SE

Sea Limited

56.05
USD
4.51%
56.05
USD
4.51%
52.38 372.70
52 weeks
52 weeks

Mkt Cap 22.42B

Shares Out 399.98M

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Is Sea Limited Stock a Buy Now?

Sea Limited's (NYSE: SE) stock price tumbled 14% on Aug. 16 following its second-quarter report. The Singapore-based tech company's revenue rose 29% year over year to $2.94 billion, which missed analysts' expectations by $90 million. Its adjusted net loss widened from $321 million to $570 million, or $1.03 per share, but it still beat the consensus forecast by $0.03. On an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, Sea's loss widened from $24 million to $506 million. On a generally accepted accounting principles (GAAP) basis, its net loss more than doubled from $434 million to $931 million. Those headline numbers were messy, but does Sea's post-earnings stock price pullback represent a good long-term buying opportunity? Shopee is losing its momentum Sea generated 59% of its revenue from its e-commerce business, which houses its online marketplace Shopee, during the second quarter. Its e-commerce revenue rose 51% year over year as its gross merchandise volume (GMV) and gross orders both increased by the high double digits. However, all three metrics have cooled off significantly over the past year. GMV growth (YOY) 88% 81% 53% 39% 27% Revenue growth (YOY) 161% 134% 89% 64% 51% Shopee generated most of its growth in its core markets of Southeast Asia and Taiwan, where it remained the top shopping app in terms of average monthly active users and average time spent in the app. Its newer Brazilian business also continued to expand in MercadoLibre's (NASDAQ: MELI) shadow and grew its revenue 270% year over year. However, Sea also stopped providing revenue guidance for the e-commerce business amid "increasing macro uncertainties," which suggests it's bracing for another slowdown in the third quarter. Shopee's adjusted EBITDA loss per order narrowed year over year from $0.41 to $0.33, but the segment's total adjusted EBITDA loss still widened from $580 million to $648 million. Therefore, Shopee might be losing less money on each order by reining in its discounts and shipping subsidies, but its ongoing expansion into new markets like Brazil will prevent it from breaking even anytime soon. Another rough quarter for Garena Sea generated 31% of its revenue from its digital entertainment segment, which houses its video game publisher Garena, in the second quarter. Garena's top game is Free Fire, a battle royale game that was the most downloaded mobile game in the world in 2019, 2020, and 2021. Free Fire's success, along with the higher margins of the gaming business, previously enabled Sea to subsidize Shopee's losses with Garena's profits. In other words, Sea balanced its entire business on a single mobile game. Unfortunately, Free Fire's growth decelerated after it was abruptly banned in India earlier this year. Competition from other games and a broader post-pandemic slowdown in gaming exacerbated that slowdown. In the second quarter, Garena's quarterly active users (QAUs) declined 15% year over year to 619.3 million, its quarterly paying users (QPUs) dropped 39% to 56.1 million, and its total bookings plunged 40%. All three metrics fell year over year for the second straight quarter. QAU growth (YOY) 45% 27% 7% (5%) (15%) QPU growth (YOY) 85% 43% 6% (23%) (39%) Bookings growth (YOY) 65% 29% 7% (27%) (40%) Revenue growth (YOY) 167% 93% 104% 45% (10%) As a result, Garena's adjusted EBITDA declined 55% year over year to $334 million, which couldn't come close to offsetting Shopee's widening losses. Instead of launching new games to succeed Free Fire, Garena is expanding the franchise with new modes and an enhanced version called Free Fire Max for higher-end devices. But if that all-in strategy fails, Sea's only profit engine will sputter out and its losses will deepen. The fintech business is stabilizing Lastly, Sea's digital financial services segment, which houses its SeaMoney payment platform and other fintech services, grew its revenue 214% year over year to $279 million. That accounted for 10% of Sea's top line in the second quarter. Its QAUs increased 53% to 52.7 million, while its mobile wallet's total payment volume (TPV) rose 36% to $5.7 billion. Some 40% of Shopee's quarterly active buyers across Southeast Asia also used SeaMoney's services during the quarter. The segment's adjusted EBITDA loss narrowed from $155 million to $111.5 million, which suggests economies of scale are kicking in. But for now, this segment remains another dead weight on Sea's bottom line. Is Sea's stock too cheap to ignore? Sea faces tough near-term headwinds, but analysts still expect its revenue to grow more than 30% in both 2022 and 2023. Based on those expectations, its stock trades at just three times this year's sales. MercadoLibre, which is expected to grow at a comparable rate, trades at five times this year's sales. However, MercadoLibre's bottom-line growth is also much healthier than Sea's. Therefore, Sea's stock looks historically cheap -- but I wouldn't buy more shares until it stabilizes its core businesses. 10 stocks we like better than Sea Limited When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Sea Limited wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of August 11, 2022 Leo Sun has positions in MercadoLibre and Sea Limited. The Motley Fool has positions in and recommends MercadoLibre and Sea Limited. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Today’s Big Picture Asia-Pacific equity indexes ended today’s session mixed. Hong Kong’s Hang Seng fell 0.67%, China’s Shanghai Composite ended the day essentially flat, down a mere 0.02% while Australia’s ASX All Ordinaries gained 0.50%, Taiwan’s TAIEX advanced 0.84%, and Japan’s Nikkei rose 1.14%. India’s markets are closed to mark the country’s Independence Day holiday and South Korean markets are closed today to mark that country’s Liberation Day. Interestingly, Liberation Day is celebrated in both South and North Korea. By mid-day trading, major European equity indices are up moderately, and U.S. futures point to a down open later this morning. Following the robust movement in equities over the last few weeks, as we start the new week off, they look to give back at least some of those gains. The surprise rate cut by the People’s Bank of China this morning raises fresh questions over the speed of the global economy, especially after July economic data for China missed expectations. Even though we have a sizable downshift in the number of companies reporting their quarterly earnings this week, we see a meaningful pivot toward retail companies, the majority of which were plagued with bloated inventories when they reported their prior quarter. Expectations are for margin and bottom line pain as they look to clear out those inventories in time to prepare for the important holiday shopping season. As these reports roll in, we’ll know how bad the pain is and whether consumers are biting. Data Download International Economy The People's Bank of China surprised by cutting its one-year lending facility rate by 10 basis points to 2.75% and cut the seven-day lending rate, the same amount to 2%. The move preceded weaker than expected July data for the country. China's July Industrial Production rose 3.8% YoY, below the expected 4.6%, and slightly lower than June’s 3.9% figure. Retail sales increased 2.7% YoY in July below the 5% forecast. Manufacturing hubs and popular tourist spots imposed lockdown measures in July after fresh outbreaks of the more transmissible Omicron variant were found. On Friday, China reported more than 2,000 local Covid-19 cases as infections in the southern Hainan island edged higher with mass testing and several lockdowns resulting. Japan’s preliminary GDP for 2Q 2022 came in at 2.2% YoY, better than the 0.1% reading for the prior quarter but below the expected 2.5% figure. On a QoQ basis, the preliminary reading was 0.5%, up from 0.0% in 1Q 2022 but again below the expected figure of 0.6%. Wholesale prices in Germany increased by 19.5% YoY in July of 2022 following the 21.2% gain the prior month. Compared with the previous month, wholesale prices fell 0.4% in July, the first decline since October 2020. Domestic Economy At 8:30 AM ET, we’ll get the NY Empire Manufacturing Index data for August and the headline reading is projected to fall to 5.5 from July’s 11.1 reading. AT 10 AM ET, the NAHB Housing Market Index for August will be published, and the consensus view has it unchanged MoM at 55. The U.S. House of Representatives voted 220 to 207 along party lines on Friday to pass the Inflation Reduction Act, paving the way for wide-ranging reforms in healthcare and clean energy. President Biden is expected to sign the bill into law. Data from AAA put the national average gas price at $3.959 over the weekend, but Goldman Sachs (GS) sees the price surging back to $5 by the end of the year with Brent crude returning to $130 a barrel as the market still needs to balance rising demand and tight supplies. Following last week’s inflation data, markets see a 50% chance the Fed will hike by 75 basis points in September and that rates will rise to around 3.50-3.75% by the end of the year. Meanwhile, the bond market continues to question if the Fed can deliver a soft landing, with the yield curve remaining deeply inverted. Markets Markets closed the week on a strong note with Friday seeing almost all sectors up over 1.00% and Consumer Discretionary names well over 2.00%. The Dow rose 1.37%, the S&P 500 advanced 1.73% and both the Nasdaq Composite and the Russell 2000 posted a 2.09% gain on the day. In reviewing top contributors to returns across the sectors, Apple (AAPL) and Microsoft (MSFT) combined to account for about 48% of Technology sector returns, while Tesla (TSLA) managed to do that all on its own for the Consumer Discretionary sector. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -7.09% S&P 500: -10.20% Nasdaq Composite: -16.60% Russell 2000: -10.19% Bitcoin (BTC-USD): -48.93% Ether (ETH-USD): -48.19% Stocks to Watch Before trading kicks off for U.S.-listed equities, Clear Secure (YOU), Li Auto (LI), Tufin Software (TUFN), and Weber (WEBR) will be among the companies issuing their latest quarterly results and guidance. Bloomberg reports Wells Fargo (WFC) is looking to shrink its once dominant mortgage business. Shares of PlayAGS (AGS) jumped in after-hours trading on Friday after confirming Inspired Entertainment (INSE) made a $10 per share offer for the slot machine maker. IPOs GigaCloud Technology (GCT) and Innovative Eyewear (LUCY) could price their respective IPOs this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Fabrinet (FN), Global-E Online (GLBE), Navitas Semiconductor (NVTS), World Wrestling (WWE), and ZipRecruiter (ZIP) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Tuesday, August 16 UK: Employment Change, Average Hourly Earnings – June Germany: ZEW Current Conditions & Economic Sentiment – August Eurozone: ZEW Economic Sentiment – August US: Housing Starts & Building Permits – July US: Industrial Production & Capacity Utilization – July Wednesday, August 17 Japan: Core Machinery Orders – June Japan: Imports/Exports – July UK: CPI, PPI – July Eurozone: 2Q 2022 GDP US: Weekly MBA Mortgage Applications US: Retail Sales – July US: Business Inventories – June US: Weekly EIA Crude Oil Inventories US: Federal Reserve FOMC Meeting Minutes - July Thursday, August 18 Eurozone: CPI - July US: Weekly Initial & Continuing Jobless Claims US: Philadelphia Fed Index – August US: Existing Home Sales – July US: Weekly EIA Natural Gas Inventories Friday, August 19 Japan: CPI – July UK: Retail Sales – July Germany: PPI - July Thought for the Day “People who avoid failure also avoid success.” ~ Derrick Lewis Disclosures Tufin Software (TUFN) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Tesla (TSLA), Li Auto (LI) are constituents of the Tematica BITA Cleaner Living Index Tesla (TSLA), Li Auto (LI) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index Apple (AAPL), Microsoft (MSFT) are constituents of the Tematica Research Thematic Dividend All-Stars Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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