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Abstract: Sea is expected to announce its 2022 Q1 results on Tuesday (May 17). Morgan Stanley expects 22Q1 adjusted EBITDA to expand to -$554 million, driven by lower gaming revenue and higher e-commerce losses. Bloomberg’s consensus forecast for Sea’s 22Q1 results is: revenue of $2.776 billion, lower than the previous quarter; adjusted EBITDA of -$510 million; adjusted earnings per share of -1.153.
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1. Review of 21Q4: Weak quarterly performance, promising earnings prospects
Let’s briefly review the performance of Sea21Q4: games, e-commerce + payment
(1) Due to the lack of two major businesses of e-commerce and digital entertainment at the same time, the adjusted total revenue in 21Q4 was US$2.89 billion (an increase of 2.8% month-on-month and a year-on-year increase of 53.2%); the comprehensive adjusted EBITDA loss reached US$492.1 million, a high on estimated losses.
(2) Digital entertainment revenue increased by 104.1% year-on-year to US$1.415 billion. Quarterly active users rose 7.1% year over year to 654 million, and the payout ratio reached 11.8% (12.8% in our estimate).
Garena’s Adjusted EBITDA was $602.6 million, down 15.7% sequentially, resulting in an EBITDA loss of approximately 16%; bookings were $1.08 billion, down 11% sequentially, primarily due to a 17% decline in the number of paying subscribers, which were Quarterly growth in ARPP was offset by 7%.
(3) E-commerce revenue increased by 89.4% year-on-year to US$1.595 billion. Meanwhile, adjusted EBITDA losses widened 105% year over year to $878 million. Shopee’s GMV (gross merchandise sales) in Q4 was US$18.2 billion, a year-on-year increase of 52.7%, and total orders increased by 90.1% year-on-year to nearly 2 billion.
(4) The total payment volume of SeaMoney was US$5 billion, a year-on-year increase of 70%; in addition, the quarterly active users of all SeaMoney products and services reached 45.8 million, a year-on-year increase of 90%.
2. Prospects for 22Q1: The overall growth is slow, and losses are expected to expand further
For Sea 22Q1 results:
(1) Jefferies believes that the subscription volume of the digital entertainment business will drop to US$868 million, a year-on-year decrease of 22%. As Fire Free matured earlier than expected, given the weakness of FF, it is expected that FF will need time to revamp the game with more innovative features.
(2) Jefferies expects e-commerce revenue to grow 72% YoY due to continuous improvement in conversion rate. Shopee’s GMV is expected to reach $17.6 billion, up -3% sequentially and up 40% year over year.
At the end of March, Shopee decided to close its operations in India, which it believes will have a limited impact on the full-year GMV, as India is only one of Shopee’s test markets and it only started operations in October 21.
(3) Jefferies maintains a “buy” rating on Sea, and remains unchanged on the latest business trends. It is expected that the adjusted EBITDA loss will reach US$443 million, which is lower than that in 21Q4.
Morgan Stanley, on the other hand, expressed a relatively cautious attitude towards Sea. Morgan Stanley expects 22Q1 adjusted EBITDA to expand to $554 million, driven by lower gaming revenue and higher e-commerce losses.
3. Business expectations and ratings
Bloomberg’s consensus forecast for Sea’s 22Q1 performance is: revenue of $2.776 billion, lower than the previous quarter; adjusted net profit of -$659.2 million; adjusted EBITDA of -$510 million; adjusted earnings per share of -1.153.
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