To The Moon

Sea Limited (SE) $Sea Ltd(SE)$ has been a notable player in the tech and e-commerce industry, particularly in Southeast Asia. While the stock experienced a meteoric rise during the COVID-19 pandemic, I hold the view that the recent rebound in SE’s share price is a deceptive rally. In this article, we will delve into the reasons behind my bearish stance on Sea Limited.

1. Understanding Sea Limited’s Business:

Sea Limited is a multi-faceted technology company with three main business segments:

• Garena: SE’s gaming arm, which includes popular titles like Free Fire, catering to the booming esports and gaming market.

• Shopee: SE’s e-commerce platform, positioned as a competitor to giants like Amazon and Alibaba in Southeast Asia.

• SeaMoney: The digital financial services segment offering mobile wallet and payment solutions.

2. The Hype and the $300 High:

During the height of the COVID-19 pandemic, Sea Limited enjoyed a significant surge in its share price, reaching a staggering $300. This surge was driven by increased demand for online gaming and e-commerce as people stayed indoors. However, the sustainability of this growth was always in question.

3. The Interest Rate Hike Effect:

My primary concern with Sea Limited lies in its growth-dependent business model. As central banks worldwide embark on a path of interest rate hikes, growth companies like SE face a unique set of challenges:

• Cost of Capital: Higher interest rates result in increased borrowing costs, potentially hampering SE’s ability to finance its operations and expansion.

• Valuation Pressures: Growth stocks like SE often trade at high valuations based on future earnings potential. Rising interest rates can erode investor sentiment, leading to valuation compression.

• Reduced Risk Appetite: As interest rates rise, investors tend to favor safer, income-generating assets over high-risk, high-reward growth stocks, further impacting SE’s stock price.

4. A Bearish Outlook:

Given the aforementioned factors, I maintain a bearish outlook on Sea Limited. While the recent rebound might seem enticing, I view it as a short-lived phenomenon. SE’s business model heavily relies on sustained growth, and an environment of rising interest rates is unforgiving for such companies.

5. My Price Target: Below $40 by End of 2023:

I believe that by the end of 2023, Sea Limited’s share price will dip below $40. This projection is a result of my skepticism about SE’s ability to navigate the challenges posed by rising interest rates effectively.

Conclusion:

Sea Limited’s recent rebound should not distract investors from the broader economic realities it faces. As an investor, I prioritize preserving capital and seek investments that can weather varying market conditions. Sea Limited, with its growth-centric model and sensitivity to interest rate hikes, doesn’t align with my investment objectives.

While I acknowledge the appeal of a rebound story, I urge fellow investors to exercise caution when considering Sea Limited as an investment option. The market is unpredictable, and chasing false dawns can lead to significant losses.

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