E-commerce and gaming company Sea (NYSE:SE) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 22.8% year on year to $3.73 billion. It made a GAAP loss of $0.04 per share, down from its profit of $0.15 per share in the same quarter last year.

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“I am pleased to share that we are kicking off 2024 with a strong quarter. All our three businesses have delivered strong growth with an improved profit profile,” said Forrest Li, Sea’s Chairman and Chief Executive Officer.

Founded in 2009 and a publicly traded company since 2017, Sea (NYSE:SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.

Online Marketplace

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Sales Growth

Sea's revenue growth over the last three years has been impressive, averaging 45.6% annually. This quarter, Sea beat analysts' estimates and reported decent 22.8% year-on-year revenue growth.

Ahead of the earnings results, analysts were projecting sales to grow 16.3% over the next 12 months.

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Usage Growth

As an online marketplace, Sea generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Sea has been struggling to grow its users, a key performance metric for the company. Over the last two years, its users have declined 23.7% annually to 48.9 million. This is one of the lowest rates of growth in the consumer internet sector.

Luckily, Sea added 11.3 million users in Q1, leading to 30.1% year-on-year growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Sea because it measures how much the company earns in transaction fees from each user. Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and Sea's take rate, or "cut", on each order.

Sea's ARPU growth has been exceptional over the last two years, averaging 58.2%. Although its users have shrunk during this time, the company's ability to successfully increase prices demonstrates its platform's enduring value for existing users. This quarter, ARPU declined 5.6% year on year to $76.37 per user.

Key Takeaways from Sea's Q1 Results

We enjoyed seeing Sea increase its number of users this quarter as well as beats on the GMV (gross merchandise value) line for e-commerce and the bookings line for Digital Entertainment. This led to consolidated revenue and adjusted EBITDA outperformance versus Wall Street's estimates. Overall, we think this was a strong quarter that should satisfy shareholders. The stock is up 1.8% after reporting and currently trades at $65.6 per share.

Sea may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.