After a remarkable 170% rally from its January low, Sea Ltd., Southeast Asia’s leading online shopping firm, faces high expectations for its upcoming third-quarter earnings report. The Singapore-based company, known for its e-commerce arm Shopee, is anticipated to present robust results, likely revealing Shopee’s move into profitability on an adjusted basis. Analysts predict Shopee’s goods sales increased by about 20%, aligning with the company’s guidance amidst easing competition from rivals like TikTok and Lazada.
With its US shares trading at high valuations, investors are keen to scrutinize Sea’s profitability, as well as its ventures into live streaming and gaming. The stock might fluctuate by 12% post-results, as indicated by the options market. Recently, shares dipped by 2.2% in New York trading.
The company’s recent rally suggests strong revenue has already been accounted for, but concerns about lower-than-expected e-commerce margins could impact stock gains. Shopee has successfully staved off competitors like ByteDance’s TikTok and Alibaba’s Lazada, attracting investors back after a two-year stock decline. The market is looking for reduced spending on promotions to maintain competitiveness and for signs of enhanced profitability, following Shopee’s increase in merchant fees.
Sea is also investing in livestreaming to boost e-commerce momentum, while its digital entertainment segment, reliant on the Garena platform’s Free Fire, is projected to see a 20% revenue drop year-over-year. Investors like Sat Duhra from Janus Henderson Group seek increased commission rates and less competition, alongside updates on new games to reduce Free Fire’s dependency.
Currently, Sea trades at about 30 times its forward enterprise value to EBITDA, surpassing its three-year median and the 10 times estimated EV to EBITDA of global peers. Despite helping propel the MSCI Singapore Index by 23% this year, Sea’s shares remain 74% below their peak in 2021. Duhra remains optimistic, noting the stock could benefit from positive earnings surprises and stimulus-driven gains in Chinese markets, offering a unique exposure within the ASEAN region.
Original Story https://www.livemint.com/news/sea-needs-more-than-good-earnings-to-sustain-170-comeback-rally-11731085657553.html
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