Singapore’s Sea misses earnings estimates as AI costs climb

Sea Ltd shares experienced a decline after the Southeast Asian e-commerce giant reported earnings that fell short of analysts' expectations, raising questions about the financial impact of keeping up with the rapid advancements in AI technology. The company's adjusted earnings per share, excluding interest, taxes, depreciation, and amortization, rose 29% to US$931 million for the quarter ended September, while revenue increased by 43% to reach US$8.6 billion, surpassing the average analyst estimate of US$990 million. However, Sea's stock retreated by 1.5%, wiping out earlier gains.

Investors have been wary about the competitive pressure from rivals such as ByteDance's TikTok Shop, Alibaba Group Holding's Lazada, and the recently listed Shein Global Holdings, which could impact Shopee's pricing and profit margins. Simultaneously, Sea's expenditures have been on the rise as the company integrates AI features into its products and aims to expand into various sectors, including cloud computing and food delivery.

Adjusted EBITDA for Shopee grew by 45% to US$269.2 million, while revenue reached US$6.1 billion during the reporting period.

Sea's board approved an extra US$1 billion in stock buybacks following a previous repurchase program. Despite the challenges, the company's leadership, CEO Forrest Li, announced plans to introduce cloud services, an initiative that initially led to a decline in the stock price in October. Li reassured investors that Sea would not invest heavily in physical capacity and would focus on attracting new customers to fund its cloud business infrastructure.

However, analysts cautioned that competing with well-capitalized cloud providers like Amazon Web Services might prove difficult for Sea, as it would require substantial investments in resources such as chips and storage before becoming profitable.

In addition to its cloud expansion, Sea is considering an initial public offering (IPO) for its financial services subsidiary, Monee, which could provide the company with independent access to capital while its margins remain uncertain. These strategic moves come as Sea seeks to broaden its operations beyond its home market, with plans to expand its Shopee retail platform to Brazil, all while navigating potential regulatory hurdles in Indonesia, one of the major regional markets.