The profitability of Shopee, Sea Group’s core e-commerce unit, declined in the January-March period from a year earlier, the Singapore-based group said on May 12, underscoring intensifying competition.
According to its financial statements, the New York-listed company’s net profit for the first quarter rose 6.2% year-on-year to USD 427 million, backed by steady growth in its other two business pillars, digital financial services and online gaming. Overall revenue rose 46.6% to USD 7.1 billion, beating the USD 6.45 billion average estimate compiled by Quick FactSet.
“Our strong revenue growth reflects the effectiveness of these investments, and we are already seeing unit economics start to improve for some of these initiatives,” chairman and CEO Forrest Li said during an earnings call.
However, the e-commerce segment’s adjusted EBITDA (earnings before interest, tax, depreciation and amortization) fell 15.6% to USD 223 million, reflecting an increasingly competitive environment with rivals including China’s Alibaba-owned Lazada and ByteDance’s TikTok Shop. Sales and marketing expense rose 40%.
The e-commerce arm saw revenue climb 45.1% to USD 5.1 billion, with the gross merchandise value (GMV) rising 30.2% to USD 37.3 billion, but the cost of revenue also increased by 54.7% to USD 3 billion.
The company said in a news release that this is “primarily driven by an increase in logistics costs as order volume grew, as well as investment in our logistics capabilities for better user experience.”
Sea’s digital financial services unit, Monee, saw revenue surge 57.8% to USD 1.2 billion. Loans outstanding from consumer and small business segments rose to USD 9.9 billion, up 71.3%. Nonperforming loans past 90 days held steady at 1.1%.
Garena, the gaming arm, saw segment revenue rise 40.6% to USD 696 million as bookings climbed 20% to USD 931 million. The unit recorded an adjusted EBITDA of USD 574 million, up 25%. Lifted by its flagship titles, Free Fire and Arena of Valor.
During the earnings call, Li said the company will likely see more impact of rising fuel costs driven by the Middle East crisis in the current quarter, compared with the first quarter. Still, he stressed, “We can manage it within the guidance that we’re giving out.”
In February, Sea announced a partnership with Google to develop artificial intelligence tools for its services.
“We have taken a practical, results-oriented approach, embedding AI into our operations to drive better outcomes for our users and greater efficiency across our platform,” Li said during the earnings call on May 12.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.