March 06 2024

Sea hits profitability milestone

It’s been a long road to reach this point but Sea has finally done it: The Singapore-based company recorded its first full year of profitability in 2023. Net income was US$163 million, while revenue reached US$13 billion, up 5% from 2022. However, Sea owed its profitability more to its performance in the first half of 2023 than the second as it lost money in both the third and fourth quarters. Questions remain about the company’s long-term outlook given the intensity of competition it faces in both e-commerce and digital financial services.

Auguring well for Sea is that its unit with the most long-term potential, its fintech arm, continues to grow briskly by just about every metric. In the fourth quarter, adjusted EBITDA was US$148.5 million, up 96.4% year-on-year, driven largely by the consumer and SME credit business. As of December 31, 2023, consumer and SME loans principal outstanding was US$3.1 billion, up 27% year-on-year. Non-performing loans past due by more than 90 days as a percentage of consumer and SME loans on-book was 1.6%, stable quarter-on-quarter. For the full year, the adjusted EBITDA of its fintech unit was US$550.1 million, more than double the US$228.6 million it recorded in 2022.

In a press release, Sea CEO Forrest Li said that “for SeaMoney, 2023 was the first year of positive profit, primarily attributed to our consumer and SME credit business,” adding that in 2024, Sea will continue to invest in user acquisition for its credit business, “both on and off Shopee platform as we see significant upside in our markets.”

In 2023, Sea made some important progress in its digital banking business in Singapore known as MariBank, in particular assets under management (AuM) with its Mari Invest investment account. Mari Invest's total AuM has reportedly reached S$200 million (US$149 million). While MariBank ostensibly competes with incumbent financial services firms, it also cooperates with them. For instance, its Lion-MariBank SavePlus Fund is distributed exclusively through Mari Invest but is managed by Lion Global Investors, a Great Eastern subsidiary and a member of OCBC Group.

In addition, because of Shopee’s prominence in Southeast Asia, there exist strong opportunities for synergies between Sea’s e-commerce and digital financial services business.

However, looking ahead, we expect that Sea will have to spend heavily to ward off competition from not only Lazada, but also the GoTo-TikTok partnership in Indonesia. E-commerce can be a hard business to keep consistently profitable, especially when brand power is modest and the services do not differ drastically among different providers.

Sea is planning to accelerate investments in live streaming, which is likely to eat into its margins and might foment a price war with TikTok and Lazada.