Why didn't Sea focus on profitability earlier?

Sea's founder and CEO, Forrest Li, announced that the company's top management will cease to receive compensation until the business becomes profitable and self-sufficient.

Sea should have been more frugal in the previous years.

There is a common misconception that business is about making money. In fact, the business maximises the value for the owner. Bigger companies provide the greatest reward for their owners/shareholders through the values they achieve. Amazon is one of the world's most valuable corporations. However, its quarterly revenues have ballooned over the years, but its profits remained almost flat.

A single share in Amazon in 1997 was worth US$0.09. Today it's worth over US $120. Sea Ltd. was not preoccupied with turning a profit, but with accelerating its growth using funds raised in the open market. Investors don't care about the financial results, because they expect their stake to multiply in value.

This is the "shareholder value" that big companies are after. It is how they attract investors eager to pour millions or billions into their growth.

Forrest Li wants Sea to focus on profitability. Pursuing growth at a loss requires money to cover it. Sea raised US$6.3 billion from selling equity and bonds in September 2021 and US $2.6 billion in December 2020. It has US $11 billion on hand as of June 2022. However, it reported a net loss of close to US$.

Sea's stock fell 84 per cent off its highs last year. Raising US$6 billion last September would have equalled just 4 per Cent of the company. Today, raising as much money would require parting with more than 20 percent of Sea's business. The stock market outlook is not very positive and there's no appetite for major deals. Sea is heading into a storm and has only itself to rely on. It has accumulated US $11 billion in cash. It's decided to lay off staff and forgo paying its top management. Its mobile game Free Fire in India was banned earlier this year and its digital gaming arm Garena got into trouble.

Sea has lost 84 per cent off its highs since September. Raising US$6 billion last September would have equalled just 4 percent of the shares in the company. Today, raising as much would require parting with more than 20 per Cent of business.

There is a war in Ukraine and supply chain issues in China. Global uncertainty is at historic highs. The costs of international trade are high. Consumer willingness to spend is bound to decrease. This is bad news for e-commerce platforms like Shopee.

The company is not interested in profits but in self-preservation.

The most valuable activity for the company’s shareholders is survival.