To The Moon

$Sea Ltd(SE)$

Recap for Q2 2024 SEA earnings

Sea Ltd reported GAAP revenue of $3.8 billion, a 23% year-over-year increase. The company reported a net income of $79.9 million, compared to $331.0 million in the same period last year. Adjusted EBITDA was $448.5 million, down from $510.0 million in Q2 2023. Gross orders totaled 2.5 billion for the quarter, increasing by 40.3% year-over-year. GMV was $23.3 billion, up 29.1% year-over-year. SEA Digital Entertainment Garena delivered strong performance with more than 20% year-over-year growth in bookings, mainly contributed by Free Fire and CODM. As of June 30, 2024, Sea Ltd had $9.0 billion in cash, cash equivalents, short-term investments, and other treasury investments.

The company's shares have relatively large price hike in the last 9 month. The recent share price gains has brought the company back closer to its 12 month peak. As a large-cap stock with high coverage by analysts, we could assume any recent changes in the company's outlook is already priced into the stock.

Question is, if there is still an opportunity to buy? Let's take a look at Sea's outlook and value based on the most recent financial data to see if the opportunity still exists.

Opportunities

Growth Potential: Sea operates in high-growth markets like Southeast Asia and Latin America, where rising internet penetration and smartphone usage drive demand for its services.

Diverse Business Model: Sea's business model spans digital entertainment (Garena), e-commerce (Shopee), and digital financial services (SeaMoney), providing multiple revenue streams.

Strong Performance: Sea has shown impressive revenue growth, with Q2 2024 revenue reaching $3.8 billion.

Innovation: Sea continues to innovate, particularly in gaming with Free Fire, which remains highly popular and profitable.

Market Leadership: Shopee is the largest e-commerce platform in Southeast Asia and Taiwan, with a growing presence in Latin America.

These factors make Sea Ltd an attractive investment opportunity, though investors should be mindful of risks such as intense competition and economic uncertainties in emerging markets. The valuation model shows that the intrinsic value for the stock is $145, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. Although, there may be another chance to buy again in the future. This is because Sea's beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Challenges

The market's concerns about Shopee, especially in the face of competition from wealthy corporate groups such as ByteDance's TikTok and Alibaba's Lazada. Investors are watching closely to see if Shopee's higher fees can increase profit margins without compromising its market leadership. Sea is also investing in live streaming to drive e-commerce business development, but the “Free Fire” game, which mainly relies on its digital entertainment business, expects revenue to drop 20% year over year in the third quarter.

Intense Competition: Sea faces stiff competition from platforms like TikTok and Alibaba's Lazada, which are aggressively targeting the same markets.

Macroeconomic Conditions: The global economic environment, including inflation and rising interest rates, poses significant challenges.

Regulatory Scrutiny: Sea must navigate complex regulatory environments, especially in markets like Indonesia, where regulatory changes can impact its operations.

Market Dynamics: The need to constantly adapt to changing market dynamics and consumer preferences requires continuous innovation and investment.

Supply Chain Disruptions: Geopolitical tensions and supply chain disruptions can affect Sea's operations and profitability.

Market sentiment towards Sea Ltd. has been mixed recently:

Positive Sentiment: Sea has seen a significant stock rally of over 170% from its January low, driven by strong performance in its e-commerce and digital entertainment segments.

Challenges: Despite the rally, Sea faces a high bar to impress investors with its upcoming earnings report. Analysts are closely watching profitability and efforts in live-streaming and games.

Technical Analysis: Some technical indicators suggest a bearish trend, with Sea testing a slightly rising trendline. If it breaks below this trendline, the stock could drop further.

Analyst Ratings: Some analysts remain optimistic, with Bank of America Securities upgrading the stock to a "Buy" with a price target of $70.00.

Overall, while there is positive sentiment due to recent growth, Sea faces challenges and scrutiny from the market.