To The Moon

$Sea Ltd(SE)$ stock forecast: Can it climb back above $300? – Photo: Shutterstock

$Sea Ltd(SE)$ one of the global tech companies that did well over the coronavirus pandemic. Covid-19 restrictions and lockdowns were good for e-commerce, mobile gaming and digital payment services.

Powered by stellar growth from its mobile gaming platform and e-commerce businesses, the Singapore-based company had seen its stock skyrocket from $15 when it went public in New York in 2017 to more than $300 a share in 2021. But in early January 2022, shares fell to below $200 after Chinese companyTencent Holdings, one of Sea's biggest investors, announced it was reducing its stake in the company.

How will Sea's stock price perform in 2022 and beyond? This analysis will look at the company's recent financial performance and discuss Sea Limited stock forecasts with market experts.

Sea Limited stock analysis: Major price drivers

Chinese-born entrepreneur Forrest Li started the company as a Garena in 2009, a developer and publisher of online games. In May 2017, Singapore-based Garena rebranded as Sea Limited after securing $550m in a funding round backed byTencentand GDP Venture.

The funds put Sea in head-to-head competition withAlibaba Groupand other tech companies looking to tap into the growing e-commerce market in the region, particularly in Indonesia, Southeast Asia's biggest economy. Five months after rebranding, Sea went public at the New York Stock Exchange under the symbol SE.

In 2019, the company launched its flagship Free Fire, a mobile battle royale game spawned into its growth machine over the coming years. Free Fire became the most downloaded mobile game globally in 2019 and 2020. The game was also the highest-grossing mobile game in Latin America, Southeast Asia and India in 2020, the company said, citing App Annie.

Since its IPO in 2017, Sea's stock price has risen nearly 14 fold to $223.71, as of the market close on 31 December 2021. According to calculations by Companiesmarketcap.com, Sea has a market cap of $111.88bn, as of January 2022, making it the world's 135th most valuable company bymarket cap.

Sea's historical share price had been trading range-bound below $20 a share between 2017 until early 2019. Its share price started to climb to $40 in early 2020. From the onset of the pandemic in March 2020, Sea saw its share price continue to soar by more than 600%, hitting a record-high of $372.7 on 19 October 2021.

The Covid-19 pandemic had accelerated the shift to the digital economy as restrictions to stop the spread of the disease spurred the growth of consumers going online for shopping, entertainment and to make payments.

In Southeast Asia alone, ajoint reportby Google, Temasek and Bain & Co showed that since the start of the pandemic, the number of internet users in Indonesia, Thailand, the Philippines, Malaysia, Singapore and Vietnam had surged by 60 million to a total of 440 million people in 2021.

The report forecast that the digital economy in the region couldreach a value of $1trnby 2030.

The company's Amazon-like e-commerce platform, Shopee, also strengthened its presence in Latin America, topplingMercadoLibreas the region's top e-commerce app in August 2021, according toApptopia.

However, Sea's stock price has been downhill since the record high in October 2021, dropping to below $200.

On 4 January, Sea's stock price tumbled 11.41% to close at $197.84 a share after hitting as low as $194 the day following Tencent's announcement that it was reducing its stake in Sea to 18.7% from 21.3%.

Sea is one of the top ten holdings in the Aubrey Global Emerging Markets fund. John Ewart, Investment Manager at Aubrey Capital Management, said:

“SEA is an eCommerce play. Hence it has been subject to the same selling trends that a number of international software Co’s have suffered as a ‘risk off’ appetite has emerged following the US bond yields increase of late, which typically encourages a switch from growth to value names.“The placing results in Tencent’s stake declining from 21.3% to 18.7%, and the proceeds will be used to fund ‘other investments and social initiatives’ with the latter clearly giving a nod to the Chinese Govt requests of late for corporate China to spread the wealth amongst the wider population – the so called common prosperity. Tencent has said it intends to keep its majority position, but investors seldom appreciate large holders selling their shares, hence the price decline of over 10%.”

Sea Limited stock news: The proposed change in voting powers

At the same time, Sea also announced its plans to increase the voting powerof each Class B ordinary share from three votes to fifteen votes. The company also said Tencent had submitted a notice that it would convert all the Class B ordinary shares to Class A ordinary shares.

As of the date of the press-release (4 January 2022) all of the outstanding Class B ordinary shares represent approximately 52% of the total voting power of the company's common shares. Li holds about 54% of the total voting power, with respect to the size and composition of the Board of Directors. After the changes, Li is expected to hold approximately 57% of the total voting power, while Tencent's voting power is reduced to 10%.

"The Board believes that, as Sea has scaled significantly to become a leading global consumer internet company, it is in the best interests of the Company in pursuing its long-term growth strategies to clarify its capital structure further," the company said in the statement.

Sea will hold an annual general shareholders meeting on 14 February to seek approval for the changes.

Sea Limited fundamental analysis: Latest earnings

Sea reported that revenue in the September quarter of 2021 had jumped 121.8% year-on-year to $2.69bn, boosted by a 167.6% surge in e-commerce unit ($1.31bn) and a 93% increase in gaming unit Garena ($1.1bn), thecompany said last November.

While its revenue rose in the quarter, net loss widened due to increased marketing and e-commerce unit costs.

Net loss attributable to ordinary shareholders widened to $448m against $346m a year earlier, or a loss of 84 cents a share compared with 69 cents in the previous year.

The company booked gross profits slightly over $1bn as the cost of revenue for e-commerce Shopee and other services jumped 139.4%  year-on-year to $1.09bn.

While its e-commerce service contributed the most costs, Sea raised its revenue guidance for e-commerce for 2021. The company increased its forecast of full-year e-commerce revenue to between $5.0bn and $5.2bn, from previous guidance of $4.7 bn to $4.9 bn.

Sea Limited (SE) stock forecast: Analyst sentiment and price target

Despite Tencent's sale and the proposed change in voting power, Jefferies maintained its 'buy’ rating for Sea.

"We do not think there is any change in Sea's strategy, given that Mr Li will continue to have majority voting power," Jefferies' analysts Thomas Chong, Melody Chan and Zoey Zong said in a note on 4 January.

They set a price target of $376, representing about 108% increase from Thursday's (13 January) close of $180.55 a share.

Ewart said: “We continue to support the expansion strategy of the SEA management, and once a company has secured a leading position they must defend this and improve the service further to the consumer. Amazon is the ultimate example of investing for growth and keeping the competition at bay, and SEA clearly has that potential in Southeast Asia and has been successful in their launch in other large population countries such as Brazil and recently in India.”

Is Sea Limited stock a ‘buy’, ‘sell’, or ‘hold’? The consensus views of 26 analysts compiled byCNN Moneywas to buy Sea stock, as of 14 January. The site showed that 23 analysts rated the stock as 'buy', while three rated 'outperform' and the rating has held steady. Twenty five analysts offered 12-month Sea Limited share price forecast at a median target of $400, representing a 121% increase from the last price.

Sea stock was also rated a 'buy' based on the consensus views of 12 analysts compiled byMarketBeat, as of 14 January 2022. All analysts rated 'buy' for Sea stock with a Sea Limited stock price target of $351, representing a 94% increase from the last price of $180.55 (14 January).

Stifel Nicolaus lowered its price target from $400 to $300. Citigroup lowered its price target from $424 to $416.

According to the algorithm-based Sea Limited stock forecast fromWallet Investor, as of 14 January 2022, it could reach an average price of  $286.252 by the end of December 2022.

Over the longer term, Wallet Investor’s Sea Limited stock prediction suggested the stock could hit $405.730 by the end of December 2023 and $647.020 by the end of 2025. Although the service did not provide price targets for 2030, its five-year forecast suggested the price could hit $778.326 in January 2027.

When looking for Sea stock predictions, it’s important to bear in mind that analysts’ forecasts can be wrong. Projections are based on making fundamental and technical studies of the stock’s performance. Past performance is no guarantee of future results.

It is important to do your own research, and remember that your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio and how comfortable you feel about losing money. You should never invest money that you cannot afford to lose.

Source: Capital