Sea Limited SE incurred second-quarter 2020 loss of 68 cents per share, missing the Zacks Consensus Estimate by 19.3%. Moreover, the figure was wider than the year-ago quarter’s reported loss of 48 cents.

However, adjusted revenues of $1.29 billion beat the Zacks Consensus Estimate by 24.4% and jumped 93.4% on a year-over-year basis.

The year-over-year upside can be attributed to growth in the company’s digital entertainment business, especially the self-developed game — Free Fire — and continued monetization efforts in its e-commerce business.

Top-Line Details

Sea operates three core businesses across digital entertainment, e-commerce plus digital payments and financial services known as Garena, Shopee and SeaMoney, respectively.

Adjusted digital entertainment (Garena) revenues of $716.2 million surged 61.6% year over year, accounting for 55.6% of the top line. This was primarily driven by continued quarterly active-user growth and further deepening of paying-user penetration, driven by the consistent strong performance of Free Fire.

Per App Annie data cited by Sea, Free Fire was the highest-grossing mobile game in Latin America and Southeast Asia during the second quarter of 2020.

Notably, quarterly active users (QAUs) reached 499.8 million, up 61% year over year. Quarterly paying users of 49.9 million soared 91% year over year, reflecting 10% of QAUs in the second quarter. Average revenue per user for the reported quarter was $1.40, unchanged year over year.

Moreover, in the quarter under review, Free Fire e-sports tournaments accumulated more than 120 million online views.

Markedly, Free Fire also achieved a new record in monthly paying users in July, which more than doubled on a year-over-year basis. The company inked a partnership with Netflix NFLX for a special in-game crossover with the global hit Netflix show, Money Heist, which is expected to launch in September.

Adjusted e-commerce (Shopee) and other services revenues were $437.6 million, up 141.4% from the year-ago quarter, accounting for 34% of revenues.

E-commerce revenues included $378.7 million of marketplace revenues, up 174.8% year over year. Marketplace revenues primarily consist of transaction-based fees, and advertising income and revenues generated from other value-added services.

Product revenues, which primarily consist of revenues generated from direct sales, surged 232.5% year over year to $131.9 million.

Gross orders for the quarter under review totaled 615.9 million, up 150% year over year. Gross merchandise value was $8 billion, up 110% year over year.

Finally, adjusted sales of goods soared 225.8% year over year to $133.4 million in the second quarter of 2020.

Shopee’s Popularity Spurs Growth

Gross orders from Shopee Mall jumped more than 210% year over year in the reported quarter.

In Indonesia, Shopee registered more than 260 million orders or above 2.8 million orders on a daily-average basis, reflecting a skyrocketing increase of 130% year over year in the second quarter.

Shopee also ranked first in Indonesia by average monthly active users, downloads and total time devoted to apps on Android in the Shopping category during the June quarter, per App Annie.

Moreover, both in Southeast Asia and Taiwan, Shopee claimed the number one spot in the Shopping category by average monthly active users and the total time spent on Android apps, according to App Annie data.

Shopee also occupied the number one slot in the Shopping category by downloads in Southeast Asia, and was among the worldwide top three  in terms of downloads in the same category, going by the App Annie data.

Digital Financial Services Details

SeaMoney’s strengthening integration with Shopee aided Sea’s digital financial services business.

Adjusted Digital Financial Services revenues were $11.9 million compared with $2.8 million in the year-ago quarter. The segment accounted for 0.9% of revenues in the quarter under review.

Mobile wallet total payment volume for the second quarter surpassed $1.6 billion.

Further, quarterly paying users for mobile wallet services exceeded the 15-million mark in the secondquarter. In July 2020, more than 45% of Shopee’s gross orders in Indonesia were paid using mobile wallet services.

Notably, in March, Sea partnered with Alphabet GOOGL division Google to offer its mobile wallet as a payment option for the Google Play Store in Thailand.

Operating Details

Gross profit surged a whopping 106% year over year to $200.8 million in second-quarter 2020. This massive growth was driven by a solid revenue contribution from Sea’s self-developed game.

Adjusted EBITDA was $7.7 million against the loss of $11 million in the year-ago quarter.

Sales and marketing expenses flared up 95.1% year over year to $386.3 million in the second quarter. Digital entertainment sales and marketing expenses increased 64% year over year due to higher online marketing and influencer costs. Higher spending-related brand marketing drove e-commerce sales and marketing expenses also 64%.

General and administrative expenses shot up 42.7% to $144.5 million. This year-over-year growth was attributed to higher staff compensation and benefits costs.

Research and development expenses soared 114.9% to $75.3 million.

Operating loss was $372.8 million compared with loss of $234.5 million in the year-ago quarter.

Balance Sheet

As of Jun 30, 2020, the company had cash and cash equivalents of $3.43 billion compared with $2.60 billion as of Mar 31, 2020.

Zacks Rank & A Key Pick

Sea currently carries a Zacks Rank #3 (Hold). NVIDIA NVDA is a better-ranked stock in the broader computer and technology sector. Currently, NVIDIA carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NVIDIA is set to report its quarterly results on Aug 19.

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