Red ink: A Grab Food delivery rider uses his smartphone while waiting for orders in Singapore. Among Sea’s regional competitors, Grab Holdings is still losing more than US$300mil (RM1.3bil) a quarter. — Bloomberg
SINGAPORE: Just over a year ago, Forrest Li was laid up in bed with Covid, fretting about the future of his company, Sea Ltd.
So he propped himself up on a pillow to hammer out the latest in a series of memos that would change the course of his business – and perhaps the tech industry.
Sea had been a stock market phenomenon, racing to a market capitalisation of more than US$200bil (RM892bil) despite huge losses, but the world had changed.
Investors had turned against money-losing tech companies. So Sea had to change with it, Li wrote. With a burning fever and nagging cough, he told his leadership team it was time to focus on profit and exit India.
That memo kicked off a sweeping overhaul of Sea over the next few months.
The company laid off roughly more than 7,500 employees, or about 10% of its workforce, though Sea declined to disclose the actual numbers. It froze pay. Li and his leadership team gave up their salaries altogether.
Business-class flights were banned; everyone would fly economy, no matter how far. Daily meal expenses were capped at US$30 (RM134), hotels at US$150 (RM669) a night. Snacks disappeared from offices.
Sea replaced the local luxury tea brand TWG with Lipton. In at least some restrooms, two-ply toilet paper gave way to one-ply.
“We cared about every single dollar, every single cent,” Li said at his office in Singapore, his first interview in more than two years.
“You can have a big dream and a big ambition, but what if you cannot survive? You always have this kind of noise back in your mind saying we may be running out of money.”
Li’s shock treatment paid off. In March, Sea reported the first quarterly profit in its 14-year history, US$427mil (RM1.9bil) in generally accepted accounting principles-sanctioned net income.
Its stock soared 22%. Last week, it said it would hand out 5% raises to most staff. Sea has now more than doubled its market value since November.
Like so many tech startups of its generation, Sea had bled red ink for years. In fact, it lost more than US$8bil (RM35.7bil) since its founding to pay for growth in its eCommerce, games and finance operations.
For now at least, Sea is setting a different kind of example: It’s demonstrating that if your underlying business is sound and substantial, you can pull back on subsidies and expansions to break even.
That’s proving a challenge for rivals. Among Sea’s regional competitors, Singapore’s Grab Holdings Ltd is still losing more than US$300mil (RM1.3bil) a quarter, while Indonesia’s GoTo Group’s losses exceed US$250mil (RM1.1bil).
Sea may also cause trouble for global tech giants like Alibaba Group Holding Ltd and Amazon.com Inc, which are both seeking growth in emerging markets.
“What you’re seeing is a separation of proper, monetisable business models from something that is a work-in-progress,” said Amit Kunal, managing partner of Growtheum Capital, a private equity firm in Singapore, speaking broadly about the tech industry.
“Sea read the market much earlier, took appropriate steps – and delivered.”
Li had a premonition that trouble was coming. Back in November 2021, he hosted his leadership team at his Singapore home for dinner to mark his 44th birthday.
They had much to celebrate. Sea’s shares had surged to a record in October, giving the firm a valuation of more than US$200bil (RM892bil), aided by a pandemic-induced boom for its online gaming unit Garena and eCommerce business Shopee.
At one point in 2020, Sea was the best-performing stock in the world.
But even at the dinner, Li saw ominous signs. He noticed that on Free Fire, the company’s popular multi-player mobile game with 150 million daily users, people were beginning to spend less time and money as Covid restrictions eased.
The celebration turned into a debate about how the world would change after the pandemic. Then in February 2022, India abruptly banned Free Fire, along with dozens of Chinese apps, amid rising tensions between the two countries.
While Li is a Singapore citizen and based his company there, he’s originally from north-eastern China and Tencent Holdings Ltd is a major shareholder.
It was a huge setback in a key growth market.
In March, when Li talked during a quarterly earnings call about plans to still pursue growth, investors dumped Sea shares.
The firm lost more than 45% of its market value in five days. For Li, it was a wake-up call that things were worse than he’d thought. That’s when he wrote the somber memo to his team from his sickbed.
Li and his senior team went into crisis mode. They began huddling every month to discuss cashflow projections, along with their regular weekly meetings.
They spun through 200 different versions of financial forecasts in 2022, Li said in the interview, akin to rewriting the budget every two days.
In addition to layoffs and salary freezes, Sea pulled out of Europe and most countries in Latin America.
The fallout was traumatic for some. In August, a Chinese engineer posted on his WeChat account that Shopee had rescinded his job offer – just after he landed at the Singapore airport with his wife and dog.
Amid a storm of negative publicity, Shopee apologised and compensated him for his losses.
Employees resorted to taking money out of their own pockets to organise team events to boost morale, according to one employee, who asked not to be named as they are not authorised to speak publicly.
Another described the gruelling period as “cockroach times”.
Li leaned on internal memos during the crisis to communicate with employees and explain what he was trying to accomplish.
In an all-staff memo in September, he said top management would forgo any cash compensation until the company reached “self-sufficiency”.
“We can now see that this is not a quickly passing storm,” he wrote in a 1,000-word missive at the time. “With investors fleeing for ‘safe haven’ investments, we do not anticipate being able to raise funds in the market.”
At one point, Sea was proud it could offer employees the fanciest tea in Singapore, perks commensurate with the tech giants of Silicon Valley, Li said in the interview.
Now he wants to break that mindset: Sea has to compete on cost with the likes of Amazon, where early employees famously forged desks out of Home Depot doors because they were cheaper. — Bloomberg
