What happened
Shares of Sea Limited (SE -0.51%) fell by 17.7% in March, according to data provided by S&P Global Market Intelligence.
The e-commerce company has lost close to half of its value since the start of the year amid a wide slump in valuations of technology companies.
Image source: Getty images.
So what
Sea reported an impressive set of earnings for its fiscal-year 2021 (FY2021) ended Dec. 31. Revenue more than doubled year over year to $4.38 billion, driven by a sharp 156.8% year-over-year increase in e-commerce revenue. Gross orders hit 2 billion, up an impressive 90% year over year, while gross merchandise value increased by 52.7% year over year to $18.2 billion. The company, however, continued to register both operating and net losses of $1.3 billion and $1.62 billion, respectively.
Despite the strong surge in revenue, investors were concerned about slowing growth at Sea's digital entertainment division. For the very first time, the division registered a quarter-over-quarter dip in users. Quarterly active users fell by 10.3% to 654 million, while quarterly paying users slid by 17.2% to 77.2 million.
It didn't help that Free Fire, Sea's most popular global hit game, was banned in India in mid-February by the Ministry of Home Affairs, with the company saying that it is "working to address the situation." With no updates as to whether this ban will be lifted, investors are rightfully assuming that the digital entertainment division's users will fall even further when the next quarter's earnings report is out.
Now what
Sea's e-commerce division under its Shopee brand has abruptly shut its India business just six months after entering the country. No reason was provided other than the company stating that this move was due to "global market uncertainties." This follows its pullout from France in early March, also just months after it made its initial foray into Europe.
Investors may be taking a wait-and-see attitude to assess Sea's next moves as it grapples with challenges to both its digital entertainment and e-commerce divisions. Granted, this may just be a short-term blip for the company, or it may be the start of a worrying trend that could negatively impact Sea's gaming division, its most profitable of the three. The company has guided for a 76% year-over-year increase in revenue for its e-commerce division and a more than doubling of revenue for its nascent digital financial services division for FY2022.
