What Happened:
Shares of e-commerce and gaming company Sea (NYSE:SE) fell 9.6% in the morning session after reports that competitor TikTok is set to invest over $1.5 billion in a joint venture with Indonesia's GoTo Group's unit, gaining control of the entity. The collaboration involves combining Tokopedia (a unit of PT GoTo Gojek Tokopedia Tbk (GoTo Group)) and TikTok Shop Indonesia under the existing PT Tokopedia. This move allows TikTok to resume its shopping app service in Indonesia after a temporary halt in e-commerce transactions due to regulatory changes.
As a quick recap, TikTok suspended e-commerce transactions in its TikTok Shop app in Indonesia in October 2023 following the country's ban on social commerce companies facilitating direct e-commerce payments on their platforms. This regulatory move, implemented to protect offline merchants and marketplaces, was prompted by concerns about predatory pricing by e-commerce sellers, with TikTok being specifically mentioned as a potential competitor to Sea, which operates the Shopee e-commerce platform in Southeast Asia, including Indonesia.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Sea? Access our full analysis report here, it's free.
What is the market telling us:
Sea'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 we wrote about was 27 days ago, when the stock dropped 12.3% on the news that the company reported third quarter results marked by a decline in its user base, which fell below Wall Street's expectations. The company stated that they will "prioritize investing in the business to increase our market share and further strengthen our market leadership", which is having a negative impact on profits. As a result, adjusted EBITDA missed by a large amount. On the other hand, It was great to see Sea beat analysts' revenue expectations. That stood out as a positive in these results. Overall, the results could have been better.
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