Sea Limited (NYSE: SE)
Sea Limited is a conglomerate built from a collection of three primary businesses. It has an e-commerce business called Shopee, which is the largest e-commerce retailer by traffic in Southeast Asia. Sea also has a gaming division called Garena; its mobile-game Free Fire has been among the most-downloaded games in the world for the past three years. Lastly, Sea has a digital wallet segment called SeaMoney with 52.7 million active users. The company operates primarily in Southeast Asia, one of the world's most internet-affluent populations. With its recent plunge, the company has seen an increase in mentions by 140% over the last day as investors wonder if this is the best time to cop the stock while it’s at such a low. Currently, shares of Sea Limited trade at $62.60.
Positive Hype
Sea Limited is a market leader in a rapidly expanding eCommerce industry and has lots of reasons that may generate positive hype. Here are some of them.
Shopee managed to grow its revenue 51% year over year (56% ex-foreign currency), even though last year's second quarter still had Southeast Asian economies under pandemic conditions, with the year-ago quarter growing a stunning 160.7%.
Its newer Brazilian business also continued to expand in MercadoLibre's shadow and grew its revenue 270% year over year.
Sea's digital financial services segment, which houses its SeaMoney payment platform and other fintech services like gangbusters, grew its revenue 214% year over year to $279 million.
Its QAUs increased 53% to 52.7 million, while its mobile wallet's total payment volume (TPV) rose 36% to $5.7 billion.
Shopee's adjusted EBITDA narrowed from a $742.8 million loss in Q1 to a $648.1 million loss in Q2, and SeaMoney's EBITDA sequential losses narrowed from a $124.9 million loss to $111.5 million in the same period.
Some would say the company got really lucky too, it had a very well-timed $6.3 billion capital raise, issuing stock when shares were trading at high prices last September.
Sea now has $7.8 billion in cash and short-term investments, enough money to last the business for a while, assuming its losses don't dramatically increase beyond the $1.4 billion burned over the past year.
Sea Limited remains a market leader in Southeast Asia, so it's reasonable to expect the company to continue growing in the future.
According to an estimate by Grandview Research, the global e-commerce market will be worth $13.6 trillion in 2022, and it could grow to $27.1 trillion by 2027.
Negative Hype
Not all investments are all good, and it is incredibly important to consider the bad news and downsides to making an investment before you take a position. Here are some of the drawbacks causing Sea Limited to gain negative hype too.
Sea Limited had been recovering from its first-half swoon up until its recent second-quarter earnings report, after which the stock retreated another 25% toward its May lows. This drop was likely caused by management's withdrawal of guidance for the rest of the year, which investors have never taken positively.
Gaming and eCommerce have been particularly hard hit by tough comparisons to the pandemic period and lower consumer spending. Sea's gaming division is dominated by Free Fire, which has seen a big drop in revenue relative to the year-ago quarter.
Conclusion
Many high-growth companies have prioritized revenue growth at the expense of profits in recent years, and Sea has followed the same course, which has contributed to the stock's sharp decline in 2022. However, some segments - like Shopee and Sea Money look like they’ll see solid growth, making this stock worth considering for your portfolio. With things moving in the right direction, it's reasonable to think that Sea Limited's cash burn could improve over the coming years, the company even expects its revenue to grow more than 30% in both 2022 and 2023.
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