(Bloomberg) -- Sea Ltd.’s stock soared to its highest in more than two years after its e-commerce business returned to adjusted profit, a sign it’s holding its own against bigger Chinese rivals like Alibaba Group Holding Ltd.
Its US shares climbed 10.5%, the biggest gain since August. The Singapore-based company reported overall net income that topped estimates at $153.3 million, as well as a better-than-projected 31% rise in revenue to $4.3 billion for the September quarter.
The results alleviate some concerns about the prospects for online retail arm Shopee, which is fighting ByteDance Ltd.’s TikTok and Alibaba’s Lazada across Southeast Asia. The two Chinese companies have adopted AI features including chatbots and other tools for sellers on their platforms, trying to erode Shopee’s dominance. Newer contenders like Shein and PDD Holdings Inc.’s Temu are also targeting a region of more than 675 million people where more shoppers are moving online.
“As we continue to focus on delivering growth, we expect Shopee to remain profitable going forward,” Chief Executive Officer Forrest Li said in a statement.
Shopee’s adjusted earnings before interest, taxes, depreciation and amortization reached $34.4 million, following a string of quarterly losses. Sea’s smaller but more profitable gaming unit, Garena, had supported the company’s finances as it built out its e-commerce operations.
The volatile e-commerce market is reflected in Sea’s share price, which had more than doubled in 2024 after plunging for two years. Once one of Asia’s hottest startups and e-commerce players before losing steam, the company is now trying to convince investors of its long-term earnings potential.
Despite fierce competition, Sea has raised the commissions it charges merchants in many core markets by about a third since the start of the year. The hikes, which bring Shopee’s fees far above its rivals, show that Sea is confident it can attract and retain merchants, helped by a broad user base and well-established delivery services.
“Shopee continues to maintain its leadership in Asia markets, and we expect to see positive impact from Shopee’s recent take-rate hikes,” UOB Kay Hian analysts led by John Cheong said in a note, raising their price target for the stock and keeping a buy rating.
Sea’s e-commerce gross merchandise volume, or the value of goods sold, climbed a higher-than-estimated 25% to $25.1 billion in the third quarter. The company expects to reach a billion active users for e-commerce, Li said during a conference in Singapore last week, without specifying a time frame.
The earnings report “demonstrates operating efficiency and management execution towards balancing between growth and profitability,” Citigroup analyst Alicia Yap said in a note. Sea posted a “solid beat in e-commerce order volume and GMV growth.”
What Bloomberg Intelligence Says
Sea’s profit is set to expand further as recovery in its game-publishing business adds to improving bottom-line in its e-commerce unit Shopee, which broke even in 3Q — on an adjusted Ebitda basis — as expected. A strong player base in its Free Fire game, which drives about 70% of mobile game revenue according to Sensor Tower, might push digital entertainment segment bookings 20%-30% higher sequentially in 4Q, vs. 3Q’s 3.7%.
A shift toward local marketplace model and in-house logistics bode well for advertising sales, helping its Brazil e-commerce’s bottom-line strengthen. An additional profit boost could come from financial services as it makes larger loan sizes to high quality borrowers.
-Nathan Naidu, analyst
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In September, Shopee struck a pact with Alphabet Inc.’s YouTube in Indonesia, betting the video platform will help it attract more shoppers and stay ahead of rivals in its biggest market.
Beyond Southeast Asia, Shopee is gaining steam in its newer market Brazil. The number of average monthly active buyers there grew by close to 40% year-on-year last quarter, Li said on a conference call. That helped the company break even for the first time in that market on adjusted Ebitda basis, he said.
(Updates with comment from analyst in eighth paragraph. An earlier version was corrected to remove reference to Shopee’s adjusted profit being its first ever.)
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