Sea’s $10 Billion Wipeout Lays Hard Road Back From Tech Crash

(Bloomberg) — Sea Ltd.’s historic 29% tumble erased close to $10 billion from its market value, wiping out a quarter of co-founder Forrest Li’s fortune overnight while darkening the shopping and gaming leader’s prospects.

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Southeast Asia’s largest internet firm recorded its biggest single-day plunge after reporting revenue that missed analysts’ estimates, a rude check to a company that overhauled its business to focus on profitability just months ago. In a surprise shift, Li told analysts Tuesday Sea intends to boost investment in the hyper-competitive arena, potentially generating losses going forward.

Investors didn’t take that well. The resultant selloff erased $1 billion from Li’s net worth, valued mainly based on his stake and options in the firm, according to the Bloomberg Billionaires Index. Li, once Singapore’s richest person with a $20 billion hoard, is now worth $2.9 billion. Co-founders Gang Ye and David Chen lost a combined $700 million. Ye’s wealth currently stands at about $1.9 billion and Chen lost his billionaire status.

The question now is if Li’s maneuver will help Sea tackle aggressive competition from Alibaba Group Holding Ltd.’s Lazada as well as new entrants such as ByteDance Ltd.’s TikTok, whose livestreamed shopping bonanzas are winning over users in key markets such as Indonesia. The risk is that Sea, which reported losses for more than a decade after its founding in 2009, will sink back into the red after just three profitable quarters.

“There is a lack of visibility on the investment’s effectiveness,” Citigroup analyst Alicia Yap said in a note, downgrading the stock to neutral from buy. “A brutal battle could be just starting.”

Read more: Sea’s Path to Profit Paved With Layoffs, Single-Ply Toilet Paper

The unprecedented retreat in Sea’s stock reversed much of the progress made since late 2022 and again put the Singapore-based company on a back foot. Once the world’s best-performing stock, the company’s capitalization now stands at $23 billion — down about $180 billion from a November 2021 peak when Sea and other internet shares globally were surging.

Li’s comments spooked investors long accustomed to watching price-based competition wipe out margins. Sea last year embarked on an aggressive cost-cutting drive to reach profit, pivoting to a focus on the bottom-line as revenue growth decelerated from the triple-digit percentage rates of just two years ago. The company froze salaries and slashed hundreds of millions of dollars in sales and marketing expenses to achieve positive cash flows.

Sea’s second-quarter sales rose just 5.2% to $3.1 billion, trailing the $3.2 billion analysts estimated on average. Its e-commerce arm Shopee increased sales 21% — the slowest pace on record. Alibaba grew its international commerce business 41% in the June quarter.

To jumpstart growth, Li now intends to ramp up investments into Shopee. He is stepping up efforts to build out its livestreaming arm, an offensive move that could erode margins and trigger a price war with TikTok and Alibaba.

Li is trying to reassure investors those efforts are necessary to defend its market share against rivals. Sea has been growing its livestreaming feature, rolling out several campaigns in Indonesia, he said Tuesday. “We have also broadened our assortment of products for our core categories, such as fashion, health and beauty to further enhance our competitive moat in the long term,” he said.

Whether that’s enough remains to be seen. Beyond deep-pocketed competitors Alibaba and ByteDance, local rivals such as GoTo Group are also piling the pressure on Sea. GoTo, owner of Indonesian e-commerce contender Tokopedia, on Tuesday said its net revenue almost doubled in the latest quarter.

Investor confidence “has been hammered, and the share price is likely to be range bound,” Yap wrote.

–With assistance from Yoojung Lee.