To The Moon

Let's see how much does a share of SE valued.

$Sea Ltd(SE)$ has released Q2 earnigns the other day, resulted in an unexpected 14% plunge. After all, most investors have lowered their expectations for the growth companies in this earnings season.

Except for the game business, whose decline trend is slightly faster due to the recovery of offline activities, its e-commerce and payment businesses are progressing smoothly in both ASEAN+ and Brazil.

Therefore, investors who sold out in the past two days, must be impatient. With more trading volatilities, Sea's stock price seems up and down frequently.

Some investors are worrying about falling below the previous low.

I think it will be supported by the implied value. After Q2, it is necessary to make a simple valuation.

Sea's three main businesses: Garena, e-Shopee and SeaMoney, which are in different industry cycles and have great business differences, so the applicable valuation methods are different.

Garena

The profit of the game business brought cash flow to Sea. It is relatively appropriate to use profit multiples for valuation. Whether $TENCENT(00700)$ in Hong Kong stocks or $Activision Blizzard(ATVI)$ in US stocks are good benchmarks, usually, the peers EBITDA's multiples is more than 15x. Considering the changes in the macro environment, the explosive games that have been followed up after FreeFire have not yet appeared, Valuing the game part with a conservative EBITDA of 8 times in 2023should be appropriate.

Shopee

E-commerce business was also suitable for profit multiples, but Shopee is still unprofitable in its growth period, so there are only two methods. 1. Either take the profit expectation in 2025 and discount it back to 2022; 2. Or take the multiple of revenues as a reference. The biggest problem of the former is that it is too forward-looking, and there may be earth-shaking changes in profit structure in three years, while the problem of the latter is that the error is too large.

Therefore, we might as well use gross profit multiples for valuation. Industry benchmarking like $Amazon.com(AMZN)$, $Alibaba(BABA)$, $JD.com(JD)$ or $eBay(EBAY)$​ $Pinduoduo Inc.(PDD)$ ​$MercadoLibre(MELI)$. The overall average gross profit multiple in 2023 is 6.0 times, so this is the benchmark.

SeaMoney

The growth of the financial sector is very high, with a triple-digit growth rate in 2022, and it is expected to maintain a growth rate of over 50% in 2023. In addition to the payment field,$Visa(V)$And$MasterCard(MA)$The income multiple of is very high, reaching more than 15 times, and the others like$American Express(AXP)$, $Block(SQ)$, $Discovery Finance (DFS)$, are between 3-6 times EV/Sales.

On this basis, considering the three Case of "bull", "Normal" and "bear", and make the valuation of SE per share is US $125, US $93 and US $68 respectively

Although this is completely unable to match the previous stock price of 300 + US dollars, it is relatively reasonable in the present situation. Moreover, in case of explosive growth in one of the businesses, such as another phenomenal game, its valuation can completely break through the bottleneck.

This valuation means that even under bear conditions, each SE share can be worth at $68.

From the perspective of the macro environment, inflation is expected to peakt, and interest rate are expected to decline in the future, which is beneficial to technology stocks; On the other hand, after this year's fluctuations, there are not many real growth stocks left, and if venture capital comes back, there are not many high-quality choices.

The high volatility of SE makes the IV of options very high for a long time, so it provides quite good conditions for the sellers of options.

If you don't hold SE shares, a direct Sell Naked Put is efficient. The sell put can also be extented continuously (replace Sell Put with a longer term with the near-expiration), and even sell parity or in-price options can be used to open positions.

If you are holding SE shares at this time, it is also a good choice to choose Sell Covered Call (but better at bull days). It is recommended to call outside the price within one month and the price by about 20%.

If you don't hold SE shares at this time, but want to be a long-term bull. You can consider using Buy Call Spread, that is, buying a Call within the price and selling a Call outside the price. For example, buy a September 70 Call in and sell a 90 Call at the same time.

All in all, only when you know enough about the implied value of the company, can you have a better trading on that.

Happy Trading!