What Happened:
Shares of e-commerce and gaming company Sea Limited (NYSE:SE) fell 9.89% in the after-market session after 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."
What is the market telling us:
Sea Limited's shares are very volatile and over the last year have had moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was eight days ago, when the company gained 5.85% on the news that the company declared a 5% pay raise for most employees starting July. The market has been scrutinizing the company's profit potential, and the move could be a signal to investors that it is confident in its operating leverage potential over time. In the previous quarter, Sea reported strong operating profits, with analysts projecting that the trend is set to continue this quarter.
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