Sea Limited (NYSE:SE) (“Sea” or the “Company”) today announced
its financial results for the quarter ended June 30, 2018.
“Sea again delivered strong results in the second quarter of
2018 as we capitalized on our ability to anticipate and quickly
adapt to evolving industry dynamics,” said Forrest Li, Chairman and
Group Chief Executive Officer of Sea. “Shopee continued to expand
rapidly across all markets, strengthening its leadership in the
region. Our monetization strategy for Shopee is delivering ahead of
expectations, even at this early stage. Marketplace revenue surged
by more than 69% sequentially to US$37.3 million, as more merchants
invested in our value-added services to deepen engagement with
their customers. GMV increased more than 14% sequentially to US$2.2
billion, while sales and marketing expenses as a percentage of GMV
continued to decline as our growing scale enabled further cost
efficiencies.”
Mr. Li continued, “In digital entertainment, our efforts to
deepen our diversification into mobile games, self-development, and
new markets globally are yielding encouraging results. In the month
of June, self-developed game revenue accounted for approximately
13% of adjusted digital entertainment revenue, a new record high,
driven by the breakout success of our first self-developed global
hit, Free Fire.”
Second Quarter 2018 Key Metrics
- Group
- Total adjusted revenue was US$219.6
million, up 71.0% year-on-year from US$128.4 million for the second
quarter of 2017 and up 11.4% quarter-on-quarter from US$197.0
million for the first quarter of 2018.
- Total adjusted EBITDA was US$(161.9)
million, compared to US$(50.9) million for the second quarter of
2017 and US$(144.7) million for the first quarter of 2018.
- Digital Entertainment
- Adjusted revenue was US$139.1 million,
up 19.0% year-on-year from US$116.9 million for the second quarter
of 2017 and a decrease of 4.7% quarter-on-quarter from US$146.0
million for the first quarter of 2018. The quarter-on-quarter drop
was primarily attributable to a decrease in the number of paying
users in Vietnam, as a result of measures launched in April by
Vietnam’s leading mobile operators to restrict the use of prepaid
telco cards for online game top-ups. We are actively strengthening
alternative top-up channels to assist our paying users in
Vietnam.
- Adjusted EBITDA was US$48.6 million, up
20.8% year-on-year from US$40.2 million for the second quarter of
2017 and decreased 11.6% quarter-on-quarter from US$55.0 million
for the first quarter of 2018.
- Quarterly active users (“QAUs”) reached
160.6 million, an increase of 150.2% year-on-year from 64.2 million
for the second quarter of 2017 and up 26.8% quarter-on-quarter from
126.7 million for the first quarter of 2018.
- Average revenue per user (“ARPU”) was
US$0.9 compared to US$1.8 for the second quarter of 2017 and US$1.2
for the first quarter of 2018.
- E-commerce
- Gross merchandise value (“GMV”) was
US$2.2 billion, an increase of 170.6% year-on-year from US$821.2
million for the second quarter of 2017 and up 14.4%
quarter-on-quarter from US$1.9 billion for the first quarter of
2018.
- Gross orders for the quarter totaled
127.8 million, an increase of 180.9% year-on-year from 45.5 million
for the second quarter of 2017 and up 14.7% quarter-on-quarter from
111.4 million for the first quarter of 2018.
- Adjusted revenue was US$58.8 million,
up 2,164.7% year-on-year from US$2.6 million for the second quarter
of 2017 and up 74.3% quarter-on-quarter from US$33.7 million for
the first quarter of 2018. Adjusted revenue included US$37.3
million of marketplace revenue1 and US$21.5 million of product
revenue2.
- Adjusted EBITDA was US$(188.3) million,
compared to US$(76.2) million for the second quarter of 2017 and
US$(179.6) million for the first quarter of 2018.
- Sales and marketing as a percentage of
GMV stood at 6.2%, and improved from 6.8% for the second quarter of
2017 and 6.6% for the first quarter of 2018.
- Digital Financial Services
- Gross transaction value of our digital
financial services as a whole (“GTV”) was US$2.5 billion, an
increase of 608.0% year-on-year from US$348.0 million for the
second quarter of 2017 and up 44.7% quarter-on-quarter from US$1.7
billion for the first quarter of 2018. 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.
_____________________________________1 Marketplace revenue
mainly consists of commission and advertising income and revenue
generated from other value-added services.2 Product revenue mainly
consists of revenue generated from direct sales.
Strategic Business Updates
Digital Entertainment
As growing smartphone penetration continues to improve access to
online games globally, Garena has taken steps to leverage our
leading position in the industry and our clear competitive
strengths to capture the growth opportunities ahead. In particular,
we have focused on three key strategic initiatives – moving from
PC-only to mobile-first, moving from pure game publishing to both
game publishing and development, and expanding from a regional
footprint to a global presence.
These efforts continue to generate positive results. In June
2018, approximately 73% of our adjusted revenue for digital
entertainment was derived from mobile games, approximately 13% was
generated by our self-developed game, and approximately 7% was
derived from outside the seven core markets in our region.
Free Fire, our first self-developed hit game, remains one of the
leading games in the battle royale category in our region, and
during the quarter was among the top-ranked games in its category
in the App Store and on the Google Play Store in several non-core
markets, including Brazil and Mexico. Its daily active user (“DAU”)
count has reached a record high of more than 16 million. With the
development of various monetization features in the game such as
the season pass concept, we see encouraging results from monetizing
the game, which accounted for an increasingly significant share of
our adjusted revenue for digital entertainment.
Moreover, we continue to explore opportunities to expand the
focus of our game business to capture new trends and opportunities,
including those related to esports and game streaming, to further
enhance our user engagement and develop additional avenues of
income.
For example, Garena was one of the organizers of the Arena of
Valor World Cup (“AOV World Cup”) held in Los Angeles in late July.
Garena organized a series of tournaments across the region leading
to the final. In our markets, the competitions in aggregate
attracted over 33 million views online across all streaming
platforms, with the final attracting over 5 million views. We
believe the enthusiasm generated by the esports and streaming
activities further enhanced the user engagement of the game, which
has recently achieved a record high DAU count of more than 14
million.
Our efforts to foster strong community engagement around our key
titles on streaming platforms continued to gain traction. According
to research by Newzoo on the global esports streaming market, two
of our esports channels – Garena and Vietnam Esports TV – ranked in
the top five Youtube channels globally in terms of esports hours
viewed during the first quarter of 2018.
E-commerce
In the second quarter of 2018, Shopee continued to demonstrate
robust growth in GMV, gross orders, and adjusted revenue,
complemented by continuing efficiency improvements.
We also recorded significant growth in marketplace revenue of
69.3% quarter-on-quarter, well ahead of the GMV growth rate, as a
larger number of sellers made use of our expanding suite of
offerings, from advertising tools to value-added services such as
fulfillment and logistics.
Shopee is also benefiting from ever-improving economies of scale
as the number of buyers and sellers on the platform grows, and
users build greater loyalty to the platform. During the quarter,
sales and marketing expenses as a percentage of GMV fell once again
to 6.2%, compared to 6.6% in the first quarter of 2018.
Other Developments
Convertible Notes Offering
In June 2018, we raised US$575 million in aggregate principal
amount of 2.25% convertible senior notes due 2023. The offering
size was increased from the original US$400 million to US$500
million to address investor demand, and the subsequent full
exercise by the initial purchasers of a 15% ‘greenshoe’ option
brought the total offering to US$575 million.
The additional capital further bolsters our balance sheet, and
strengthens our ability to address the evolving needs of the users
in our region, be they in digital entertainment, e-commerce, or
digital financial services. The net proceeds from this offering
will be used for business expansion and other general corporate
purposes.
Unaudited Summary of Financial
Results
(Amounts are expressed in thousands of US
dollars “$”)
For the Three Months
ended June 30,
2017 2018 $ $ YOY%
Revenue Digital Entertainment 91,459 108,029 18.1 %
Others 10,088 75,750 650.9 %
101,547 183,779 81.0 %
Cost of revenue Digital
Entertainment (52,892 ) (61,981 ) 17.2 % Others (22,814 )
(113,216 ) 396.3 % (75,706 )
(175,197 ) 131.4 %
Gross profit 25,841
8,582 (66.8 )% Other operating income 163 1,707 947.2
% Sales and marketing expenses (74,087 ) (165,075 ) 122.8 % General
and administrative expenses (27,644 ) (51,849 ) 87.6 % Research and
development expenses (6,739 ) (12,882 ) 91.2 %
Total operating expenses (108,307 )
(228,099 ) 110.6 %
Operating loss (82,466 ) (219,517 ) 166.2
% Non-operating loss, net (7,193 ) (30,752 ) 327.5 % Income tax
(expense) credit (2,230 ) 170 (107.6 )% Share of results of equity
investees (230 ) (689 ) 199.6 %
Net
loss (92,119 ) (250,788 ) 172.2 %
Adjusted net loss (1) (86,871 )
(198,715 ) 128.7 % Adjusted revenue of Digital Entertainment
(1) 116,892 139,102 19.0 % Adjusted revenue of E-commerce (1) 2,597
58,815 2,164.7 % Adjusted revenue of Digital Financial Services (1)
5,342 3,413 (36.1 )% Revenue of Other Services 3,596
18,229 406.9 %
Total adjusted revenue
(1) 128,427 219,559 71.0 %
Adjusted EBITDA for Digital Entertainment (1) 40,243 48,612
20.8 % Adjusted EBITDA for E-commerce (1) (76,233 ) (188,315 )
(147.0 )% Adjusted EBITDA for Digital Financial Services (1)
(11,044 ) (6,780 ) 38.6 % Adjusted EBITDA for Other Services (1)
(2,664 ) (12,937 ) (385.6 )% Unallocated expenses (2) (1,165
) (2,510 ) (115.5 )%
Total adjusted EBITDA (1)
(50,863 ) (161,930 ) (218.4 )%
(1) For a discussion of the use of non-GAAP financial measures,
see “Non-GAAP Financial Measures.”(2) Unallocated expenses are
mainly related to share-based compensation and general and
corporate administrative costs such as professional fees and other
miscellaneous items that are not allocated to segments. These
expenses are excluded from segment results as they are not reviewed
by the Chief Operation Decision Maker (“CODM”) as part of segment
performance.
Three Months Ended June 30, 2018 Compared to Three Months
Ended June 30, 2017
Revenue
The table below sets forth revenue generated from our reported
segments. Amounts are expressed in thousands of US dollars
(“$”).
For the Three Months ended June 30,
2017 2018 $
% ofrevenue
$
% ofrevenue
YOY%
Revenue Digital Entertainment
91,459
90.1
108,029
58.8
18.1 % E-commerce 1,150 1.1 54,655 29.7 4,652.6 % Digital Financial
Services 5,342 5.3 2,866 1.6 (46.3 )% Other Services 3,596
3.5 18,229 9.9 406.9 % 101,547
100.0 183,779 100.0 81.0 %
2017
2018 $
% of totaladjustedrevenue
$
% of totaladjustedrevenue
YOY% Adjusted revenue of Digital Entertainment 116,892 91.0
139,102 63.4 19.0 % Adjusted revenue of E-commerce 2,597 2.0 58,815
26.8 2,164.7 % Adjusted revenue of Digital Financial Services 5,342
4.2 3,413 1.6 (36.1 )% Revenue of Other Services 3,596
2.8 18,229 8.2 406.9 %
Total adjusted
revenue 128,427 100.0 219,559 100.0
71.0 %
Our total revenue increased by 81.0% to US$183.8 million in the
second quarter of 2018 from US$101.5 million in the second quarter
of 2017. Our total adjusted revenue increased by 71.0% to US$219.6
million in the second quarter of 2018 from US$128.4 million in the
second quarter of 2017. These increases were mainly driven by the
growth in each of the segments detailed as follows:
- Digital Entertainment: Revenue
increased by 18.1% to US$108.0 million in the second quarter of
2018 from US$91.5 million in the second quarter of 2017. Adjusted
revenue increased by 19.0% to US$139.1 million in the second
quarter of 2018 from US$116.9 million in the second quarter of
2017. This increase was primarily due to improvements in
monetization of our existing games and the launch of new
games.
- E-commerce: Revenue increased by
4,652.6% to US$54.7 million in the second quarter of 2018 from
US$1.2 million in the second quarter of 2017. Adjusted revenue
increased by 2,164.7% to US$58.8 million in the second quarter of
2018 from US$2.6 million in the second quarter of 2017. This
increase was primarily due to the growth of our GMV and 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.
- Digital Financial Services: Revenue
decreased by 46.3% to US$2.9 million in the second quarter of 2018
from US$5.3 million in the second quarter of 2017. Adjusted revenue
decreased by 36.1% to US$3.4 million in the second quarter of 2018
from US$5.3 million in the second quarter of 2017, as we switched
to focus our efforts on strengthening our infrastructure to support
our existing platforms. The decrease was also in part due to the
restrictive measures imposed by Vietnam’s leading mobile operators
on using prepaid telco cards for online game top-ups.
- Other Services: Revenue increased by
406.9% to US$18.2 million in the second quarter of 2018 from US$3.6
million in the second 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 131.4% to US$175.2
million in the second quarter of 2018 from US$75.7 million in the
second quarter of 2017.
- Digital Entertainment: Cost of revenue
increased by 17.2% to US$62.0 million in the second quarter of 2018
from US$52.9 million in the second quarter of 2017. The increase
was primarily due to the increase in royalty payments to game
developers as well as in 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 396.3% to US$113.2 million in the
second quarter of 2018 from US$22.8 million in the second 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 122.8% to
US$165.1 million in the second quarter of 2018 from US$74.1 million
in the second quarter of 2017. The table below sets forth the
breakdown of our sales and marketing expenses of our two major
reporting segments. Amounts are expressed in thousands of US
dollars (“$”).
For the Three Months
ended June 30,
2017
2018
YOY%
Sales and Marketing Expenses $ $
Digital Entertainment 11,858 18,916 59.5 % E-commerce 55,906
138,042 146.9 %
- Digital Entertainment: Sales and
marketing expenses increased by 59.5% to US$18.9 million in the
second quarter of 2018 from US$11.9 million in the second quarter
of 2017. The increase was primarily due to the launch of new games
and our continued efforts to expand the user bases of our existing
games.
For the Three Months
ended June 30,
2017 2018 Digital Entertainment $ $
Sales and marketing expenses 11,858
18,916 Adjusted revenue 116,892 139,102
Sales and marketing expenses as a percentage of adjusted
revenue 10.1 % 13.6 %
Sales and marketing expenses as a percentage of adjusted revenue
increased to 13.6% in the second quarter of 2018 from 10.1% in the
second quarter of 2017. This was mainly due to increased expenses
on the launching of new games, while the monetization impact of
these new games was not fully captured within the same period.
- E-commerce: Sales and marketing
expenses increased by 146.9% to US$138.0 million in the second
quarter of 2018 from US$55.9 million in the second quarter of 2017.
The increase in marketing efforts was aligned with our strategy to
fully capture the market growth opportunity and was primarily
attributable to shipping and other promotions on our platform that
were designed to increase our user base and enhance user
engagement.
For the Three Months
ended June 30,
2017 2018 E-commerce $ $ Sales
and marketing expenses 55,906 138,042
GMV 821,175 2,221,789 Sales and
marketing expenses as a percentage of GMV 6.8 % 6.2 %
Sales and marketing expenses as a percentage of GMV was 6.2% in
the second quarter of 2018 and improved from 6.8% in the second
quarter of 2017.
General and Administrative Expenses
Our general and administrative expenses increased by 87.6% to
US$51.8 million in the second quarter of 2018 from US$27.6 million
in the second 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 professional fees
and other expenses.
Research and Development Expenses
Our research and development expenses increased by 91.2% to
US$12.9 million in the second quarter of 2018 from US$6.7 million
in the second quarter of 2017, primarily due to the increase in our
research and development staff force as we expanded and enriched
our product offerings.
Non-operating Income or Losses, Net
Non-operating income or losses consists of interest income,
interest expense, investment gain (loss), fair value change for
convertible debts and foreign exchange gain (loss). The amount was
a net non-operating loss of US$30.8 million in the second quarter
of 2018, compared to a net non-operating loss of US$7.2 million in
the second quarter of 2017. This was primarily due to a fair value
loss of US$37.2 million recognized in the quarter arising from the
fair value accounting treatment for the convertible debts raised
before our initial public offering.
Income Tax Expense
We had a net income tax benefit of US$0.2 million in the second
quarter of 2018, which was primarily due to the deferred tax assets
we recognized in our digital entertainment segment in the second
quarter of 2018.
Share of Results of Equity Investees
We had share of losses of equity investees of US$0.7 million in
the second quarter of 2018, compared with US$0.2 million in the
second quarter of 2017.
Net Loss
As a result of the foregoing, we had net losses of US$250.8
million and US$92.1 million in the second quarter of 2018 and 2017,
respectively.
Adjusted Net Loss
Adjusted net loss, which is net loss adjusted to remove
share-based compensation expenses and fair value change for
convertible debts, was US$198.7 million and US$86.9 million in the
second quarter of 2018 and 2017, respectively.
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:
Date and time: 8:00 PM U.S. Eastern Time on 21 August 2018
8:00 AM Singapore / Hong Kong Time on 22 August 2018 Webcast
link:
https://services.choruscall.com/links/se180821.html
Dial in numbers: US Toll Free: 1-888-317-6003 Hong Kong:
800-963-976 International: 1-412-317-6061 Singapore: 800-120-5863
United Kingdom: 08-082-389-063 Passcode for participants:
1518348
A replay of the conference call will be available at the
Company’s investor relations website
(https://www.seagroup.com/investor/financials). An archived webcast
will be available at the same link above.
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
before share-based compensation and changes in fair value of
convertible debts. 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 and changes in fair
value of convertible debts are significant expenses.
- “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 (“$”).
For the Three Months ended June 30, 2018
Digital
E-
Digital
Other
Unallocated
Consolidated
Entertainment
commerce
Financial
Services(3)
expenses(4)
Services
$ $ $ $ $ $
Revenue 108,029 54,655(1) 2,866 18,229 - 183,779 Changes in
deferred revenue 31,073 - - - - 31,073 Sales incentives net-off -
4,160 547 - - 4,707
Adjusted
revenue 139,102 58,815(2) 3,413 18,229
- 219,559
Operating income (loss)
15,137 (195,034) (7,297) (14,900) (17,423) (219,517)
Net effect of changes in deferred revenue
and its related cost
24,872
-
-
-
-
24,872
Depreciation and amortization 8,603 6,719 517 1,963 - 17,802
Share-based compensation - - - - 14,913
14,913
Adjusted EBITDA 48,612 (188,315)
(6,780) (12,937) (2,510) (161,930)
For the Three Months ended June 30, 2017
Digital
E-
Digital
Other
Unallocated
Consolidated
Entertainment
commerce
Financial
Services(3)
expenses(4)
Services
$ $ $ $ $ $
Revenue 91,459 1,150(1) 5,342 3,596 - 101,547 Changes in
deferred revenue 25,433 - - - - 25,433 Sales incentives net-off -
1,447 - - - 1,447
Adjusted
revenue 116,892 2,597(2) 5,342 3,596
- 128,427
Operating income (loss)
16,020 (77,438) (11,309) (3,326) (6,413) (82,466)
Net effect of changes in deferred revenue
and its related cost
17,336
-
-
-
-
17,336
Depreciation and amortization 6,887 1,205 265 662 - 9,019
Share-based compensation - - - - 5,248
5,248
Adjusted EBITDA 40,243 (76,233)
(11,044) (2,664) (1,165) (50,863)
(1) For the second quarter of 2018, revenue of $54,655 included
marketplace revenue of $33,160 and product revenue of $21,495, net
of sales incentives. For the second quarter of 2017, revenue of
$1,150 was entirely marketplace revenue.(2) For the second quarter
of 2018, adjusted revenue of $58,815 included marketplace revenue
of $37,320 and product revenue of $21,495. For the second quarter
of 2017, revenue of $2,597 was entirely marketplace revenue.(3) A
combination of multiple business activities that does not meet the
quantitative thresholds to qualify as reportable segments are
grouped together as “Other Services.”(4) Unallocated expenses are
mainly related to share-based compensation and general and
corporate administrative costs such as professional fees and other
miscellaneous items that are not allocated to segments. The
expenses are excluded from segment results as they are not reviewed
by the CODM as part of segment performance.
UNAUDITED INTERIM CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
Amounts expressed in thousands of US
dollars (“$”) except for number of shares & per share
data
For the Six Months
ended June 30,
2017 2018 $ $
Revenue Digital
Entertainment 179,045 218,687 Others 16,447 120,136
Total revenue 195,492 338,823
Cost
of revenue Digital Entertainment (102,169 ) (125,553 ) Others
(40,375 ) (196,163 ) Total cost of
revenue (142,544 ) (321,716 )
Gross
profit 52,948 17,107
Operating income
(expenses): Other operating income 381 2,436 Sales and
marketing expenses (137,985 ) (317,224 ) General and administrative
expenses (52,852 ) (96,336 ) Research and development expenses
(12,991 ) (23,594 )
Total operating
expenses (203,447 ) (434,718 )
Operating loss (150,499 ) (417,611 ) Interest income 473
5,350 Interest expense (8,997 ) (11,555 ) Investment (loss) gain
(359 ) 8,478 Changes in fair value of convertible debts - (55,956 )
Foreign exchange (loss) gain (789 ) 4,684
Loss before income tax and share of results of equity
investees (160,171 ) (466,610 ) Income tax (expense) credit
(4,162 ) 925 Share of results of equity investees (862 ) (1,272 )
Net loss (165,195 ) (466,957 )
Net loss attributable to non-controlling interests 51 641
Net loss attributable to Sea
Limited’s ordinary shareholders (165,144 ) (466,316 )
Adjusted net loss (1) (153,834 ) (385,417 )
Loss per share: Basic and diluted (0.94 ) (1.39 )
Shares used in loss per share computation: Basic and
diluted 174,988,779 336,531,721
(1) For a discussion of the use of non-GAAP financial measures,
see “Non-GAAP Financial Measures.”
UNAUDITED INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
Amounts expressed in thousands of US
dollars (“$”)
As of
As of
December 31,
June 30,
2017
2018
$ $
ASSETS Current assets Cash and cash
equivalents 1,347,361 1,477,140 Restricted cash
95,300 154,207 Accounts receivable, net 61,846 55,114 Prepaid
expenses and other assets 186,181 270,026 Inventories, net 9,790
16,906 Short-term investment 18,000 − Amounts due from related
parties 2,235 5,904 Total current
assets 1,720,713 1,979,297
Non-current assets
Property and equipment, net 74,348 121,920 Intangible assets, net
37,333 29,591 Long-term investments 28,216 71,006 Prepaid expenses
and other assets 46,297 63,801 Restricted cash 2,317 2,369 Deferred
tax assets 48,104 56,428 Goodwill 30,952 30,952
Total non-current assets 267,567 376,067
Total assets 1,988,280 2,355,364
UNAUDITED INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
Amounts expressed in thousands of US
dollars (“$”)
As of
As of
December 31,
June 30,
2017
2018
$ $
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
liabilities Accounts payable 8,644 33,920 Accrued
expenses and other payables 285,248 404,900 Advances from customers
27,155 24,716 Amount due to related parties 36,790 32,668
Short-term bank borrowings 2,013 − Deferred revenue 268,241 273,688
Income taxes payable 9,614 8,031 Total
current liabilities 637,705 777,923
Non-current liabilities Accrued expenses and other
payables 7,547 8,429 Deferred revenue 133,481 184,841 Convertible
debts 726,950 1,145,836 Deferred tax liabilities 4,378 3,954
Unrecognized tax benefits 3,088 2,938
Total non-current liabilities 875,444 1,345,998
Total liabilities 1,513,149 2,123,921
Shareholders’ equity Class A ordinary
shares 91 94 Class B ordinary shares 76 76 Additional paid-in
capital 1,564,656 1,776,246 Accumulated other comprehensive income
10,701 24,984 Statutory reserves 46 46 Accumulated deficit
(1,106,545 ) (1,572,861 )
Total Sea
Limited shareholders’ equity 469,025 228,585 Non-controlling
interests 6,106 2,858
Total
shareholders’ equity 475,131 231,443
Total liabilities and shareholders' equity 1,988,280
2,355,364
UNAUDITED INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts expressed in thousands of US
dollars (“$”)
For the Six Months
ended June 30,
2017
2018
$ $ Net cash used in operating activities
(115,731 ) (283,113 ) Net cash used in investing activities
(17,393 ) (61,851 ) Net cash generated from financing activities
626,976 544,791 Effect of foreign exchange rate changes on cash,
cash equivalents and restricted cash 3,486 (11,089 ) Net increase
in cash, cash equivalents and restricted cash 497,338 188,738 Cash,
cash equivalents and restricted cash at beginning of the period
190,824 1,444,978 Cash, cash
equivalents and restricted cash at end of the period 688,162
1,633,716
1 UNAUDITED 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
(“$”).
For the Three Months ended June 30, 2018
Digital
E-
Digital
Other
Unallocated
Consolidated
Entertainment
commerce
Financial
Services(1)
expenses(2)
Services
$ $ $ $ $ $
Revenue
108,029
54,655 2,866 18,229 - 183,779
Operating income
(loss) 15,137 (195,034 ) (7,297 )
(14,900 ) (17,423 ) (219,517 ) Non-operating loss,
net (30,752 ) Income tax credit 170 Share of results of equity
investees (689 )
Net loss (250,788 )
For
the Three Months ended June 30, 2017
Digital
E-
Digital
Other
Unallocated
Consolidated
Entertainment
commerce
Financial
Services(1)
expenses(2)
Services
$ $ $ $ $ $
Revenue 91,459 1,150 5,342 3,596 - 101,547
Operating income (loss) 16,020 (77,438 )
(11,309 ) (3,326 ) (6,413 ) (82,466 )
Non-operating loss, net (7,193 ) Income tax expense (2,230 ) Share
of results of equity investees (230 )
Net loss (92,119 )
(1) A combination of multiple business activities that does not
meet the quantitative thresholds to qualify as reportable segments
are grouped together as “Other Services.”(2) Unallocated expenses
are mainly related to share-based compensation and general and
corporate administrative costs such as professional fees and other
miscellaneous items that are not allocated to segments. The
expenses are excluded from segment results as they are not reviewed
by the CODM as part of segment performance.
SUPPLEMENTAL OPERATIONAL
METRICS
For the Three Months
For the Three Months
ended March 31,
ended June 30,
2018
2018
Digital Entertainment Unit Quarterly
active users millions
126.7
160.6
Monthly active users (last month) millions 77.4 90.6 Quarterly
paying users millions 7.2 6.6 Average revenue per user US$ 1.2 0.9
Average revenue per paying user US$ 20.3 21.1
E-commerce Gross GMV US$ millions 1,941.4 2,221.8
Gross orders millions 111.4 127.8
Digital Financial
Services GTV US$ millions 1,702.2 2,463.9
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180821005498/en/
For enquiries:Investors / analysts:Yong Cheng
Ongir@seagroup.comorMedia:media@seagroup.com
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