For the third time in 2023, Sea’s stock cratered following disappointing quarterly results, despite the fact that it’s only the first time in a year that the company has posted losses.

This may sound like quite a paradox, considering that its value had for years rallied to stratospheric valuations (nearing US$200 billion at its peak back in 2021), when it was burning hundreds of millions per quarter.

And yet now, when it has had the first profitable year, these seemingly positive results are met with disappointment.

Another brick in the wall

In reality — however surprising — it’s not the loss of US$144 million in Q3 (while investors expected another profitable quarter), but the paltry bump of just 16 per cent in e-commerce revenue that really soured the mood.

If you can’t offer profits, you have to show growth. If you achieved neither, your valuation is going to crash.

As a group, it’s even worse, as Sea reported just a 5 per cent increase year-on-year, which might as well be zero if we consider inflation figures.

For comparison, it was 17 per cent in 2022, on top of 32 per cent growth in e-commerce, not to mention 122 per cent and 134 per cent respectively the year before, when red hot Sea reached its peak valuation.

These days are now gone, unlikely to return in foreseeable future.

The COVID-19 pandemic has certainly played right into the company’s hands, radically boosting demand for two main pillars of its business — digital shopping (Shopee) and digital entertainment (Garena), as millions of people were stuck at home under lockdowns.

That said, e-commerce is considered an evergreen industry. After all, the penetration of online retail is still limited and projected to increase for years to come. The pandemic was widely considered a godsend, which would simply accelerate the trends — and it has.

However, it has not been enough to meaningfully offset the inevitable drop in Garena’s gaming revenue, which shrank by about 50 per cent over the past two years, from US$1.1 billion in 2021 to a smidgen under US$600 million today, as users returned to normal life.

Yes, Shopee has grown by US$800 million more in sales over the same period, but with razor-thin margins, inflation bloating the figures and pushing interest rates up, it’s clear that not only has the rapid growth ended, but it doesn’t seem that the company knows what to do next.

Garena has for long been a pretty successful, profitable business. Ultimately, though, it was supposed to be a springboard for Shopee into global e-commerce worth trillions (and growing). This was the big dream that made investors go crazy, valuing each share at over US$360 dollars in November 2021.

It’s just US$36 today.

And while SeaMoney, the digital finance arm, is improving every quarter, it’s still far from making a major impact on the results and was conceived to largely depend on the company’s strength in retail. But as growth in one segment stalls, it’s hard to expect miracles in the other.

Sea has hit a wall and needs to reinvent its growth engine, Shopee, in this new reality or face stagnation that it might not have enough resources to get out of.

More at https://vulcanpost.com/845165/sea-has-to-reinvent-shopee-app-or-accept-costly-stagnation