Sea pivoted to growth over profits as it faced rising competition from TikTok, Lazada, analysts say

Shares of Southeast Asian tech giant Sea plummeted this week after missing revenue expectations and saying it would focus on growth over profits — a reversal from recent cost-cutting measures in the face of economic uncertainty. But analysts said the pivot is a move to defend market share.

On Tuesday, the company reported revenue that missed analyst expectations, coming in at $3.1 billion versus the $3.2 billion expected, according to a Refinitiv consensus estimate.

While Forrest Li, Sea’s chairman and group CEO, said the company has “achieved self-sufficiency” and is “now on firmer footing,” he said Sea will now “reaccelerate investments in growth.”

The stock plunged after Tuesday’s earnings report, ending the session 28% lower.

Just last year, Sea overhauled its business to focus on profitability amid high inflation and interest rates. At the same time, investors were pressuring tech firms to move toward profitability. Other regional tech giants like GoTo and Grab slashed costs by conducting mass layoffs and reducing customer incentives.

Sea’s top management gave up their salaries, while the company froze salaries for most employees and paid out lower bonuses. Local media reported the company laid off more than 7,000 employees in six months.

As a result, Sea posted positive net income for the first time in the fourth quarter of 2022 and that figure has remained in the black since. Before that, Sea was largely unprofitable, amassing billions of dollars in losses since its inception.

“The good news for them is that they have built up sort of a buffer to increase some of its spending, with all of its segments now profitable,” said Woo.

Shopee remains the market leader in the region, with a gross merchandize volume of $47.9 billion in 2022, according to a report from Momentum Works. Lazada’s GMV came in at $20.1 billion in the same year.

“In our view, the pivot could be driven by competition along with Sea positioning itself for an increase in consumer spend, and to grow live-streaming and in-house logistics,” said JPMorgan analysts.

“TikTok doesn’t have in-house logistics. They use third-party players to provide e-commerce packages,” Mittal said on CNBC’s “Squawk Box Asia” on Wednesday. Unlike TikTok Shop, Shopee and Lazada have their own logistics networks of warehouses and fulfilment centers around the world.

“This is one of the ways to compete with TikTok. TikTok is still very small. It’s not such a large threat,” said Mittal. TikTok Shop’s current GMV is only a fraction of Shopee and Lazada’s.

— CNBC’s Michael Bloom contributed to this report.