SINGAPORE, May 15, 2018 /PRNewswire/ -- Sea Limited SE ("Sea" or the "Company") today announced its financial results for the quarter ended March 31, 2018.

"We again saw healthy growth in our digital entertainment revenue in the first quarter of 2018, and have several new games in the pipeline for launch this year. Meanwhile, Shopee continues to grow ahead of expectations as we capture a larger share of our region's e-commerce market, and the virtuous cycle created by that accelerated scaling is driving ever-improving economics on our platform," said Forrest Li, Chairman and Group Chief Executive Officer of Sea. "We will continue to invest in growth, and to focus on improving our services to our platform users, as well as the infrastructure supporting our core businesses."

First Quarter 2018 Key Metrics

-Group

• Total adjusted revenue was US$197.0 million, up 81.2% year-on-year from US$108.8 million for the first quarter of 2017 and up 19.8% quarter-on-quarter from US$164.5 million for the fourth quarter of 2017.
• Total adjusted EBITDA was US$(144.7) million, compared to US$(41.4) million for the first quarter of 2017 and US$(140.2) million for the fourth quarter of 2017.

-Digital Entertainment

• Adjusted revenue was US$146.0 million, up 42.6% year-on-year from US$102.4 million for the first quarter of 2017 and up 2.9% quarter-on-quarter from US$141.9 million for the fourth quarter of 2017.
• Adjusted EBITDA was US$55.0 million, an increase of 48.6% year-on-year from US$37.0 million for the first quarter of 2017 and up 4.6% quarter-on-quarter from $52.6 million for the fourth quarter of 2017.
• Quarterly active users ("QAUs") reached 126.7 million, an increase of 124.6% year-on-year from 56.4 million for the first quarter of 2017 and up 44.3% quarter-on-quarter from 87.8 million for the fourth quarter of 2017.
  
• Average revenue per user ("ARPU") was US$1.2 compared to US$1.8 for the first quarter of 2017 and US$1.6 for the fourth quarter of 2017.

-E-commerce

• Gross merchandise value ("GMV") was US$1.9 billion, an increase of 199.5% year-on-year from US$648.3 million for the first quarter of 2017 and up 23.0% quarter-on-quarter from US$1.6 billion for the fourth quarter of 2017.
• Gross orders for the quarter totaled 111.4 million, an increase of 217.4% year-on-year from 35.1 million for the first quarter of 2017 and up 13.3% quarter-on-quarter from 98.3 million for the fourth quarter of 2017.
• Adjusted revenue was US$33.7 million, up 262.1% quarter-on-quarter from US$9.3 million for the fourth quarter of 2017. Adjusted revenue included US$22.0 million of marketplace revenue^[1] and US$11.7 million of product revenue^[2]. There was negligible e-commerce adjusted revenue for the first quarter of 2017.
• Adjusted EBITDA was US$(179.6) million, compared to US$(62.7) million for the first quarter of 2017 and US$(175.4) million for the fourth quarter of 2017.
• Sales and marketing as a percentage of GMV stood at 6.6%, and improved from 7.1% for the first quarter of 2017 and 8.5% for the fourth quarter of 2017.

-Digital Financial Services

• Gross transaction value of our digital financial services as a whole ("GTV") was US$1.7 billion, an increase of 428.6% year-on-year from US$322.0 million for the first quarter of 2017 and up 65.7% quarter-on-quarter from US$1.0 billion for the fourth quarter of 2017. The growth was attributable to the payment processing services provided by AirPay to Shopee in most of our markets, which, depending on the operational arrangement in each relevant market, may include payments from buyers to Shopee accounts under Shopee Guarantee as well as outgoing payments from Shopee accounts to Shopee seller accounts that are operationally handled by AirPay.

 

Strategic Business Updates

Digital Entertainment

Garena enjoyed healthy growth this quarter, buoyed by factors including the continued expansion of our leading mobile games in the region, Arena of Valor and Free Fire. Free Fire recently achieved 13 million daily active users, placing it amongst the world's most popular mobile battle royale titles. We continue to complement our leading franchises through growing e-sports leagues, video streaming options, and other ancillary services.

We held Garena World 2018, our region's largest eSports event, from March 31 to April 1, 2018 in Bangkok, Thailand. We had an attendance of approximately 240 thousand and attracted over 10.6 million views online for the various tournaments at Garena World. In total, over 11,000 teams participated in the tournaments leading up to the event in Bangkok. Garena is well-positioned to ride on the wave of eSports growth as one of the region's leading game platforms. We continue to invest in our eSports operations to generate user engagement for our games and to promote user acquisition and retention.

Our pipeline of games for release in 2018 features a series of highly anticipated PC and mobile titles. These include both classic and new franchises in different genres.

E-commerce

Shopee achieved robust growth in both GMV and gross orders in each of our markets in the first quarter of 2018 and saw a decrease in sales and marketing expenses from US$135.0 million in the fourth quarter of 2017 to US$127.2 million in the first quarter of 2018. This was driven primarily by our continuous efforts to attract new buyers and sellers in our focus categories while improving our cost efficiency.

Shopee has focused much of its innovation on launching value-added services to our ever-expanding seller base. We continue to broaden our 'Service by Shopee' offering in select markets, where we offer sellers a number of value-added services, such as inventory management, online store operations, and fulfilment services. We also provide 'Shopee Logistics Service' to create a seamless logistics experience for sellers and buyers. In addition, we conduct direct sales of certain products. With this diverse portfolio of services and offerings, depending on the needs and preferences of our sellers, we can help them manage inventory and fulfil orders from warehouses leased and operated by us, operate their stores on our platform, or purchase products from them for resale on our platform.

Other Development

Appointment of Group Chief Economist

The Company also announced that Santitarn Sathirathai is expected to join the Company as Group Chief Economist in June 2018. Mr. Sathirathai will focus on establishing Sea as a key thought leader in the digital economy and work with policy makers to promote digital transformation in the region. He will report to Forrest Li, Chairman and Group Chief Executive Officer.

Mr. Sathirathai will be joining the Company from Credit Suisse, where he is the head of Emerging Asia Economics Research. He won the award for best economic forecaster for Indonesia by Consensus Economics for each of 2013, 2014 and 2015, the very first economist in Asia to receive such award for three consecutive years, and was selected as one of Asia's 21 young leaders in 2017 by Asia Society. He is a highly ranked economist for ASEAN and was also rated the best economist for Thailand by Asia Money. Prior to joining Credit Suisse, Mr. Sathirathai worked at the Ministry of Finance of Thailand and Government of Singapore Investment Corporation, and taught macroeconomic courses at Chulalongkorn University in Thailand. Mr. Sathirathai holds a doctorate degree in Public Policy and a master's degree in Public Administration from Harvard University, as well as a bachelor's degree in Economics and a master's degree in Public Policy from the London School of Economics and Political Science.

Summary of Financial Results
(Amounts are expressed in thousands of US dollars "$")

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

Revenue

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

Our total revenue increased by 65.0% to US$155.0 million in the first quarter of 2018 from US$93.9 million in the first quarter of 2017. Our total adjusted revenue increased by 81.2% to US$197.0 million in the first quarter of 2018 from US$108.8 million in the first quarter of 2017. These increases were mainly driven by the growth in each of the segments detailed as follows:

• Digital Entertainment: Revenue increased by 26.3% to US$110.7 million in the first quarter of 2018 from US$87.6 million in the first quarter of 2017. Adjusted revenue increased by 42.6% to US$146.0 million in the first quarter of 2018 from US$102.4 million in the first quarter of 2017. This increase was primarily due to the growth of our QAUs to 126.7 million in the first quarter of 2018 from 56.4 million in the first quarter of 2017, as we launched new games and expanded our existing games into new markets, which in turn increased the number of our paying users.
• E-commerce: We began monetizing our e-commerce business in 2017. In the first quarter of 2018, our e-commerce revenue was US$27.3 million, including US$15.6 million of marketplace revenue and US$11.7 million of product revenue. Our e-commerce adjusted revenue was US$33.7 million in the same period. There was negligible e-commerce revenue for the first quarter of 2017. The additional services and product offerings we introduced to sellers under 'Service by Shopee,' 'Shopee Logistics Service,' as well as the other value-added services we recently started to offer created additional income streams for our e-commerce business.
• Digital Financial Services: Revenue increased by 81.9% to US$3.7 million in the first quarter of 2018 from US$2.0 million in the first quarter of 2017. Adjusted revenue increased by 92.9% to US$3.9 million in the first quarter of 2018 from US$2.0 million in the first quarter of 2017. The 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 210.9% to US$13.3 million in the first quarter of 2018 from US$4.3 million in the first quarter of 2017. The 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 119.2% to US$146.5 million in the first quarter of 2018 from US$66.8 million in the first quarter of 2017.

• Digital Entertainment: Cost of revenue increased by 29.0% to US$63.6 million in the first quarter of 2018 from US$49.3 million in the first quarter of 2017. The increase was primarily due to the increase in royalty payments to game developers as well as 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 372.3% to US$82.9 million in the first quarter of 2018 from US$17.6 million in the first 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 138.1% to US$152.1 million in the first quarter of 2018 from US$63.9 million in the first quarter of 2017. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars ("$").

 

• Digital Entertainment: Sales and marketing expenses increased by 47.2% to US$16.2 million in the first quarter of 2018 from US$11.0 million in the first quarter of 2017. The 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.

 

Sales and marketing expenses as a percentage of adjusted revenue of 11.1% in the first quarter of 2018 was comparable to the first quarter of 2017.

• E-commerce: Sales and marketing expenses increased by 177.1% to US$127.2 million in the first quarter of 2018 from US$45.9 million in the first quarter of 2017. The increase in marketing efforts was aligned with our strategy to fully capture the market growth opportunity and was primarily in connection with shipping and other promotions on our platform in order to increase our user base and enhance user engagement.

 

Sales and marketing expenses as a percentage of GMV was 6.6% in the first quarter of 2018 and improved from 7.1% in the first quarter of 2017.

General and Administrative Expenses

Our general and administrative expenses increased by 76.5% to US$44.5 million in the first quarter of 2018 from US$25.2 million in the first 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 other expenses.

Research and Development Expenses

Our research and development expenses increased by 71.3% to US$10.7 million in the first quarter of 2018 from US$6.3 million in the first quarter of 2017, primarily due to the 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 consist of interest income, interest expense, investment gain (loss), fair value change for convertible promissory notes and foreign exchange gain (loss). We recorded a net non-operating loss of US$18.2 million in the first quarter of 2018, compared to a net non-operating loss of US$2.5 million in the first quarter of 2017. This was primarily due to fair value loss of US$18.8 million recognized in the quarter arising from the fair value accounting treatment for convertible promissory notes and interest expenses on those promissory notes, partially offset by an investment gain arising from the disposal of an equity security investment.

Income Tax Expense

We had a net income tax benefit of US$0.8 million in the first quarter of 2018 which was primarily due to the higher deferred tax assets we recognized as a result of change in statutory tax rate in one of the markets we operate in and the increase in deferred revenue in our digital entertainment segment in the first quarter of 2018.

Share of Results of Equity Investees

We had share of losses of equity investees of US$0.6 million in the first quarter of 2018, compared with US$0.6 million in the first quarter of 2017.

Net Loss

As a result of the foregoing, we had net losses of US$216.2 million and US$73.1 million in the first quarter of 2018 and 2017, respectively.

Adjusted Net Loss

Adjusted net loss, which is net loss adjusted to remove share-based compensation expenses, was US$205.5 million and US$67.0 million in the first quarter of 2018 and 2017, respectively.

Updated Guidance

For the full year of 2018, we now expect total adjusted revenue to be between US$780 million and US$820 million, representing 40.9% to 48.1% growth from 2017. This compares to the previously disclosed guidance of between US$730 million and US$770 million, representing 31.9% to 39.1% growth.

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$8.2 billion and US$8.7 billion, representing 99.4% to 111.5% growth from 2017. This compares to the previously disclosed guidance of between US$7.5 billion and US$8.0 billion, representing 82.4% to 94.5% growth.

Webcast and Conference Call Information

Mr. Forrest Li, Founder, Chairman and Group Chief Executive Officer; 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:

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.

For enquiries, please contact:

Investors / analysts: ir@seagroup.com
Media: media@seagroup.com or sea@brunswickgroup.com

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 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) 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 ("$").

 

 

 

 

 

1          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 ("$").

 

SUPPLEMENTAL OPERATIONAL METRICS

 

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SOURCE Sea Limited