To The Moon

$Sea Ltd(SE)$ is scheduled to report third-quarter 2024 results on 12 Nov 2024 before the market open.

SE’s third-quarter performance is expected to have benefited from its core businesses, which include e-commerce (Shopee), digital financial services (SeaMoney) and digital entertainment (Garena).

Sea Limited expects Shopee to report positive adjusted EBITDA in the third quarter of 2024 due to its strong market share in Southeast Asia, improving ad take rates, and enhanced logistics efficiency.

Earnings per share for this third-quarter earnings is expected to come in at around 42 cents.

Sea Limited Ad Take Rate Improving But Not Good Enough

Sea Limited is focusing on improving its ad take rate, which is currently below the industry average. The company has already seen positive results, with a 20% year-over-year increase in sellers paying for ads in the second quarter of 2024. This improvement in ad monetization is expected to have continued benefiting the company in the to-be-reported quarter.

Sea Limited has been working to improve its ad take rate and ad bidding algorithms to help sellers get better returns on their investments. Some of the actions Sea Limited has taken include: 

• Increasing seller fees: Sea Limited raised the commissions it charges merchants in many core markets by about a third since the beginning of the year. In Thailand, the fee increased to as much as 13% in July from 10% previously. 

• Launching Live Ads: Sea Limited launched Live Ads on Shopee Live, which allows streamers to insert ads into their content. In Indonesia, 1 in every 4 active streamers paid for Live Ads in June 2024. 

• Improving onboarding features: Sea Limited has improved its onboarding features and ad algorithms. 

If we looked at how revenue have contributed in 2023, I believe with this ad take rate increasing, this could further increase the contribution from E-commerce. SE also benefits from the growing demand for logistics operations, which adds to reduced order costs. This is likely to have improved customer experience, driven by its courier delivery platform, SPX Express.

Another Significant Segment Is Digital Financial Services Expanding

In second quarter, Sea Limited Digital Financial Services GAAP revenue was US$519.3 million, up 21.4% year-on-year. Adjusted EBITDA1 was US$164.7 million, up 20.2% year-on-year.

Digital financial services revenue and operating income are primarily attributed to the consumer and SME credit business. As of 30 June 2024, consumer and SME loans principal outstanding was US$3.5 billion, up 39.5% year-on-year.

This consists of US$2.9 billion on-book and US$0.7 billion off-book loans principal outstanding4 . Non-performing loans past due by more than 90 days as a percentage of consumer and SME loans principal outstanding, which includes both on-book and off-book loans principal outstanding was 1.3%, a slight improvement quarter-on-quarter

Expanding digital financial services to customers is likely to have driven user and revenue growth in the quarter under review. SeaMoney’s loan book is expected to continue expanding, with a growing number of users and increasing loan sizes. The strong growth in consumer and SME credit businesses, particularly through Shopee and its Off-Shopee initiatives, is expected to have contributed positively to Sea Limited’s revenues in the to-be-reported quarter.

Sea Limited (SE) Price Target Forecast

Based on 14 Wall Street analysts offering 12 month price targets for Sea in the last 3 months. The average price target is $99.54 with a high forecast of $135.00 and a low forecast of $69.00. The average price target represents a 6.39% change from the last price of $93.56.

Sea Limited (SE) Price Changes Before and After Earnings

We can see that SE has reported quite a positive earnings in the second quarter and the guidance for 2024 was also well-received by investors, but investors might be looking for more than just the earnings numbers.

Considering that e-commerce (Shopee) has faced competition in one of SE biggest market in Indonesia, will this still pose a threat to its revenue earnings, the economies in south-east asian are poised to grow stronger, and this might be a good news for SE.

Their SeaMoney strong growth in consumer and SME credit businesses, particularly through Shopee and its Off-Shopee initiatives is something that I would look out for this third quarter earnings.

Hence, I think we might see SE moving above $105 after its third quarter earnings release.

Technical Analysis - MACD and Multi-timeframe (MTF)

If we looked at the current trend of SE trade, we are seeing it forming quite a strong upward trend, the only risk could be in stock price trading too close to the short-term MA, and even though MACD is showing potential of a bullish MACD crossover, there might be a possibility of investors expecting more from SE earnings.

This can be reflected from the MTF where there is no signal of a strong upward trend So I think we need to look closely on the guidance from SE, as there will be some changes to how trade is conducted with the new Trump policies coming.

Summary

While market is expecting SE to post quite a significant results, we need to understand that there are still geopolitical tensions in the middle east, and also the U.S. election of trump new policies, how this will impact the sellers on SE’s ecommerce platform, if certain products are too expensive to sell to the U.S. market.

Appreciate if you could share your thoughts in the comment section whether you think SE would be able to post an earnings surprise and the SeaMoney revenue contribution should be significant.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.