Sea Limited (NYSE:SE) (“Sea” or the “Company”) today announced
its financial results for the quarter ended September 30, 2018.
“We once again achieved strong growth in the third quarter of
2018,” said Forrest Li, Chairman and Group Chief Executive Officer
of Sea. “Shopee posted its best ever quarterly gross merchandise
value and number of orders as it extended its lead as the largest
e-commerce platform in our region. Building on this momentum, our
recent annual ‘Shopee 11.11 Big Sale’ also set a historical high
record for Shopee, helping to cement its reputation as the go-to
online destination for consumers in our region.”
“In digital entertainment, our self-developed game, Free Fire,
is now one of the world’s most popular online games, recently
achieving its record high peak daily active user count of over 27
million and surpassing 200 million registered users globally,”
Forrest continued. “We are also excited about our strong game
pipeline, boosted by the new publishing arrangement with Tencent,
our long-term investor and strategic partner. The strong momentum
across our e-commerce and digital entertainment businesses is
reflected in our revised full year outlook.”
Third Quarter 2018 Key Metrics
- Group
- Total adjusted revenue was US$242.8
million, up 60.1% year-on-year from US$151.7 million for the third
quarter of 2017 and up 10.6% quarter-on-quarter from US$219.6
million for the second quarter of 2018.
- Total adjusted EBITDA was US$(183.8)
million, compared to US$(99.7) million for the third quarter of
2017 and US$(161.9) million for the second quarter of 2018.
- Digital Entertainment
- Adjusted revenue was US$144.6 million,
up 7.4% year-on-year from US$134.5 million for the third quarter of
2017 and an increase of 3.9% quarter-on-quarter from US$139.1
million for the second quarter of 2018.
- Adjusted EBITDA was US$53.7 million, up
19.2% year-on-year from US$45.1 million for the third quarter of
2017 and increased 10.5% quarter-on-quarter from US$48.6 million
for the second quarter of 2018.
- Quarterly active users reached 176.1
million, an increase of 155.2% year-on-year from 69.0 million for
the third quarter of 2017 and up 9.7% quarter-on-quarter from 160.6
million for the second quarter of 2018.
- Average revenue per user was US$0.8
compared to US$2.0 for the third quarter of 2017 and US$0.9 for the
second quarter of 2018.
E-commerce
- Gross merchandise value (“GMV”) was
US$2.7 billion, an increase of 152.7% year-on-year from US$1.1
billion for the third quarter of 2017 and up 21.1%
quarter-on-quarter from US$2.2 billion for the second quarter of
2018.
- Gross orders for the quarter totaled
158.5 million, an increase of 140.5% year-on-year from 65.9 million
for the third quarter of 2017 and up 24.0% quarter-on-quarter from
127.8 million for the second quarter of 2018.
- Adjusted revenue was US$71.2 million,
up 1,156.5% year-on-year from US$5.7 million for the third quarter
of 2017 and up 21.1% quarter-on-quarter from US$58.8 million for
the second quarter of 2018. Adjusted revenue included US$50.3
million of marketplace revenue1 and US$20.9 million of product
revenue2.
- Adjusted EBITDA was US$(214.9) million,
compared to US$(130.0) million for the third quarter of 2017 and
US$(188.3) million for the second quarter of 2018.
- Sales and marketing as a percentage of
GMV stood at 5.7%, and improved from 9.7% for the third quarter of
2017 and 6.2% for the second quarter of 2018.
- In Indonesia, Shopee’s largest market,
total orders for the quarter reached 63.7 million, or a daily
average of 0.7 million orders, which we believe made Shopee the
largest e-commerce platform in Indonesia. Sales and marketing as a
percentage of GMV for Indonesia was even lower than the ratio for
Shopee as a whole, as Shopee achieved greater marketing efficiency
in its largest market.
____________________1 Marketplace revenue mainly consists of
commission and advertising income and revenue generated from other
value-added services.2 Product revenue mainly consists of revenue
generated from direct sales.
Strategic Business Updates
Digital Entertainment
Driven by the strong performance of our key game titles, Garena
continued to deliver robust growth in the third quarter of
2018.
Our self-developed game, Free Fire, continues to grow quickly,
recently surpassing 200 million registered users globally and
achieving a peak daily active user count of over 27 million,
compared to our previously disclosed peak of over 16 million daily
active users. Our monetization programs for Free Fire are also
generating results. Throughout the month of October, Free Fire was
consistently the highest grossing game on the Google Play Store in
Brazil, Argentina, and Mexico, according to App Annie. It is also
building traction in our core markets in Southeast Asia, becoming
the highest grossing game on the Google Play Store in Indonesia in
late October, based on App Annie’s rankings.
On November 19, we announced a binding letter of intent with
Tencent for it to grant us a right of first refusal to publish its
mobile and PC games in Indonesia, Taiwan, Thailand, the
Philippines, Malaysia, and Singapore.
We believe our strategic partnership with Tencent will enhance
our continual efforts to bring top quality content to our
region.
E-commerce
Shopee continued to scale rapidly in the third quarter, driven
by robust GMV and order growth across all our markets. Its
marketplace revenue grew by 34.8% quarter-on-quarter as more
sellers made use of Shopee’s suite of advertising and value added
services to reach its fast-growing consumer community.
During the quarter, Shopee also continued to benefit from
improved economies of scale and greater marketing efficiencies,
with sales and marketing expenses as a percentage of GMV falling
further to 5.7%, compared to 6.2% in the second quarter of
2018.
This strong momentum was driven by robust user engagement on the
platform. At the culmination of the Shopee 11.11 Big Sale, an
annual shopping festival held from late October to mid-November,
Shopee set its new record with over 11 million orders recorded on
the platform over the 24 hours of November 11, 2018. This
represented approximately 4.5 times the number of orders recorded
on the same date last year.
Other Developments
The Company announced today that Terry Zhao has been appointed
President of Garena. Terry has been with the Company since its
inception in 2009 and has served in a number of senior roles in our
digital entertainment business across several key markets, most
recently running our games studio in Shanghai. He has been heavily
involved in our push into self-developed games and mobile games
and, in his new role, will focus on further extending our offering
in these important strategic areas.
The Company also announced that Group Chief Strategy Officer,
Alan Hellawell, will depart the Company effective November 23,
2018. Drawing on his prior experience as a seasoned equity analyst
in the technology sector, Alan made important contributions to the
Company’s successful initial public offering and its transition
through the initial stage as a publicly listed company during his
tenure. “On behalf of Sea, I would like to thank Alan for his
service to the Company, and wish him all the best in his future
endeavors,” said Forrest, Sea’s Chairman and Group Chief Executive
Officer.
Alan’s responsibilities have been assumed by the Company’s
corporate development and strategy team under the oversight of its
Group General Counsel, Yanjun Wang. In addition to the legal
function, Yanjun also oversees the corporate development, investor
relations, public policy, and public relations functions of the
Company. Yanjun has been with the Company since early 2014 and, as
a member of the Company’s leadership team, worked closely with the
board and Group Chief Executive Officer on all key strategic and
corporate matters of the Company in the past few years.
Unaudited Summary of Financial
Results
(Amounts are expressed in thousands of US
dollars “$”)
For the Three Months
ended September 30,
2017 2018 $ $ YOY%
Revenue Digital Entertainment 79,799 112,520 41.0 %
Others 14,295 92,401 546.4 %
94,094 204,921 117.8 %
Cost of revenue Digital
Entertainment (55,577 ) (63,960 ) 15.1 % Others (27,698 )
(135,351 ) 388.7 % (83,275 )
(199,311 ) 139.3 %
Gross profit 10,819
5,610 (48.1 )% Other operating income 959 3,072 220.3
% Sales and marketing expenses (131,571 ) (180,304 ) 37.0 % General
and administrative expenses (33,262 ) (57,285 ) 72.2 % Research and
development expenses (7,661 ) (17,293 ) 125.7
%
Total operating expenses (171,535 )
(251,810 ) 46.8 %
Operating loss (160,716 ) (246,200 ) 53.2
% Non-operating income, net 25,802 30,903 19.8 % Income tax credit
(expense) 2,147 (2,020 ) (194.1 )% Share of results of equity
investees (64 ) (702 ) 996.9 %
Net loss
(132,831 ) (218,019 ) 64.1 %
Adjusted net
loss (1) (127,133 ) (237,568 ) 86.9 %
Adjusted revenue of Digital Entertainment (1) 134,548
144,558 7.4 % Adjusted revenue of E-commerce (1) 5,669 71,233
1,156.5 % Adjusted revenue of Digital Financial Services (1) 4,792
3,113 (35.0 )% Revenue of Other Services 6,717
23,934 256.3 %
Total adjusted revenue (1)
151,726 242,838 60.1 %
Adjusted EBITDA for Digital Entertainment (1) 45,083 53,724 19.2 %
Adjusted EBITDA for E-commerce (1) (129,964 ) (214,861 ) (65.3 )%
Adjusted EBITDA for Digital Financial Services (1) (8,198 ) (7,001
) 14.6 % Adjusted EBITDA for Other Services (1) (5,327 ) (13,850 )
(160.0 )% Unallocated expenses (2) (1,276 )
(1,764 ) (38.2 )%
Total adjusted EBITDA (1) (99,682 )
(183,752 ) (84.3 )%
(1) For a discussion of the use of non-GAAP financial measures,
see “Non-GAAP Financial Measures.”(2) 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 September 30, 2018 Compared to Three
Months Ended September 30, 2017
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 September 30,
2017 2018 $
% ofrevenue
$
% ofrevenue
YOY%
Revenue Digital Entertainment 79,799 84.8
112,520 54.9 41.0 % E-commerce 2,786 3.0 65,919 32.2 2,266.1 %
Digital Financial Services 4,792 5.1 2,548 1.2 (46.8 )% Other
Services 6,717 7.1 23,934 11.7 256.3 % 94,094
100.0 204,921 100.0 117.8 %
2017 2018 $
% of totaladjustedrevenue
$
% of totaladjustedrevenue
YOY% Adjusted revenue of Digital Entertainment 134,548 88.7
144,558 59.5 7.4 % Adjusted revenue of E-commerce 5,669 3.7 71,233
29.3 1,156.5 % Adjusted revenue of Digital Financial Services 4,792
3.2 3,113 1.3 (35.0 )% Revenue of Other Services 6,717 4.4
23,934 9.9 256.3 %
Total adjusted revenue
151,726 100.0 242,838 100.0 60.1 %
Our total revenue increased by 117.8% to US$204.9 million in the
third quarter of 2018 from US$94.1 million in the third quarter of
2017. Our total adjusted revenue increased by 60.1% to US$242.8
million in the third quarter of 2018 from US$151.7 million in the
third quarter of 2017. These increases were mainly driven by the
growth in each of the segments detailed as follows:
- Digital Entertainment: Revenue
increased by 41.0% to US$112.5 million in the third quarter of 2018
from US$79.8 million in the third quarter of 2017. Adjusted revenue
increased by 7.4% to US$144.6 million in the third quarter of 2018
from US$134.5 million in the third quarter of 2017. This increase
was primarily due to improvements in the monetization of our
existing games and the launch of new games.
- E-commerce: Revenue increased by
2,266.1% to US$65.9 million in the third quarter of 2018 from
US$2.8 million in the third quarter of 2017. Adjusted revenue
increased by 1,156.5% to US$71.2 million in the third quarter of
2018 from US$5.7 million in the third quarter of 2017. This
increase was primarily due to the growth of our GMV and our
sellers’ use of our services and product offerings under ‘Service
by Shopee,’ ‘Shopee Logistics Service,’ as well as our other
value-added services.
- Digital Financial Services: Revenue
decreased by 46.8% to US$2.5 million in the third quarter of 2018
from US$4.8 million in the third quarter of 2017. Adjusted revenue
decreased by 35.0% to US$3.1 million in the third quarter of 2018
from US$4.8 million in the third quarter of 2017, as we switched to
focus our efforts on strengthening our infrastructure to support
our existing platforms. The decrease was also in part due to the
continuation of the restrictive measures imposed by Vietnam’s
leading mobile operators on using prepaid telco cards for online
game top-ups.
- Other Services: Revenue increased by
256.3% to US$23.9 million in the third quarter of 2018 from US$6.7
million in the third quarter of 2017. The increase was primarily
due to the growth of the ancillary services we provide to our
e-commerce platform users.
Cost of Revenue
Our total cost of revenue increased by 139.3% to US$199.3
million in the third quarter of 2018 from US$83.3 million in the
third quarter of 2017.
- Digital Entertainment: Cost of revenue
increased by 15.1% to US$64.0 million in the third quarter of 2018
from US$55.6 million in the third quarter of 2017. The increase was
largely in line with revenue growth in our digital entertainment
business.
- Others: Cost of revenue for our other
segments combined increased by 388.7% to US$135.4 million in the
third quarter of 2018 from US$27.7 million in the third quarter of
2017. The increase was primarily due to the costs incurred
following the launch of ‘Service by Shopee,’ ‘Shopee Logistics
Service,’ and direct sales at the end of 2017; higher bank
transaction fees driven by GMV growth from our e-commerce business;
higher costs associated with other ancillary services we provided
to our e-commerce platform users; as well as higher staff
compensation and benefit costs.
Sales and Marketing Expenses
Our total sales and marketing expenses increased by 37.0% to
US$180.3 million in the third quarter of 2018 from US$131.6 million
in the third quarter of 2017. The table below sets forth the
breakdown of our sales and marketing expenses of our two major
reporting segments. Amounts are expressed in thousands of US
dollars (“$”).
For the Three Months
ended September 30,
2017
2018
YOY%
Sales and Marketing Expenses $ $
Digital Entertainment 21,724 19,046 (12.3 )%
E-commerce 102,996 152,934 48.5 %
- Digital Entertainment: Sales and
marketing expenses decreased by 12.3% to US$19.0 million in the
third quarter of 2018 from US$21.7 million in the third quarter of
2017. The decrease was primarily due to higher marketing pushes
around the competition back in 2017.
For the Three Months
ended September 30,
2017 2018 Digital Entertainment
$ $ Sales and marketing expenses 21,724
19,046 Adjusted revenue 134,548 144,558
Sales and marketing expenses as a percentage of adjusted
revenue 16.1 % 13.2 %
Sales and marketing expenses as a percentage
of adjusted revenue decreased to 13.2% in the third quarter of 2018
from 16.1% in the third quarter of 2017 as we continue to improve
the efficiency of our marketing efforts.
- E-commerce: Sales and marketing
expenses increased by 48.5% to US$152.9 million in the third
quarter of 2018 from US$103.0 million in the third quarter of 2017.
The increase in marketing efforts was aligned with our strategy to
fully capture the market growth opportunity and was primarily
attributable to shipping and other promotions on our platform that
were designed to increase our user base and enhance user
engagement.
For the Three Months
ended September 30,
2017 2018 E-commerce $ $
Sales and marketing expenses 102,996 152,934
GMV 1,064,759 2,690,927 Sales
and marketing expenses as a percentage of GMV 9.7 %
5.7 %
Sales and marketing expenses as a percentage
of GMV was 5.7% in the third quarter of 2018 and improved from 9.7%
in the third quarter of 2017 as we continue to improve the
efficiency of our marketing efforts.
General and Administrative Expenses
Our general and administrative expenses increased by 72.2% to
US$57.3 million in the third quarter of 2018 from US$33.3 million
in the third quarter of 2017. This increase was primarily due to
the expansion of our staff force, the increase in office facilities
and related expenses, as well as the increase in professional fees
and other expenses.
Research and Development Expenses
Our research and development expenses increased by 125.7% to
US$17.3 million in the third quarter of 2018 from US$7.7 million in
the third quarter of 2017, primarily due to the increase in our
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 debts and foreign exchange gain (loss). The amount was
a net non-operating income of US$30.9 million and US$25.8 million
in the third quarter of 2018 and 2017, respectively. This was
primarily due to a fair value gain of US$36.0 million recognized in
this quarter on the convertible debts issued before our initial
public offering, while the net non-operating income in 2017 was
primarily attributable to a gain on disposal and re-measurement of
our investments.
Income Tax Expense
We had a net income tax expense of US$2.0 million in the third
quarter of 2018, compared with a net income tax benefit of US$2.1
million in the third quarter of 2017, which was primarily due to
corporate income tax and withholding tax recognized for our digital
entertainment segment in the third quarter of 2018. The net income
tax benefit in the third quarter of 2017 was primarily due to
deferred tax assets recognized on deferred revenue arising from our
digital entertainment segment.
Share of Results of Equity Investees
We had share of losses of equity investees of US$0.7 million in
the third quarter of 2018, compared with US$0.1 million in the
third quarter of 2017.
Net Loss
As a result of the foregoing, we had net losses of US$218.0
million and US$132.8 million in the third quarter of 2018 and 2017,
respectively.
Adjusted Net Loss
Adjusted net loss, which is net loss adjusted to remove
share-based compensation expenses and fair value change for
convertible debts, was US$237.6 million and US$127.1 million in the
third quarter of 2018 and 2017, respectively.
Updated Guidance
For the full year of 2018, we now expect total adjusted revenue
to be between US$930 million and US$970 million, representing 68.0%
to 75.2% growth from 2017. This compares to the previously
disclosed guidance of between US$780 million and US$820 million,
representing 40.9% to 48.1% growth. We expect adjusted revenue for
digital entertainment for the full year of 2018 to be between
US$600 million and US$620 million, representing year-on-year growth
of 21.0% to 25.0%.
We are also revising our e-commerce GMV guidance for the full
year of 2018. We now expect e-commerce GMV for the full year of
2018 to be between US$9.2 billion and US$9.7 billion, representing
123.7% to 135.9% growth from 2017. This compares to the previously
disclosed guidance of between US$8.2 billion and US$8.7 billion,
representing 99.4% to 111.5% growth.
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: 7:00 PM U.S. Eastern Time on November 20,
2018 8:00 AM Singapore / Hong Kong Time on November 21, 2018
Webcast link:
https://services.choruscall.com/links/se181120.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: 1600352
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 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, 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 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:
- “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 of the e-commerce segment (currently
consisting of marketplace revenue and product revenue) plus
commission income that were net-off against sales incentives. This
financial measure enables our investors to follow trends in our
e-commerce monetization capability over time and is a useful
performance measure.
- “Adjusted revenue” of our digital
financial services segment represents revenue of the digital
financial services segment plus service revenue that were net-off
against sales incentives.
- “Total adjusted revenue” represents the
sum of the adjusted revenue of our digital entertainment segment,
the adjusted revenue of our e-commerce segment, the adjusted
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
before share-based compensation and changes in fair value of
convertible debts. 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 and changes in fair
value of convertible debts are significant expenses.
- “Adjusted EBITDA” for our digital
entertainment segment represents operating income (loss) before
share-based compensation plus (a) depreciation and amortization
expenses, and (b) the 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, 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, the 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 September 30, 2018
DigitalEntertainment
E-commerce
DigitalFinancialServices
OtherServices(3)
Unallocatedexpenses(4)
Consolidated $ $ $ $ $ $
Revenue 112,520 65,919(1) 2,548 23,934 - 204,921
Changes in deferred revenue 32,038 - - - - 32,038 Sales incentives
net-off - 5,314 565 - - 5,879
Adjusted revenue 144,558 71,233(2) 3,113
23,934 - 242,838
Operating income
(loss) 19,403 (223,787) (7,387) (16,186) (18,243) (246,200) Net
effect of changes in deferred revenue and its related cost
26,192
- - - -
26,192
Depreciation and amortization 8,129 8,926 386 2,336 - 19,777
Share-based compensation - - - - 16,479
16,479
Adjusted EBITDA 53,724 (214,861)
(7,001) (13,850) (1,764) (183,752)
For the Three Months ended September 30, 2017
DigitalEntertainment
E-commerce
DigitalFinancialServices
OtherServices(3)
Unallocatedexpenses(4)
Consolidated $ $ $ $ $ $
Revenue 79,799
2,786(1) 4,792 6,717 - 94,094 Changes in deferred revenue 54,749 -
- - - 54,749 Sales incentives net-off - 2,883 -
- - 2,883
Adjusted revenue 134,548
5,669(2) 4,792 6,717 - 151,726
Operating income (loss) (6,874) (132,292) (8,561)
(6,015) (6,974) (160,716) Net effect of changes in deferred revenue
and its related cost
44,873
-
-
-
-
44,873
Depreciation and amortization 7,084 2,328 363 688 - 10,463
Share-based compensation - - - - 5,698
5,698
Adjusted EBITDA 45,083 (129,964)
(8,198) (5,327) (1,276) (99,682)
(1) For the third quarter of 2018, revenue of $65,919 included
marketplace revenue of $45,147 and product revenue of $20,772, net
of sales incentives. For the third quarter of 2017, revenue of
$2,786 was entirely marketplace revenue.(2) For the third quarter
of 2018, adjusted revenue of $71,233 included marketplace revenue
of $50,303 and product revenue of $20,930. For the third quarter of
2017, adjusted revenue of $5,669 was entirely marketplace
revenue.(3) A combination of multiple business activities that does
not meet the quantitative thresholds to qualify as reportable
segments are grouped together as “Other Services.”(4) Unallocated
expenses are mainly related to share-based compensation and general
and corporate administrative costs such as professional fees and
other miscellaneous items that are not allocated to segments. The
expenses are excluded from segment results as they are not reviewed
by the CODM as part of segment performance.
UNAUDITED INTERIM CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
Amounts expressed in thousands of US
dollars (“$”) except for number of shares & per share
data
For the Nine Months
ended September 30,
2017 2018 $ $
Revenue Digital Entertainment 258,844 331,207 Others 30,742
212,537
Total revenue
289,586 543,744
Cost of revenue Digital Entertainment
(157,746 ) (189,513 ) Others (68,073 ) (331,514 )
Total cost of revenue (225,819 ) (521,027 )
Gross profit 63,767
22,717
Operating income
(expenses): Other operating income 1,340 5,508 Sales and
marketing expenses (269,556 ) (497,528 ) General and administrative
expenses (86,114 ) (153,621 ) Research and development expenses
(20,652 ) (40,887 )
Total
operating expenses (374,982 ) (686,528 )
Operating loss (311,215 ) (663,811 ) Interest
income 2,162 8,567 Interest expense (17,458 ) (21,413 ) Investment
gain (loss) 33,943 9,374 Changes in fair value of convertible debts
− (19,928 ) Foreign exchange (loss) gain (2,517 ) 5,304
Loss before income tax and share of
results of equity investees (295,085 ) (681,907 ) Income tax
(expense) credit (2,015 ) (1,095 ) Share of results of equity
investees (926 ) (1,974 )
Net
loss (298,026 ) (684,976 ) Net loss attributable to
non-controlling interests 201 358
Net loss attributable to Sea Limited’s ordinary
shareholders (297,825 ) (684,618 )
Adjusted net loss (1) (280,967 ) (622,985 ) Loss per
share: Basic and diluted (1.69 ) (2.03 )
Shares used in loss per share computation: Basic and
diluted 175,970,648 337,804,410
(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,
September 30,
2017
2018
$
$
ASSETS Current assets Cash and cash
equivalents 1,347,361 1,209,235 Restricted cash
95,300 247,773 Accounts receivable, net 61,846 61,220 Prepaid
expenses and other assets 186,181 265,342 Inventories, net 9,790
19,565 Short-term investment 18,000 − Amounts due from related
parties 2,235 5,328 Total current assets
1,720,713 1,808,463
Non-current assets Property and
equipment, net 74,348 147,379 Intangible assets, net 37,333 25,668
Long-term investments 28,216 118,188 Prepaid expenses and other
assets 46,297 59,981 Restricted cash 2,317 2,370 Deferred tax
assets 48,104 59,418 Goodwill 30,952 30,952
Total non-current assets 267,567 443,956
Total assets 1,988,280 2,252,419
UNAUDITED INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
Amounts expressed in thousands of US
dollars (“$”)
As of
As of
December 31,
September 30,
2017 2018 $ $
LIABILITIES AND SHAREHOLDERS’
EQUITY Current liabilities Accounts payable 8,644 25,168
Accrued expenses and other payables 285,248 503,336 Advances from
customers 27,155 26,456 Amount due to related parties 36,790 34,802
Short-term bank borrowings 2,013 − Deferred revenue 268,241 348,663
Income taxes payable 9,614 8,114
Total current liabilities 637,705 946,539
Non-current liabilities Accrued
expenses and other payables 7,547 10,548 Deferred revenue 133,481
144,366 Convertible debts 726,950 1,116,384 Deferred tax
liabilities 4,378 3,501 Unrecognized tax benefits 3,088 2,913
Total non-current liabilities
875,444 1,277,712
Total
liabilities 1,513,149 2,224,251
Shareholders’ equity Class A ordinary shares 91 94
Class B ordinary shares 76 76 Additional paid-in capital 1,564,656
1,793,010 Accumulated other comprehensive income 10,701 23,042
Statutory reserves 46 46 Accumulated deficit (1,106,545 )
(1,791,163 )
Total Sea
Limited shareholders’ equity 469,025 25,105 Non-controlling
interests 6,106 3,063
Total
shareholders’ equity 475,131 28,168
Total liabilities and shareholders' equity 1,988,280
2,252,419
UNAUDITED INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts expressed in thousands of US
dollars (“$”)
For the Nine Months
ended September 30,
2017 2018 $ $ Net cash
used in operating activities (170,840 ) (357,029 ) Net cash used in
investing activities (67,474 ) (158,938 ) Net cash generated from
financing activities 696,442 545,106 Effect of foreign exchange
rate changes on cash, cash equivalents and restricted cash 4,228
(14,739 ) Net increase in cash, cash equivalents and restricted
cash 462,356 14,400 Cash, cash equivalents and restricted cash at
beginning of the period 190,824 1,444,978
Cash, cash equivalents and restricted cash at
end of the period 653,180 1,459,378
1 UNAUDITED 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 September 30, 2018
DigitalEntertainment
E-commerce
DigitalFinancialServices
OtherServices(1)
Unallocatedexpenses(2)
Consolidated $ $ $ $ $ $
Revenue 112,520
65,919 2,548 23,934 - 204,921
Operating income (loss) 19,403 (223,787 )
(7,387 ) (16,186 ) (18,243 ) (246,200 ) Non-operating income, net
30,903 Income tax expense (2,020 ) Share of results of equity
investees (702 )
Net loss (218,019 )
For
the Three Months ended September 30, 2017
DigitalEntertainment
E-commerce
DigitalFinancialServices
OtherServices(1)
Unallocatedexpenses(2)
Consolidated $ $ $ $ $ $
Revenue 79,799 2,786 4,792
6,717 - 94,094
Operating income (loss) (6,874 ) (132,292 ) (8,561 ) (6,015
) (6,974 ) (160,716 ) Non-operating income, net 25,802 Income tax
credit 2,147 Share of results of equity investees (64 )
Net
loss (132,831 )
(1) A combination of multiple business activities that does not
meet the quantitative thresholds to qualify as reportable segments
are grouped together as “Other Services.”(2) 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. The
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 June 30,
ended September 30,
2018
2018
Digital Entertainment Unit Quarterly
active users millions
160.6
176.1
Monthly active users (last month) millions 90.6 104.5 Quarterly
paying users millions 6.6 7.2 Average revenue per user US$ 0.9 0.8
Average revenue per paying user US$ 21.1 20.1
E-commerce Gross GMV US$ millions 2,221.8 2,690.9
Gross orders millions 127.8 158.5
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