+ Garena likely to have bottomed out. After several quarters of weakness following its Free Fire ban in India last year, Garena finally posted a sequential increase in its segment operating income. 2Q23 operating income grew 8% QoQ to US$296mn (-41% YoY), driven by an increase in higher margin Free Fire bookings. User metrics QAU and QPU also ticked up 11% QoQ and 14% QoQ, respectively, indicating some improvements in user retention and monetization. Garena operating margins have remained relatively high compared to its peers at 56%. And with the release of its new game, Undawn, we should be able to see sustained improvements in most gaming-related metrics moving forward.
– Shopee a slight disappointment due to increased shipping subsidies. Even with orders increasing >10% QoQ, Shopee revenue grew by only 2% QoQ (21% YoY) from ramping up shipping subsidies recorded in its GAAP revenue line. In addition, a sequential US$100mn rise in marketing spend resulted in a -43% QoQ decline in e-commerce operating income. Shopee’s 2Q23 operating margin was 3% (1Q23: 6%).
– Spending more for growth. Throughout its 2Q23 earnings call, management reiterated its stance to ramp-up investments to boost e-commerce growth, citing a stronger base and improved cost efficiencies as reasons for the resumption of investments. SE also said that the ramp-up in investments will negatively impact its bottom line and could see the company move back into the red in the near term. Some of its key areas of focus include live streaming, short-form video, and affiliate partner programs.
GMV: Gross Merchandise Value, QAU: Quarterly Active User, QPU: Quarterly Paying User