Sea Limited: Primed For A Turnaround

seekingalpha04-18

Sea Limited's e-commerce segment holds pivotal significance for investors awaiting Q1 2024 results.Potential stabilization and profitability in the e-commerce segment could drive significant stock ...

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The Knight
04-18
The Knight
Fly away soon. Once it breaks the $60, we expect the uptrend to continue from there. This is the one that you want to hold for long term.

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Author's work on SE In actuality, I've been bullish on SE for the past year, and thus far been consistently wrong on my bullishness of SE. But I believe that this is simply a case of being too early with my thesis. And understandably, there are a lot of tired investors in this name. Investors that are missing out on the biggest AI boom going. However, I argue that as more and more investors capitulate, this means that at some point very soon, there's going to be an absence of sellers. Because, as you'll see, the business still has a lot going for it. Hence, here's why I'm bullish on SE. Sea Limited's Near-Term Prospects Sea Limited is a diverse corporation with operations across three key sectors. Sea provides a digital entertainment platform catering to gamers, facilitating gameplay, social interaction, and live streaming. Also, through Shopee, the company operates an e-commerce marketplace enabling consumers to peruse and buy various items from virtual ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4548":"巴美列捷福持仓","SG9999014484.SGD":"Nikko AM ASEAN Equity Fund A SGD","SGXZ58947870.SGD":"LIONGLOBAL SINGAPORE DIVIDEND EQUITY (SGDHDG) INC","SG9999002406.SGD":"利安新加坡信托基金","LU0251143029.SGD":"Fidelity ASEAN A-SGD","BK4085":"互动家庭娱乐","SG9999002620.SGD":"LionGlobal South East Asia SGD","SG9999004360.SGD":"Nikko AM Shenton Thrift Fund SGD","BK4551":"寇图资本持仓","SE":"Sea Ltd","SG9999013460.SGD":"LionGlobal Singapore Dividend Equity Fund SGD","BK4585":"ETF&股票定投概念","BK4503":"景林资产持仓","SG9999013478.USD":"利安新加坡股息基金","SG9999006266.SGD":"MANULIFE SINGAPORE EQUITY \"A\" (SGD) ACC","SG9999002604.SGD":"LionGlobal Singapore/Malaysia SGD","IE0034224299.USD":"PINEBRIDGE ASIA EX JAPAN EQUITY \"A\" (USD) ACC","SG9999002679.SGD":"LionGlobal Singapore Balanced SGD","BK4535":"淡马锡持仓","SG9999005177.SGD":"Legg Mason Martin Currie - Southeast Asia Trust A Acc SGD","BK4566":"资本集团","SG9999001135.SGD":"United ASEAN Fund SGD","SG9999013486.USD":"LIONGLOBAL SINGAPORE DIVIDEND EQUITY (USD) INC A","BK4588":"碎股","LU0048573645.USD":"富达东盟基金","LU0210637038.USD":"HSBC GIF THAI EQUITY \"AD\" INC","SG9999014492.USD":"NIKKO AM ASEAN EQUITY \"A\" (USD) ACC","SG9999002414.USD":"LIONGLOBAL SINGAPORE TRUST (USD) ACC","BK4554":"元宇宙及AR概念","BK4581":"高盛持仓","LU0532188223.SGD":"JPMorgan Funds - ASEAN Equity A (acc) SGD"},"translate_title":"Sea有限公司：准备扭亏为盈","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SE":1},"content_text":"Sea Limited's e-commerce segment holds pivotal significance for investors awaiting Q1 2024 results.Potential stabilization and profitability in the e-commerce segment could drive significant stock growth.Strengthened e-commerce operations may signal a turning point in Sea Limited's fortunes.Investment ThesisSea Limited is expected to report its Q1 2024 results in the next four weeks, at the end of the upcoming earnings season. These results are highly anticipated, as investors crave to see whether or not Sea's e-commerce segment is still expected to break even in the second half of 2024.Indeed, I proclaim that SE at 64x forward EBITDA is cheaper than it seems. And I go so far as to argue that the bull case boils down to Sea's ability to stabilize its e-commerce segment.In short, SE is cheaply valued and out of favor with investors, but if the market begins to believe that its e-commerce segment can reach profitability, this will be the catalyst for this stock to move higher in 2024.Consequently, I believe that in the next few quarters, investors will look back to SE at $40 per share as a bargain price.Rapid Recap,In January, I titled my bullish analysis as Sea Limited: Path to Recovery in 2024. This is what I said,Sea Limited has fully fallen out of favor with investors. There's little appetite for Sea, with its unimpressive revenue growth rates. However, my investment thesis here has less to do with its recent performance and everything to do with what 2024 could bring for Sea.As much as possible, I've sought to be conservative with my estimates. And as you read through, you'll hopefully agree with me that there are reasons to be bullish on Sea now.In hindsight, no sooner were those words penned, than Sea's stock started to rise. Great timing, right? Well, not really, see below.Author's work on SEIn actuality, I've been bullish on SE for the past year, and thus far been consistently wrong on my bullishness of SE. But I believe that this is simply a case of being too early with my thesis. And understandably, there are a lot of tired investors in this name. Investors that are missing out on the biggest AI boom going.However, I argue that as more and more investors capitulate, this means that at some point very soon, there's going to be an absence of sellers. Because, as you'll see, the business still has a lot going for it. Hence, here's why I'm bullish on SE.Sea Limited's Near-Term ProspectsSea Limited is a diverse corporation with operations across three key sectors. Sea provides a digital entertainment platform catering to gamers, facilitating gameplay, social interaction, and live streaming. Also, through Shopee, the company operates an e-commerce marketplace enabling consumers to peruse and buy various items from virtual storefronts established by merchants. And thirdly, under its Digital Financial Services umbrella, Sea offers a suite of fintech solutions and digital payment services.Sea's near-term prospects appear promising across its e-commerce, digital financial services, and digital entertainment segments. In the e-commerce realm, particularly with Shopee, the company has established a strong market position in Southeast Asia (more on its e-commerce segment soon).Also, Sea's digital financial services segment, led by SeaMoney, presents another area of growth potential. The segment achieved positive profitability in 2023, driven by strong performance in its consumer and SME credit business. As SeaMoney expands its offerings to include digital banking and insurance services, it aims to capture future opportunities in the digital financial services segment.Furthermore, Sea's digital entertainment segment, anchored by Garena and its popular game Free Fire, continues to experience strong user acquisition and retention trends.Given this background, let's now discuss the bull thesis in more detail.Sea Limited is No Longer a Growth CompanySE revenue growth ratesOnce heralded as a beacon of rapid growth and innovation, Sea Limited has experienced a notable decline from its former glory.The company, once synonymous with exponential expansion and market dominance across multiple sectors, now finds itself grappling with a more subdued growth trajectory.In fact, looking back, it's difficult to imagine that just a few quarters ago, Sea could be counted on for more than 20% of stable growth.Moreover, as its growth has slowed down, this has prompted a reassessment of its strategic direction. This insight is nothing new. Indeed, this is as clear as daylight, and this stock, which was held and recommended by all sorts of growth investors, has now been forced to open a new chapter in its life.However, what I believe investors haven't sufficiently considered is what we'll discuss next.SE Stock Valuation -- 64x EBITDA Isn't The Whole StoryIn my previous analysis, I said,When it comes to investing, the one thing that investors want is certainty. And better than certainty, is a steady and consistent dose of positive surprises. Can you imagine how it feels when you look at a company that appears to be on the cusp of turning around? Well, what happens in the market, is that the market is always slightly ahead of the fundamentals. Because the market has already priced in the near-term upcoming turnaround. That's why when you invest, you always have to think 12 months ahead. Because the market looks 6 months ahead.With Sea, by the summer of 2024, the investor can finally see that the company has stabilized. It looks safer to get in. They get their proof. And the company can put forth a more compelling narrative, that its turnaround is gathering steam. But the bulk of the margin of safety isn't likely to come then. The bulk of the upside comes now. When uncertainty still lingers.More concretely, I believe that by summer 2024, Sea's e-commerce segment will have significantly improved its losses.SE Q4 2023Sea had already improved its losses in its e-commerce segment from negative $1.7 billion in 2022 to negative $214 million in 2023. With a further push, continued focus, and effort, it's possible that Sea's e-commerce business could stabilize towards breakeven and stop being a loss-burning unit.And if that were to happen, all of a sudden, investors would not view Sea's as a business with lackluster profits, but rather as a diverse and profitable, and very well-positioned business, with ample financial resources, see below.SE Q4 2023Again, it's all in the expectations! Yes, Sea Limited holds more than $3 billion of convertibles. But if Sea Limited succeeded in keeping its e-commerce operations close to breakeven, investors would be more willing to look positively towards its EBITDA profile.For now, I estimate, as I have done previously, that Sea could at some point in 2024 reach $400 million of stable EBITDA. This would leave this stock priced at 64x EBITDA, but a business that is on a path towards increasing its profitability in 2025. Again, it's all in the expectations. For now, expectations are rather muted. But if my estimates prove accurate, this stock could be able to increase its EBITDA profile from 2024 into 2025 and all of a sudden, this fallen angel is primed for a turnaround.The Bottom LineIn conclusion, I see Sea Limited's e-commerce segment as the focal point for investors eagerly anticipating the company's Q1 2024 results. Despite recent hurdles, I believe Sea's potential to stabilize and ultimately achieve profitability in this segment could serve as a significant catalyst for the stock's upward trajectory.As my expectations align with Sea's potential for improvement, particularly in its e-commerce operations, I find the current valuation of the stock to be a bargain opportunity.Thus, while Sea Limited may currently be out of favor with investors, the promise of a strengthened e-commerce segment could signal a turning point for my investment in the company's fortunes in the near future.","kind":"highlight","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":0},"commentList":[{"id":296522098442248,"gmtCreate":1713430606737,"gmtModify":1713430611387,"author":{"id":"3570437600969291","authorId":"3570437600969291","name":"The Knight","avatar":"https://static.tigerbbs.com/75dcd9b9c7a6f69cb6e3d99df5c339df","vip":1,"hat":"https://static.tigerbbs.com/4c5ceab71416b120bab4604c0754b52a","crmLevel":7,"crmLevelSwitch":1,"idStr":"3570437600969291","authorIdStr":"3570437600969291"},"htmlText":"Fly away soon. Once it breaks the $60, we expect &nbsp; &nbsp; &nbsp;the uptrend to continue from there. This is the &nbsp; &nbsp; &nbsp; &nbsp; one that you want to hold for long term.&nbsp;","listText":"Fly away soon. Once it breaks the $60, we expect &nbsp; &nbsp; &nbsp;the uptrend to continue from there. This is the &nbsp; &nbsp; &nbsp; &nbsp; one that you want to hold for long term.&nbsp;","text":"Fly away soon. Once it breaks the $60, we expect the uptrend to continue from there. This is the one that you want to hold for long term.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/296522098442248","repostId":2428522399,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":10,"commentSize":1,"repostSize":1,"favoriteSize":0,"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":"4.29.3","shortVersion":"4.29.3","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/2428522399"}