Why Sea Limited (SE) Shares Are Getting Obliterated Today

Jabin Bastian /
2023/08/15 10:23 am EDT

What Happened:

Shares of e-commerce and gaming company Sea Limited (NYSE:SE) fell 11.3% in the pre-market session after the company reported second quarter results that missed analysts' revenue estimates. Notably, the digital entertainment segment had revenue of US$529.4 million compared to US$900.3 million in the same period last year due to "moderation in user engagement and monetization year-on-year." As a result, the number of quarterly paying users was down year on year, though it increased compared to the previous period. 

On the other hand, adjusted EBITDA beat and was much improved compared to a year ago. Earnings per share also came in above expectations. Moving ahead, management signalled 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. 

Overall, it was a weaker quarter considering the topline miss, and the fall in monetized user base which was down significantly compared to the previous year. These factors are likely weighing heavily on investors' minds, regardless of the profits or cashflows booked during the quarter.

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What is the market telling us:

Sea Limited's shares are not very volatile than the market average and over the last year have had only moves greater than 5%. 

The previous big move was three months ago, when the stock dropped 9.89% on the news that the company reported first-quarter revenue that came in roughly in line with analysts' expectations, reflecting modest topline growth in the mid-single digits, primarily due to a slowdown in the digital entertainment segment. In addition to muted topline growth, another negative was that active users and paying users both saw meaningful declines year over year, the former a 20% decline and the latter a nearly 40% decline. Gross margin missed. Adjusted EBITDA beat but within the details, the picture was mixed. Ecommerce adjusted EBITDA exceeded estimates while digital entertainment missed. EPS missed. 

Looking ahead, management did not provide guidance but said that "as we continue to fine-tune our operations and navigate near-term macro uncertainties, we remain highly confident in the long-term opportunities in our markets and our ability to capture those profitably."

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