the digital entertainment,
e-commerce and digital financial services industries in our 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 platforms;
the growth in its user base and their level of engagement; its
ability to continue to develop new technologies and/or upgrade its
existing technologies; growth of and trends of its markets and
competition in its industry; government policies and regulations
relating to its industry; and general economic and business
conditions in the markets it has businesses. 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:
- “Adjusted revenue” of our digital
entertainment segment represents revenue of the digital
entertainment segment plus change in digital entertainment deferred
revenue. This financial measure is used as an approximation of cash
spent by our users in the applicable period that is attributable to
our digital entertainment segment. Although other companies may
present such measures related to gross billings differently or not
at all, we believe that the adjusted revenue of our digital
entertainment segment provides useful information to investors
about the segment's core operating results, enhancing their
understanding of our past performance and future prospects.
- “Adjusted revenue” of our e-commerce
segment represents revenue (currently consisting of advertising
income) of the e-commerce segment plus commission income (before
deducting sales incentives from commission income). This financial
measure enables our investors to follow trends in our e-commerce
monetization capability over time and is a useful performance
measure.
- “Total adjusted revenue” represents the
sum of adjusted revenue of our digital entertainment segment, the
adjusted revenue of our e-commerce segment, the revenue of our
digital financial services segment, and the revenue of our other
services. This financial measure enables our investors to follow
trends in our overall group monetization capability over time and
is a useful performance measure.
- “Adjusted net loss” represents net loss
excluding share-based compensation expense. We believe that the
adjusted net loss helps to identify underlying trends in our
business that could otherwise be distorted by the effect of certain
expenses that are included in net loss. The use of adjusted net
loss has its limitations in that it does not include all items that
impact the net loss or income for the period, and share-based
compensation is a recurring significant expense.
- “Adjusted EBITDA” for our digital
entertainment segment represents operating income (loss) before
share-based compensation plus (a) depreciation and amortization
expenses, and (b) net effect of changes in deferred revenue and its
related cost for our digital entertainment segment. Although other
companies may calculate adjusted EBITDA differently or not present
it at all, we believe that the segment adjusted EBITDA helps to
identify underlying trends in our operating results, enhancing
their understanding of the past performance and future
prospects.
- “Adjusted EBITDA” for our e-commerce
segment represents operating income (loss) before share-based
compensation plus (a) depreciation and amortization expenses, and
(b) e-commerce commission income before deducting sales incentives.
Although other companies may calculate adjusted EBITDA differently
or not present it at all, we believe that the segment adjusted
EBITDA helps to identify underlying trends in our operating
results, enhancing their understanding of the past performance and
future prospects.
- “Adjusted EBITDA” for our digital
financial services segment and other services segment represents
operating income (loss) before share-based compensation plus
depreciation and amortization expenses. Although other companies
may calculate adjusted EBITDA differently or not present it at all,
we believe that the segment adjusted EBITDA helps to identify
underlying trends in our operating results, enhancing their
understanding of the past performance and future prospects.
- “Total adjusted EBITDA” represents the
sum of adjusted EBITDA of all our segments combined, plus
unallocated expenses. Although other companies may calculate
adjusted EBITDA differently or not present it at all, we believe
that the total adjusted EBITDA helps to identify underlying trends
in our operating results, enhancing their understanding of the past
performance and future prospects.
These non-GAAP financial measures have limitations as analytical
tools. None of the above financial measures should be considered in
isolation or construed as an alternative to revenue, net
loss/income, or any other measure of performance or as an indicator
of our operating performance. These non-GAAP financial measures
presented here may not be comparable to similarly titled measures
presented by other companies. Other companies may calculate
similarly titled measures differently, limiting their usefulness as
comparative measures to Sea’s data. We compensate for these
limitations by reconciling the non-GAAP financial measures to their
nearest U.S. GAAP financial measures, all of which should be
considered when evaluating our performance. We encourage you to
review our financial information in its entirety and not rely on
any single financial measure.
The tables below present selected financial information of our
reporting segments and its non-GAAP financial measures that are
most directly comparable to GAAP financial measures and the related
reconciliations between the financial measures. Amounts are
expressed in thousands of US dollars (“$”).
For the Three Months ended December 31, 2017 Digital
E-Commerce Digital Other Unallocated
Consolidated Entertainment Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 106,323
4,966 4,102 9,213 - 124,604 Changes in deferred
revenue
35,560 - - - - 35,560 Commission income - 4,353 -
- - 4,353
Adjusted revenue 141,883
9,319 4,102 9,213 - 164,517
Operating income
(loss)
18,102 (178,780) (8,038) (8,269) (14,156) (191,141) Net effect of
changes in
deferred revenue and
its related cost
26,724 - - - - 26,724 Depreciation and
Amortization
7,781 3,366 487 993 - 12,627 Share-based
compensation
- - - - 11,577 11,577
Adjusted EBITDA 52,607 (175,414) (7,551)
(7,276) (2,579) (140,213)
For
the Three Months ended December 31, 2016 Digital
E-Commerce Digital Other Unallocated
Consolidated Entertainment Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 82,407 -
1,709 4,345 - 88,461 Changes in deferred
revenue
6,725 - - - - 6,725 Commission income - - - -
- -
Adjusted revenue 89,132 -
1,709 4,345 - 95,186
Operating
income
(loss)
1,780 (60,117) (9,447) (3,407) (11,963) (83,154) Net effect of
changes in
deferred revenue and
its related cost
6,724 - - - - 6,724 Depreciation and
Amortization
8,122 929 207 912 - 10,170 Share-based
compensation
- - - - 10,255 10,255
Adjusted EBITDA 16,626 (59,188) (9,240)
(2,495) (1,708) (56,005)
For the
Year ended December 31, 2017 Digital E-Commerce
Digital Other Unallocated Consolidated
Entertainment Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 365,167
9,034 16,270 23,719 - 414,190 Changes in deferred
revenue
130,711 - - - - 130,711 Commission income - 8,683 -
- - 8,683
Adjusted revenue 495,878
17,717 16,270 23,719 - 553,584
Operating income
(loss)
45,637 (452,233) (38,038) (21,199) (36,523) (502,356) Net effect of
changes in
deferred revenue and
its related cost
100,678 - - - - 100,678 Depreciation and
Amortization
28,624 7,953 1,341 3,009 - 40,927 Share-based
compensation
- - - - 28,636 28,636
Adjusted EBITDA 174,939 (444,280) (36,697)
(18,190) (7,887) (332,115)
For the Year ended December 31, 2016 Digital
E-Commerce Digital Other Unallocated
Consolidated Entertainment Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 327,985 -
5,892 11,793 - 345,670 Changes in deferred
revenue
3,267 - - - - 3,267 Commission income - - - -
- -
Adjusted revenue 331,252 -
5,892 11,793 - 348,937
Operating
income
(loss)
45,525 (172,409) (34,407) (12,320) (31,778) (205,389) Net effect of
changes in
deferred revenue and
its related cost
6,875 - - - - 6,875 Depreciation and
Amortization
33,092 2,693 725 3,044 - 39,554 Share-based
compensation
- - - - 28,841 28,841
Adjusted EBITDA 85,492 (169,716) (33,682)
(9,276) (2,937) (130,119)
(1) Unallocated expenses are mainly relating 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 segments
results as they are not reviewed by the CODM as part of segment
performance.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS Amounts expressed in thousands of US dollars
(“$”) except for number of shares & per share dat
For the Three Months For the Year
ended December 31, ended December 31, Note
2016 2017 2016
2017 $ $ $ $ (unaudited) (unaudited)
(unaudited)
Revenue Digital Entertainment 82,407 106,323
327,985 365,167 Others 1 6,054 18,281 17,685 49,023
Total revenue
88,461 124,604 345,670 414,190
Cost of revenue
Digital Entertainment (47,298) (60,240) (185,314) (217,986) Others
(15,879) (40,819) (47,284) (108,892)
Total cost of revenue (63,177)
(101,059) (232,598) (326,878)
Gross profit 25,284 23,545 113,072
87,312
Operating income (expenses): Other operating income 415
2,157 2,103 3,497 Sales and marketing expenses (61,763) (156,418)
(187,372) (425,974) General and administrative expenses (41,304)
(51,754) (112,383) (137,868) Research and development expenses
(5,786) (8,671) (20,809) (29,323)
Total operating expenses
(108,438) (214,686) (318,461) (589,668)
Operating loss (83,154)
(191,141) (205,389) (502,356) Interest income 271 760 741 2,922
Interest expense (9) (9,043) (23) (26,501) Investment gain (loss)
15,021 (352) 9,434 33,591 Changes in fair value of convertible
promissory notes
- (51,950) - (51,950) Foreign exchange loss (133) (1,698) (1,649)
(4,215)
Loss
before income tax and share
of results of equity investees
(68,004) (253,424) (196,886) (548,509) Income tax expense 1,047
(8,730) (8,546) (10,745) Share of results of equity investees
(5,279) (986) (19,523) (1,912)
Net
loss (72,236) (263,140) (224,955) (561,166) Net (gain)
loss attributable to
non-controlling interests
(4) 480 2,088 681
Net loss attributable to Sea
Limited’s ordinary shareholders
(72,240) (262,660) (222,867) (560,485)
Adjusted net loss (1) (61,981) (251,563) (196,114)
(532,530) Loss per share: Basic and diluted (0.42)
(0.90) (1.30) (2.72) Shares used in
loss per share
computation:
Basic and diluted 171,565,142 293,324,598 171,127,788 205,727,195
(1) For a discussion of the use of non-GAAP financial measures,
see “Non-GAAP Financial Measures.”
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts expressed in thousands of US dollars (“$”)
As of As of December 31, December
31, 2016 2017 $ $ (unaudited)
ASSETS Current assets Cash and cash
equivalents 170,078 1,347,361 Restricted cash 18,607 95,300
Accounts receivable, net 35,074 61,846 Prepaid expenses and other
assets 79,443 186,181 Inventories, net 3,947 9,790 Short-term
investment – 18,000 Amounts due from related parties 2,735 2,235
Total current assets 309,884 1,720,713
Non-current assets Property and equipment, net 31,123
74,348 Intangible assets, net 29,963 37,333 Long-term investments
45,072 28,216 Prepaid expenses and other assets 32,299 46,297
Restricted cash 2,139 2,317 Deferred tax assets 35,295 48,104
Goodwill – 30,952 Total non-current
assets 175,891 267,567
Total
assets 485,775 1,988,280
UNAUDITED INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS Amounts expressed in
thousands of US dollars (“$”) As of As
of December 31, December 31, 2016
2017 $ $ (unaudited)
LIABILITIES, MEZZANINE EQUITY
AND
SHAREHOLDERS’ EQUITY
Current liabilities Accounts payable 5,990
8,644 Accrued expenses and other payables 102,086 285,248 Advances
from customers 15,459 27,155 Amount due to related parties 9,696
36,790 Short-term bank borrowings 1,858 2,013 Deferred revenue
122,218 268,241 Income taxes payable 6,449 9,614
Total current liabilities 263,756 637,705
Non-current liabilities Accrued
expenses and other payables 4,480 7,547 Deferred revenue 137,259
133,481 Convertible promissory notes – 726,950 Deferred tax
liabilities – 4,378 Unrecognized tax benefits 855 3,088
Total non-current liabilities 142,594 875,444
Total liabilities 406,350
1,513,149
UNAUDITED INTERIM CONDENSED CONSOLIDATED
BALANCE SHEETS Amounts expressed in thousands of US dollars
(“$”) As of As of December
31, December 31, 2016 2017 $ $
(unaudited)
Mezzanine equity Seed contingently
redeemable convertible preference shares 500 – Series A
contingently redeemable convertible preference shares 10,000 –
Series B contingently redeemable convertible preference shares
194,575 –
Total mezzanine equity
205,075 –
Shareholders’ equity
Ordinary shares 88 – Class A Ordinary shares – 91 Class B Ordinary
shares – 76 Additional paid-in capital 370,615 1,564,656
Accumulated other comprehensive income 8,587 10,701 Statutory
reserves 46 46 Accumulated deficit (505,006) (1,106,545)
Total Sea Limited shareholders’ (deficit)
equity (125,670) 469,025 Non-controlling interests 20 6,106
Total shareholders’ (deficit)
equity (125,650) 475,131
Total
liabilities, mezzanine equity and shareholders'
equity
485,775
1,988,280
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS Amounts expressed in thousands of US dollars
(“$”) Three months ended For the year
ended December 31, December 31, 2016
2017 2016 2017 $ $
$ $ (unaudited) (unaudited) (unaudited) Net cash used
in operating activities (42,118) (113,244) (114,726) (334,230) Net
cash generated from (used in)
investing activities
12,861 (51,140) (29,931) (118,614) Net cash (used in) generated
from
financing activities
(2) 927,401 199,622 1,623,843 Effect of foreign exchange rate
changes
on cash and cash equivalents
(2,596) 2,870 (1,090) 6,284 Net (decrease) increase in cash and
cash
equivalents
(31,855) 765,887 53,875 1,177,283 Cash and cash equivalents at
beginning of
the period
201,933 581,474 116,203 170,078
Cash and cash equivalents at end of the
period
170,078 1,347,361 170,078 1,347,361
1 REVENUE – OTHERS
Revenue – Others includes our e-commerce segment’s advertising
income and commission income charged to the sellers on its
marketplace, net of promotional incentives. These promotional
incentives being net-off against the revenue amounted to US$4.4
million and US$8.7 million for the quarter ended December 31, 2017
and for the year ended December 31, 2017, respectively.
2 SEGMENT INFORMATION
The Company has three reportable segments, namely digital
entertainment, e-commerce and digital financial services. The Chief
Operation Decision Maker ("CODM") reviews the performance of each
segment based on revenue and certain key operating metrics of the
operations and uses these results for the purposes of allocating
resources to and evaluating the financial performance of each
segment. Amounts are expressed in thousands of US dollars
(“$”).
For the Three Months ended December 31, 2017 Digital
E-Commerce Digital Other Unallocated
Consolidated Entertainment Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 106,323
4,966 4,102 9,213 - 124,604
Operating
income (loss) 18,102 (178,780) (8,038) (8,269) (14,156)
(191,141) Non-operating loss, net (62,283) Income tax expense
(8,730) Share of results of equity
investees
(986)
Net loss
(263,140)
For the Three
Months ended December 31, 2016 Digital E-Commerce
Digital Other Unallocated Consolidated
Entertainment Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 82,407 -
1,709 4,345 - 88,461
Operating income
(loss) 1,780 (60,117) (9,447) (3,407) (11,963) (83,154)
Non-operating income, net 15,150 Income tax expense 1,047 Share of
results of equity
investees
(5,279)
Net loss
(72,236)
For the Year ended
December 31, 2017 Digital E-Commerce Digital
Other Unallocated Consolidated Entertainment
Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 365,167
9,034 16,270 23,719 - 414,190
Operating
income (loss) 45,637 (452,233) (38,038) (21,199) (36,523)
(502,356) Non-operating loss, net (46,153) Income tax expense
(10,745) Share of results of equity
investees
(1,912)
Net loss
(561,166)
For the Year ended
December 31, 2016 Digital E-Commerce Digital
Other Unallocated Consolidated Entertainment
Financial Services
expenses(1)
Services
$ $ $ $ $ $ (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 327,985 -
5,892 11,793 - 345,670
Operating income
(loss) 45,525 (172,409) (34,407) (12,320) (31,778) (205,389)
Non-operating income, net 8,503 Income tax expense (8,546) Share of
results of equity
investees
(19,523)
Net loss
(224,955)
(1) Unallocated expenses are mainly relating 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 CODM as part of segment
performance.
SUPPLEMENTAL OPERATIONAL METRICS
For the three months For the three
months ended September 30, ended December 31,
2017 2017 Digital Entertainment
Unit Quarterly active users millions 69.0 87.8
Monthly active users (last month) millions 42.7 59.5 Quarterly
paying users millions 6.5 7.2 Average revenue per user US$ 2.0 1.6
Average revenue per paying user US$ 20.7 19.7
E-Commerce Gross GMV US$ millions 1,064.8 1,578.6
Gross orders millions 65.9 98.3 Market breakdown (by %
orders) Indonesia % 36% - 38% 40% - 42% Taiwan % 33% - 35% 25% -
27% Vietnam % 9% - 11% 11% - 13% Thailand % 7% - 9% 7% - 9%
Philippines % 4% - 6% 6% - 8% Singapore and Malaysia % 5% - 7% 6% -
8%
Digital Financial Services GTV US$ millions
448.2 1,027.5
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For enquiries, please contact:Investors / analysts:
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sea@brunswickgroup.com
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