The time is now to exit Sea if you are still holding the 💰

Sea Limited (parent company of Shopee, Garena, in case you were not aware) has plunged by around 17% last week after announcing earnings last Tuesday. The Singapore-based tech giant swung back to a net loss of $143.99 million in the third quarter, compared to a net income of $331 million in the second quarter.

Sea gets a quant warning on Seeking Alpha

Intense competition with no moat

Sea is facing intense competition from Alibaba's Lazada and ByteDance's TikTok, as well as Pinduoduo's Temu and from seasoned e-commerce giant Amazon in the Southeast Asia region, in which Shopee operates.

Chairman and Group CEO Forrest Li mentioned that "We will prioritise investing in the business to increase our market share and further strength of market leadership. Our move to self sufficiency and profitability in the past quarters has significantly improved both our cash reserves and operational efficiency and we see a very good opportunity to build our e-commerce content ecosystem efficiently especially in live streaming."

The fact that Sea has almost no economic moat to defend from it's competitors, and have to result in more spending to capture market share, would only mean more depressed earnings (or losses) and further cash burn.

Fall from grace, today's market cap is 88% from its all-time high

Sea Weekly Charts

Sea Daily Chart (past 1 year)

During the covid pandemic, Sea benefited from the work from home and lockdowns, and reached a market cap of as high as $190 billion at the end of October 2021. The all-time high stock closing price was $366.99 on October 19, 2021. Today It's market cap is $21 billion, representing a 88% fall from its peak.

Seeking Alpha's sell quant warning ⚠️

Sea gets a quant warning from Seeking Alpha, which has characteristics which have been historically associated with poor future stock performance. It is over priced and has decelerating momentum when compared to other communication services stocks, to the point it gets a sell rating from Seeking Alpha's quant system.

Stocks that get a sell or worse rating have under performed the S&P 500 by -392% in the period from 2010 till present.

Internet economy at slowest growth in 2023

Lastly, in the short term, Shopee and its competitors face macroeconomic and inflationary headwinds, it was recently reported by Bloomberg that Southeast Asia's internet economy is experiencing its slowest growth on record in 2023. The region's e-commerce spending growth estimates have been reduced to 13% from last year 20% growth. The reduction in estimates has raised fears of more intense competition and potentially low structure growth in the medium term.

The "free" money era is gone, don't be caught holding the bag 💼

The era of "free" money is long gone, as interest rates are expected to remain high for longer. The unsustainable cash burn of Sea Limited will not be tolerated by investors during these times, and it is unlikely that Sea will reclaim its 2021 peak valuation any time soon! My recommendation from current investors who have bought Sea stock to cash out and reinvest the remaining cash in companies that are consistently increasing increasing revenue, operating profits and net income, and increasing its free cash flow.

Is Sea still worth investing or not?

Sea plunged more than 20% after disclosing a surprising net loss in its Q3 results. But it rebounded 7% yesterday. Some investors think that Sea is repeating the trend of last earnings. ----------------------- How do you view the roller coaster ride of Sea? Is Sea still worth investing in? Are you a bagholder or not?

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