SEA Ltd Is Down 26% Since It’s Q4 Results. Here’s Why

There’s little doubt that SEA Ltd is a very promising company. It’s revenues have grown exponentially since it’s IPO in 2017, causing it’s stock to rocket as well.

Apart from producing sought after games through Garena, it’s game developing platform, it also participates in online commerce through Shopee, a popular online marketplace operating throughout Asia.

The company has also been breaking into the Financial Services segment through SeaMoney, which is showing promising growth.

Recently however, it’s share price has been on a downward trend since 2022, dropping by more than 50% year-to-date. While some see this as the last act for SEA Ltd, we still think this company has a lot of promise.

Strong Growth In Total Revenues

The company’s total revenue surged by 127% compared to FY2020. With total revenues close to US$10b, SEA’s current Price-to-Sales ratio stands at about 5.5 times. This is one of it’s lowest valuations in recent years.

All segments announced revenue growth, with Digital Financial Services showing a sixfold increase. Gross profit margins, another important metric, also grew by 10% YoY.

FY 2021 Revenue by Segment

Revenue growth is really important for companies like SEA Ltd, who need to demonstrate the demand for their products and services. In order to justify the higher valuations for their stock.

Both E-Commerce & SeaMoney Are Doing Great

Shopee, which is owned by SEA, is an extremely popular E-Commerce platform frequented by Singaporeans. Apart from revenue growth, this segment also reports positive growth in Gross orders and merchandise value.

E-Commerce FY Comparison with Metrics

But the most impressive growth seems to come from SeaMoney, which has been showing not only strong market penetration, but also improved operating leverage. This will likely increase with more product offerings being rolled out in the region.

The company expects SeaMoney to achieve positive cash flow by 2023, which will alleviate some expenses required to grow this segment. While not widespread in Singapore (yet), SeaMoney is quite prevalent in other parts of South-east Asia.

Garena Is Starting To Face Resistance

Garena, SEA’s gaming arm, reported a Quarter-on-Quarter drop in both Bookings, and Quarterly Active and paying users. Unexpectedly, management also forecasts a drop in gaming revenue for FY2022.

This potentially augurs a slowdown in one of the company’s main segments, which could be debilitating for upcoming revenue growth. It’s probably not what investors want to hear from a growth story like SEA Ltd.

This factor, combined with the macro climate, is likely why SEA’s stock has lost favor with investors recently.

Upcoming Turbulence

With the war in Ukraine showing no signs of ending, and the impending rise in interest rates, it’s likely that SEA’s stock will hit more road bumps ahead.

Nonetheless, we can clearly see the strength of it’s business model, and it’s future possibilities. With it’s leading position across many parts of South-east Asia, we remain excited about the upcoming years.

While this could be the time to average in, we’ll like to emphasize on the unsupportive macro climate, which will likely sap at it’s share price in the near term.

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