Shares of Sea Limited (SE 0.05%) were down 21.5% as of 2:20 p.m. ET after the Singapore-based e-commerce and game-development company announced a surprise quarterly net loss.
Sea's third-quarter revenue grew 4.9% year over year to $3.31 billion, translating to a net loss of $144 million, or $0.26 per share, according to generally accepted accounting principles (GAAP). Analysts, on average, were modeling net income of $0.03 per share on lower revenue of $3.11 billion.
Sea is sacrificing near-term profits to drive market share higher
Within Sea's top line, e-commerce and other services revenue grew 22.3% year over year to $2.417 billion, including a 31.7% increase in core marketplace revenue to $1.3 billion. Digital entertainment segment revenue fell by more than a third, to $592.2 million.
Speaking to Sea's earnings miss and revenue growth, Sea Limited Chairman and CEO Forrest Li said that in order to maximize long-term profitability, the company is prioritizing investing to both increase market share and solidify its existing market position. That's well and good, but many investors are inevitably taking the statement as an indication that Sea is working to fend off increased competition.
"We now have scale, a deep understanding of our markets, and strong localized execution across diverse geographies," Li added. "This gives us a wide competitive moat, and we intend to grow it further."
What's next for Sea investors?
Management didn't provide specific forward financial guidance, but did reiterate its commitment to maintaining a strong cash position without relying on external funding. With low e-commerce penetration across most of its geographic markets, Li stated the company will strategically invest to drive growth "at a time and pace of our choosing."
In the meantime, however, the market is obviously displeased with Sea Limited's unexpected quarterly loss even as it drove outsize revenue gains. Perhaps the stock will rebound as investors digest its strategy. But for now it's no surprise to see the stock pulling back in response.
