Singapore-based tech conglomerate Sea Ltd. witnessed a substantial decline in the net worth of its two billionaire co-founders following a disappointing second-quarter earnings report and the announcement of plans to bolster e-commerce investments, which could potentially lead to further financial challenges.
Sea’s shares experienced their most significant single-day drop since the company’s initial public offering (IPO) in 2017. On Tuesday, the company’s stock plunged by nearly 29% on the New York Stock Exchange (NYSE).
This sharp decline wiped out approximately $1 billion from the net worth of Chairman and CEO Forrest Li, reducing his wealth to $2.5 billion according to Forbes’ Real-Time Billionaires List. Similarly, Chief Operating Officer Gang Ye suffered a loss of approximately $565 million due to the decline in share value, leaving his net worth at $1.8 billion.
The company disclosed that its second-quarter revenue had recorded a year-over-year increase of 5.2%, amounting to $3.1 billion. However, this figure fell short of analysts’ estimates, which had anticipated revenue to reach $3.2 billion.
Shopee, Sea’s predominant e-commerce arm that contributes around two-thirds of the company’s overall revenue, exhibited a growth rate of 20.6%, generating $2.1 billion in revenue.
Notably, this marked the slowest growth rate for the segment. Conversely, the revenue generated by Sea’s profit-making gaming division, which played a significant role in financing the company’s expansion in e-commerce and digital financial services, experienced a substantial decline of 41.2%, amounting to $529 million. Conversely, sales from digital financial services reported a notable increase of 53.4%, reaching $423 million.
Despite having reported a net profit of $331 million in the second quarter, Sea indicated the possibility of incurring losses in the future. During an earnings call, Chairman Li emphasized the company’s intentions to intensify investments in expanding its e-commerce operations across various markets.
He noted that such investments could impact the company’s bottom line and might lead to losses, particularly for Shopee and the company as a whole, during certain periods.
This strategic shift in focus coincides with Shopee’s heightened competition from prominent rivals such as Alibaba’s Lazada and ByteDance’s TikTok. Sea’s change in direction deviates from its prior emphasis on improving profitability.
The company had achieved its first-ever profit during the fourth quarter of 2022, a result of cost-cutting measures that included significant workforce reductions and salary freezes.
Notably, analysts, including Alicia Yap from Citigroup, have raised concerns about the company’s lack of clarity regarding growth in gross merchandise value (GMV) and its readiness to return to a loss-making position.
Yap’s research note suggested that the company’s ambiguous direction and willingness to accept losses may indicate challenges in gauging the effectiveness of its investments, potentially hinting at the commencement of a fierce competitive struggle.
Founded in 2009, Sea was previously a standout performer in the stock market during the peak of the pandemic. However, the e-commerce and gaming conglomerate struggled to sustain its momentum as the pandemic-induced demand waned, and investor sentiment grew cautious amidst fluctuations in interest rates.
Consequently, Sea’s market capitalization has plummeted by nearly 89% from its peak in October 2021. This decline has consequently led to the removal of David Chen, one of Sea’s three co-founders, from the billionaire ranks.
