Sea: There's Still Steam Left In This Rally, But Watch Some Key Risks

seekingalpha10-10

Sea's stock has more than doubled in 2024 due to recovering gamer activity and rapid e-commerce growth in new markets like Brazil.There's further upside in the stock as Shoppee is poised to hit ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2474575614?lang=en_US&edition=fundamental","thumbnail":"","is_english":true,"pubTime":"2024-10-10 16:07","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2474575614","market":"us","top_or_hot":-1,"title":"Sea: There's Still Steam Left In This Rally, But Watch Some Key Risks","media":"seekingalpha","content":"<div>\n<p>Sea's stock has more than doubled in 2024 due to recovering gamer activity and rapid e-commerce growth in new markets like Brazil.There's further upside in the stock as Shoppee is poised to hit ...</p>\n\n<a href=\"https://seekingalpha.com/article/4725919-sea-theres-still-steam-left-in-this-rally-but-watch-some-key-risks-se-stock\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea: There's Still Steam Left In This Rally, But Watch Some Key Risks</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea: There's Still Steam Left In This Rally, But Watch Some Key Risks\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-10 16:07 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4725919-sea-theres-still-steam-left-in-this-rally-but-watch-some-key-risks-se-stock><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Sea's stock has more than doubled in 2024 due to recovering gamer activity and rapid e-commerce growth in new markets like Brazil.There's further upside in the stock as Shoppee is poised to hit ...</p>\n\n<a href=\"https://seekingalpha.com/article/4725919-sea-theres-still-steam-left-in-this-rally-but-watch-some-key-risks-se-stock\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0048573645.USD","symbol_name":"富达东盟基金","start_time":0,"source_url":"https://seekingalpha.com/article/4725919-sea-theres-still-steam-left-in-this-rally-but-watch-some-key-risks-se-stock","article_id":"2474575614","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2474575614","pubTimestamp":1728547656,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Sea's stock has more than doubled in 2024 due to recovering gamer activity and rapid e-commerce growth in new markets like Brazil.There's further upside in the stock as Shoppee is poised to hit profit","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0048573645.USD":"富达东盟基金","LU2045819591.USD":"Natixis WCM Global Emerging Markets Equity R/A USD","BK4588":"碎股","LU0251143029.SGD":"Fidelity ASEAN A-SGD","LU0210637038.USD":"HSBC GIF THAI EQUITY \"AD\" INC","SG9999014492.USD":"NIKKO AM ASEAN EQUITY \"A\" (USD) ACC","BK4503":"景林资产持仓","SG9999014484.SGD":"Nikko AM ASEAN Equity Fund A SGD","SG9999002414.USD":"LIONGLOBAL SINGAPORE TRUST (USD) ACC","LU0737861269.HKD":"FIDELITY ASEAN \"A \" (HKD) ACC","LU2125910500.SGD":"Natixis WCM Global Emerging Markets Equity H-R/A SGD","LU0261945553.USD":"FIDELITY ASEAN \"A\" ACC","BK4551":"寇图资本持仓","LU0532188223.SGD":"JPMorgan Funds - ASEAN Equity A (acc) SGD","BK4085":"互动家庭娱乐","BK4581":"高盛持仓","BK4548":"巴美列捷福持仓","SGXZ58947870.SGD":"LIONGLOBAL SINGAPORE DIVIDEND EQUITY (SGDHDG) INC","SG9999002406.SGD":"利安新加坡信托基金","SG9999002620.SGD":"LionGlobal South East Asia SGD","SG9999004360.SGD":"Nikko AM Shenton Thrift Fund SGD","BK4554":"元宇宙及AR概念","SG9999013460.SGD":"LionGlobal Singapore Dividend Equity Fund SGD","SG9999013478.USD":"利安新加坡股息基金","BK4585":"ETF&股票定投概念","SG9999006266.SGD":"MANULIFE SINGAPORE EQUITY \"A\" (SGD) ACC","IE0034224299.USD":"PINEBRIDGE ASIA EX JAPAN EQUITY \"A\" (USD) ACC","SE":"Sea Ltd","SG9999002604.SGD":"LionGlobal Singapore/Malaysia SGD","SG9999002679.SGD":"LionGlobal Singapore Balanced SGD","BK4566":"资本集团","SG9999005177.SGD":"Legg Mason Martin Currie - Southeast Asia Trust A Acc SGD","BK4535":"淡马锡持仓","SG9999001135.SGD":"United ASEAN Fund SGD","SG9999013486.USD":"LIONGLOBAL SINGAPORE DIVIDEND EQUITY (USD) INC A"},"translate_title":"Sea：这次反弹仍有动力，但要注意一些关键风险","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SE":0.9},"content_text":"Sea's stock has more than doubled in 2024 due to recovering gamer activity and rapid e-commerce growth in new markets like Brazil.There's further upside in the stock as Shoppee is poised to hit profitability in Q3, but several risks abound.Watch out for macro headwinds that may increase default ratios in the company's growing loan portfolio, and also slow down gamers' appetite to pay for in-game items.At a ~45x forward P/E ratio, Sea's valuation is also looking full. Keep holding here, but look out for a near-term exit point.The market in 2024 has been a story of big winners and big losers. Sea (NYSE:SE) is one stock that is in the big winners' category: the Singapore-based internet conglomerate, often described as the Amazon (AMZN) of Southeast Asia, has seen its share price more than double this year as the company managed to recover gamer activity in its online gaming division while also rapidly growing its e-commerce segment in core new markets, such as Brazil.With the sharp rise in the stock so far this year, and with Sea already hitting a >$50 billion market cap, the core question investors have to ask is: can this rally keep going?Data by YChartsHold on for further upside, but watch out for some emerging risksI last wrote a bullish note on Sea in May, when the stock was still trading in the low $70s. My position has performed nicely with a ~30% gain since then. To be sure, this is not a hold-forever stock for me, but I do see some upside still remaining with strong underlying trends in each of the company's businesses (more detail in the next section), plus a raised growth outlook for the e-commerce segment. I'm more cautious and watching for a few key risks, but I'm retaining my buy call on this stock.As a reminder for investors who are newer to this stock, here is my full long-term bull thesis for Sea:Sea operates in the attractive \"tiger economies\" with secular multi-year growth tailwinds. Serving the fast-growing economies of Southeast Asia (Singapore, Indonesia, Philippines, Malaysia, etc.). Outside of its home country of Singapore, Sea benefits from rapidly modernizing infrastructure and a burgeoning middle class. It's not ludicrous to compare an investment in Sea to an early bet on Alibaba (BABA) and JD.com (JD) in China.Synergies between businesses. Unlike many other e-commerce companies, Sea also has its own payments and financial services arm, which prevents it from needing to pay fees to a third party. The company's loan-origination arm is also seeing better profitability and lower portfolio losses.Continued innovation. The company not only has the know-how to make new games, but it's also constantly updating its games as well as its marketplace with new features (such as social shopping).Trimmed headcount and cost discipline. Sea has proven its commitment to profitability and expense discipline by laying off ~10% of its headcount in 2023 amid slower gaming bookings. Bookings have since rebounded, but the savings will help the company become more profitable with scale.At the same time, however, with the stock now approaching ~$100 again, I'm more wary of a few key risks that could derail recent momentum for Sea, which are:Profitability is crawling along slowly in the e-commerce space. The company expects Shoppee to hit breakeven adjusted EBITDA in Q3, but margins are down y/y. Shoppee competes with very promotional rivals, such as Alibaba and Tokopedia. This could cause further margin erosion down the line to maintain growth rates and market share.The growing loan book may be a problem in a worsening global macroeconomy. Improved loan loss ratios and a growing loan book in the digital financial services segment has been a positive driver for the stock recently, but worsening global macro tides may also bring defaults back up.Valuation also remains a huge risk for Sea. With consensus expecting ~$2.08 in pro forma EPS next year (already more than double this year's expected EPS, on the back of a 17% expected growth rate in revenue), the stock already trades at an expensive 46x forward P/E.The bottom line here: I'm content to keep holding on to Sea, as I believe Shoppee's path to breakeven next quarter will be a great near-term catalyst for the stock. With the sharp YTD rally, however, watch this stock closely and regularly for an exit point.Q2 downloadLet's now go through Sea's latest quarterly results in greater detail. Overall company revenue grew 23% y/y to $3.81 billion, generously exceeding Wall Street's expectations of $3.72 billion, or 23% y/y growth.This 20%+ growth was in spite of a -17% y/y decline in the gaming segment.Sea gaming segment highlights (Sea Q2 earning deck)However, the reason this isn't a major concern is because gaming bookings actually grew 21% y/y. As a reminder, Sea recognizes bookings when gamers purchase in-game items, but recognizes revenue as time passes and items are used. The huge excess in bookings over revenue indicates that the company is building up a healthy deferred revenue pipeline, and that revenue is set to accelerate in due course.Stronger results in gaming were driven by the company's flagship game, Free Fire, which held substantial in-game anniversary events that were successful in encouraging higher activity and in-game purchases. Per CEO Forrest Li's remarks on Free Fire on the recent Q2 earnings call:Garena's two years of hard work undertaking a user-centric approach are paying off. We have delivered a strong quarter with more than 20% year-on-year growth in bookings, mainly contributed by Free Fire. At the end of June, Free Fire released a Seventh Anniversary version update, our largest in-game event of the year.We brought back classic weapons, made a documentary on Free Fire history and hosted a Story Wall where users could share their past experiences with the game. The campaign was very successful.Our players really enjoyed revisiting their fond memories of the game's early years. Free Fire's unique strength is its large, highly engaged and loyal gamer base. I'm very proud to share that every single day throughout Q2, Free Fire had more than 100 million daily active players. This reinforces our conviction that Free Fire is an evergreen franchise.Free Fire also managed to keep growing, thanks to the strong word-of-mouth effect we see from our large user base. According to Sensor Tower, Free Fire was the most downloaded mobile game globally in the second quarter.\"We also like the continued growth in users in the digital entertainment portfolio, where quarterly active users rose to 648k as of the end of the second quarter, adding 53k net-new users in Q2. The ratio of paid users also expanded 20bps y/y to 8.1%:Sea gaming user trends (Sea Q2 earning deck)In the e-commerce space, GMV soared 29% y/y to a staggering $23.3 billion. The core metric we're watching, however, is profitability. The company achieved just under a breakeven adjusted EBITDA this quarter, which is an 80bps worse adjusted EBITDA margin year over year. This decline, however, was more muted than a -110bps slide in the previous quarter.Sea e-commerce segment highlights (Sea Q2 earning deck)Importantly, Shoppee bookings are trending above expectations, and the company has raised its growth expectations for Shoppee's GMV to the mid-20s, as shown in the chart below. And with this increased sales volume, the company also expects Shoppee to generate positive adjusted EBITDA in the third quarter, which turns around the adjusted EBITDA story entirely (even just a breakeven margin in Q3 would be a 170bps y/y increase).Sea e-commerce outlook (Sea Q2 earning deck)Last but not lease, in the digital financial services space, the company continues to build up its loan book to end the quarter with a $3.5 billion portfolio. Loan loss ratios have also improved, with the NPL90+ ratio (non-performing loans that have been in default for more than 90 days) dropping to 1.3%, an improvement both sequentially and year-over-year.Sea loan metrics (Sea Q2 earning deck)Better loan profitability has, in turn, allowed this segment to grow its adjusted EBITDA at a 20% y/y pace to $164.7 million.Sea financial services segment highlights (Sea Q2 earning deck)In the past, Garena (the gaming division) was Sea's only profitable segment, and essentially subsidized losses in e-commerce and financial services. But now the loan business has already more than turned the corner, contributing to roughly one-third of the company's adjusted EBITDA, while we wait for Shoppee to hit profitability next quarter as well.Key takeawaysI view Sea as a hot-potato investment. It's certainly not the only e-commerce player in Southeast Asia, which unfortunately likely means Shoppee's ability to sustain its profitability may be a question mark if its competitors decide to start a price war. In addition, looming global macro headwinds may put pressure on gamers' willingness to pay for Free Fire and other games, and/or cause the company's non-performing loan ratios to start spiking back up.My view is to keep holding through the end of Q3 at least to assess the impact of Shoppee's return to profitability, and then explore the possibility of locking in gains on my position.","kind":"highlight","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":3,"commentSize":0,"repostSize":0,"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/2474575614"}