Employees at Sea Ltd. were getting ready to start the week when they received an email from Chief Executive Officer Forrest Li. The tycoon adopted a remorseful tone in the 900-word statement, confronting head-on a $150 billion drop in his company’s worth since late 2021.
“This drop is terrible, and you might be feeling frustrated, dejected, or worried about Sea’s future,” the 44-year-old said in an email seen by Bloomberg News, which was sent to the whole business the first working day after Sea’s stock dropped the most. “Do not be alarmed: we are in a strong position internally, and we know what we need to do next.” This is a temporary setback that we must bear in order to reach our full long-term potential.”
Li’s letter was uncommon, and it reflected changes at the gaming and e-commerce behemoth. In recent years, as the company has grown quickly, the founder has spoken to his employees mostly to commemorate significant events. However, following a string of high-profile failures this year, including India’s unexpected ban on its most popular mobile game, the business is showing indications of giving in to shareholder and employee calls for greater transparency.
Global investors had been satisfied to let Sea go about its business for years, riding a 2,300 percent surge from 2017 to 2021. This began to shift in November, when a dismal quarterly report sparked profit-taking. The selloff escalated in January when Tencent Holdings Ltd., the company’s biggest supporter, revealed it was selling a portion of its stock, then accelerated again in February with India’s ban, before culminating in dismal quarterly earnings this month.
In five months, Sea lost three-quarters of its worth. In pre-market trade in New York on Monday, the stock was down another 3.4 percent.
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According to those familiar with the situation, fund managers have been urging Sea to be more forthcoming about its strategy and figures in recent months. Li spoke for an unusually long time and in great detail during an earnings call earlier this month. He rarely discusses his goals in public, instead delegating them to Group Chief Corporate Officer Yanjun Wang, a tight-lipped lawyer.
Sea offered additional and more specific data during the call, including its first annual projections for financial services arm SeaMoney and unit economics for online-shopping arm Shopee in Brazil, Southeast Asia, and Taiwan.
“Sea might not have released so many indicators if not for the dropping share prices,” said Kelvin Seetoh, a shareholder and co-founder of Singapore-based investment group 10X Capital. “It’s not too late for them to do this to help investors understand their firm better.”
Additional disclosures, according to Sea, represent the company’s growth and progress. In a statement to Bloomberg News, the corporation said, “As our businesses continue to grow and evolve around the world, we continue to publish important information about those changes and our performance consistent with our long-standing commitment to our investors.”
Employees are also asking for additional information. Momentum Academy, a Singapore-based consulting firm, hosted a webinar titled “Off the Record — Behind Shopee’s Doors” in early March to discuss the Sea unit’s inner workings. Shopee staff were among the more than 400 persons in attendance, eager to hear from the outside researchers.
According to the people who asked not to be identified because the matter is private, the pressure has sparked an internal debate among some teams about how much information the company should share publicly.
While the gaming arm faces a decline, Sea promises e-commerce growth.
In an industry where publicity is often sought, Sea’s early tendency to reveal as little as possible stands out. Unlike most gaming companies, its Garena division almost never announces new games. Only two years after Shopee launched in Brazil, senior executives began discussing Sea’s ambition to become a global internet company. A French company was launched with little notice and then abruptly shut down.
Investors have had to come up with novel ways to get beyond the secrecy culture fostered by Sea’s upper echelon, which includes billionaire Li and co-founder Gang Ye. Li has majority voting control over the company, and the two own about a fifth of it. Tencent and billionaire tycoon Robert Kuok’s Kerry Group each have a representative on the firm’s six-member board. Both companies are well-known for keeping a low profile and were among Sea’s first investors.
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According to persons familiar with the situation, during Sea’s early days as a publicly traded firm, US hedge funders engaged local teams in Indonesia to collect data to evaluate whether Shopee was gaining traction. As Shopee grew into a big e-commerce player in Southeast Asia and Taiwan, the companies upped their bets on the company. Value investors, pension funds, and sovereign wealth funds all piled in shortly after.
“Many emerging-market fund managers had over-concentration in Sea, an off-benchmark stock,” said Gaurav Patankar, Bloomberg Intelligence’s head of emerging market equities strategy in New York. “Panic sets in because the only individuals left holding the bags are good old long-only investors.”
Sea investors like Fred Liu, the founder of New York-based hedge fund Hayden Capital, fly to Southeast Asia on a regular basis to gain insights. Traders in Singapore are keeping a close eye on Li and Ye. They show up when the CEOs appear at public events in the hopes of asking them tough questions, gaining new business insights, or simply reading their body language, according to one of the sources.
“When times are tough, you have to get in front of investors,” said Liu, a Sea investor since 2018. “You can’t hide in a corner and remain silent.” You’ll be killed by investors if you do it. You need to communicate and open up more.”
Some even try to locate three corporate aircraft that Sea is rumoured to have purchased for its top executives in order to figure out where the firm wants to expand next. Li, Ye, and Chris Feng, who is generally credited with Shopee’s success and was recently appointed to Sea’s group president, are the trio driving Sea’s global operations.
According to a source familiar with the situation, after the India app ban, Ye, who is in charge of government relations, came to the nation and spoke with Union Home Secretary Ajay Bhalla. According to another source familiar with the situation, the government is unlikely to reconsider its ban on Sea’s Free Fire game, but it is unlikely to prohibit Shopee. A text message seeking comment from a government spokeswoman was not returned.
Li and Ye visited Jakarta on March 1 to welcome Indonesian President Joko Widodo for a Sea event as part of a campaign to expand operations in Southeast Asia’s largest economy. The two low-profile executives made a rare public appearance during the live-streamed event.
Li justified the management’s decision to continue investing in expansion for the next few years rather than pursuing profitability to placate shareholders in an email to employees. That day, the stock plummeted for the fifth day in a row, resulting in a week-to-week decrease of almost 40%.
“While some investors may prefer a different strategy, we are pursuing a longer-term approach,” Li stated. “We feel it is best for us to invest now in capabilities that will allow us to seize significant future growth possibilities.”