Sea Limited (NYSE:SE) Misses Q2 Sales Targets, Stock Drops 13.6%

Anthony Lee /
2023/08/15 6:36 am EDT

E-commerce and gaming company Sea Limited (NYSE:SE) fell short of analysts' expectations in Q2 FY2023, with revenue up 5.2% year on year to $3.1 billion. Sea Limited made a GAAP profit of $331 million, improving from its loss of $931.2 million in the same quarter last year.

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Sea Limited (SE) Q2 FY2023 Highlights:

  • Revenue: $3.1 billion vs analyst estimates of $3.25 billion (4.68% miss)
  • EPS: $0.54 vs analyst estimates of $0.46 (16.8% beat)
  • Free Cash Flow of $595.5 million, similar to the previous quarter
  • Gross Margin (GAAP): 46.9%, up from 37% in the same quarter last year
  • Quarterly paying users: 43.1 million, down 13 million year on year

“In the second quarter of 2023, we delivered strong results, building upon many of the key initiatives we shared previously,” said Forrest Li, Sea’s Chairman and Group Chief Executive Officer.

Founded in 2009 and a publicly-traded company since 2017, Sea Limited (NYSE:SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission paying sellers, generating flywheel scale effects which feed back into further customer acquisition.

Sales Growth

Sea Limited's revenue growth over the last three years has been incredible, averaging 71.7% annually. This quarter, Sea Limited reported mediocre 5.2% year-on-year revenue growth, missing Wall Street's expectations.

Sea Limited Total Revenue

Ahead of the earnings results, analysts covering the company were projecting sales to grow 12.8% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Usage Growth

As an online marketplace, Sea Limited generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Sea Limited has been struggling to grow its users, a key performance metric for the company. Over the last two years, its users have declined 20.5% annually to 43.1 million. This is one of the lowest rates of growth in the consumer internet sector.

Sea Limited Quarterly paying users

In Q2, Sea Limited's users decreased by 13 million, a 23.2% drop since last year.

Key Takeaways from Sea Limited's Q2 Results

Sporting a market capitalization of $32.2 billion, more than $5.7 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Sea Limited is attractively positioned to invest in growth.

Sea Limited's user base fell and its revenue missed Wall Street's estimates. In the press release, management also signaled that the company would be stepping up investments. This shows some optimism around the market opportunity but could depress profits in the near to medium term. On the positive side, adjusted EBITDA beat and was much improved some a year ago. Overall, this was a mixed quarter for Sea Limited, with the revenue miss weighing on shares. The company is down 10.2% on the results and currently trades at $50.95 per share.

Sea Limited may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.