Sea Limited Earnings: Navigating Q2's Storm, Priced At 10x EBITDA

seekingalpha2023-08-16

SummarySea Limited's Q2 2023 results disappointed investors, particularly due to the slowing growth of its Digital Financial Services segment.Concerns have been raised about Sea's ability to sustain ...

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Comments

Huitai
2023-08-16
Huitai
Support your thesis!Value to go in
Mr Mooney
2023-08-16
Mr Mooney
Time to add more as the stock price is as similiar as before interest rate hike Time.
BenjiFuji
2023-08-16
BenjiFuji
Nice write up, thanks
JeromeAng
2023-08-16
JeromeAng
I am going in. Thanks![Cool]

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SA Premium Furthermore, as you can see above, analysts' consensus estimates for Sea had already been markedly lowered, to the point that analysts have already reduced their financial projections for Q4 2023 to 3% y/y revenue growth rates. In other words, Sea's growth hurdles had already been lowered. Profitability Profile Examined SE Q2 2023 Sea's bull case is focused on Sea's ability to turn the corner on its profitability. To this end, the graphic above demonstrates Sea's prog","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SE":"Sea Ltd"},"translate_title":"Sea Limited收益：驾驭Q2风暴，定价为10倍EBITDA","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SE":1},"content_text":"SummarySea Limited's Q2 2023 results disappointed investors, particularly due to the slowing growth of its Digital Financial Services segment.Concerns have been raised about Sea's ability to sustain its growth trajectory.Despite the slowdown, Sea's improved profitability and the potential for $3 billion in EBITDA by 2024 make the current valuation of the stock attractive.Investment ThesisSea Limited negatively surprised investors with its Q2 2023 results. Not only did Sea's revenue growth rates miss analysts' expectations, but the details of this revenue miss matter.I declare that investors felt disenchanted and frustrated to see that Sea's key growth engine, its Digital Financial Services, delivered yet another quarter of slowing revenue growth rates.Nevertheless, I argue, that paying 10x next year's EBITDA for Sea is probably as cheap as this is going to get. Here's why I'm bullish on Sea Limited.Read more: Singapore's Sea Misses Quarterly Revenue EstimatesSea Limited's Growth Engine in FocusSea Limited SegmentsAbove we see Sea's 3 main segments. Long ago, investors had come to terms with its shrinking Digital Entertainment segment, so this segment being down slightly didn't cause investors too much concern.However, what investors have latched onto is Sea's growth engine, its Digital Financial Services (''DFS''), which saw a substantial deceleration from Q1. To illustrate, see if you can pick up a trend for Sea's DFS segment:Q2 2022: 214% y/yQ3 2022: 147% y/yQ4 2022: 92% y/yQ1 2023: 75% y/yQ2 2023: 53% y/y.This poses a significant problem. Why? Because investors were backing this stock were backing what they believed to be a business that had another segment asides from its e-commerce segment to deliver strong growth rates.And with its DFS segment rapidly decelerating from more than 200% y/y growth this time last year to 53% y/y this time around, investors are left searching and asking tough questions.Revenue Growth Rates Fizzled OutSE revenue growth ratesOne of the problems with investing is that when the share price is going up, nobody is going to waste too much energy asking difficult questions about their investment. After all, the stock is going up, and everyone is a buy-and-hold-forever investor.But when the company starts to report slowing revenue growth rates, all of a sudden investors start to look ahead and show slightly more trepidation before sending good money after bad.In practical terms, investors are now looking out to the end of 2023 and asking, if Q2 delivered just 5% y/y growth rates, what sort of growth rates can we expect towards the back end of 2023?Luckily for investors, Sea's comparables ease up substantially over the next couple of quarters, so even if its revenue growth rates don't accelerate, its y/y comparables should be attractive enough for Sea to deliver close to 10% y/y revenue growth rates into H2 2023.SA PremiumFurthermore, as you can see above, analysts' consensus estimates for Sea had already been markedly lowered, to the point that analysts have already reduced their financial projections for Q4 2023 to 3% y/y revenue growth rates.In other words, Sea's growth hurdles had already been lowered.Profitability Profile ExaminedSE Q2 2023Sea's bull case is focused on Sea's ability to turn the corner on its profitability. To this end, the graphic above demonstrates Sea's progress. As you can see above, Sea's EBITDA went from negative $0.5 billion EBITDA in last year's Q2 to just over $0.5 billion this time around -- a jump of $1 billion in profitability in 12 months.Put another way, yes investors are disenchanted with Sea's growth engine slowing down. But the fact that its underlying profitability has so dramatically improved undoubtedly supports its valuation.To illustrate, Sea may end 2023 with slightly more than $2 billion in adjusted EBITDA profitability.On the other hand, investors may declare that much of this progress is already old news, after all, Sea had already delivered a similar improvement in profitability last quarter, Q1 2023, see below:SEA Q1 2023Meaning that, yes, Sea's y/y profitability comparison has improved. But sequentially? Sea has delivered practically no improvement.On yet the other hand, I believe that paying very approximately 14x this year's EBITDA is a very attractive risk-reward. Indeed, if you think about it, this year is practically finished. Meaning that most investors will already be attempting to price in 2024.Further, it's highly likely that in 2024, Sea could be on the cusp of reporting $3 billion of EBITDA. That means that the stock is priced at 10x next year's EBITDA. Surely, that's cheap enough?The Bottom LineSea Limited's recent Q2 2023 results left investors disappointed, particularly due to the underwhelming performance of its Digital Financial Services segment, which experienced a significant deceleration in revenue growth rates.This slowdown raised concerns about Sea's ability to sustain its growth trajectory.Despite this setback, I argue that the current valuation, with Sea trading at around 10x next year's EBITDA, presents an attractive opportunity.While the DFS segment's growth has faltered, Sea's profitability profile has notably improved, and the prospect of reaching $3 billion in EBITDA by 2024 supports the stock's potential upside.Although questions linger, paying such a valuation for Sea might just be as affordable as it gets in the near term. As always, the investing journey continues with its twists and turns.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":209519474737312,"gmtCreate":1692160811058,"gmtModify":1692160816958,"author":{"id":"3576401458285275","authorId":"3576401458285275","name":"Huitai","avatar":"https://static.tigerbbs.com/be4eb3604e496ba474ae6df683a3ed25","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3576401458285275","authorIdStr":"3576401458285275"},"htmlText":"Support your thesis!Value to go in","listText":"Support your thesis!Value to go in","text":"Support your thesis!Value to go in","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/209519474737312","repostId":2359810077,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":209388555657272,"gmtCreate":1692157070905,"gmtModify":1692157075590,"author":{"id":"3583044537429562","authorId":"3583044537429562","name":"Mr Mooney","avatar":"https://community-static.tradeup.com/news/6836340f20d36afa666f6d8d4b0a929d","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3583044537429562","authorIdStr":"3583044537429562"},"htmlText":"Time to add more as the stock price is as similiar as before interest rate hike Time.&nbsp;","listText":"Time to add more as the stock price is as similiar as before interest rate hike Time.&nbsp;","text":"Time to add more as the stock price is as similiar as before interest rate hike Time.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/209388555657272","repostId":2359810077,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":209367079514240,"gmtCreate":1692151993656,"gmtModify":1692151998872,"author":{"id":"4110175785559852","authorId":"4110175785559852","name":"BenjiFuji","avatar":"https://community-static.tradeup.com/news/330f59d829009a2c318784ab2b5e6098","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":5,"crmLevelSwitch":0,"idStr":"4110175785559852","authorIdStr":"4110175785559852"},"htmlText":"Nice write up, thanks&nbsp;","listText":"Nice write up, thanks&nbsp;","text":"Nice write up, thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/209367079514240","repostId":2359810077,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":209366027980936,"gmtCreate":1692151752705,"gmtModify":1692151756934,"author":{"id":"4087625047599080","authorId":"4087625047599080","name":"JeromeAng","avatar":"https://static.tigerbbs.com/3d1fd245884a2b62379fc1adb18bc69b","vip":1,"crmLevel":2,"crmLevelSwitch":1,"idStr":"4087625047599080","authorIdStr":"4087625047599080"},"htmlText":"I am going in. Thanks![Cool]&nbsp;","listText":"I am going in. Thanks![Cool]&nbsp;","text":"I am going in. Thanks![Cool]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/209366027980936","repostId":2359810077,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":32,"commentSize":4,"repostSize":4,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2359810077"}