Will The Amazon of Southeast Asia Rebound?

Many companies have been touted to be the next Amazon, but few have delivered. Alibaba, for instance, has been called the Amazon of China due to the e-commerce giant’s massive operations in the region.

But concerns around the Chinese government have kept Alibaba stock muted, and it has come nowhere close to reporting the over 160,000% gain Amazon delivered to early investors.

Sea Limited (NYSE:SE) has been called the Amazon of Southeast Asia due to its sizable presence in the gaming, e-commerce, and fintech spaces in the region. The Singapore-based tech giant most notably operates through three divisions, Garena for digital entertainment, the SeaMoney fintech platform, and Shopee for e-commerce.

The popularity of the company’s platforms led Sea Limited stock to jump from around $10 in 2018 to over $350 in the halcyon days of 2021. But in the dark days of 2022, the stock fell back to earth. That trend has continued in 2023, with SE share price dropping 29% year-to-date to around $37.50.

That continued decline is due to concerns about sluggish revenue, particularly in the gaming segment. But there may be new life for the company’s most successful game, Free Fire, in the near future. Plus, Sea has continued to make substantial strides in the fintech and e-commerce worlds.

So, will Sea Limited stock recover?

Why Did Sea Limited Stock Go Down?

While Sea stock went down alongside its competitors, it hasn’t bounced back like the big tech stocks have this year. The main reason it has lagged behind is that the company hasn’t demonstrated the growth investors wanted to see. In the first two quarters of 2023, revenue was either at or below analysts’ estimates.

Revenue in the third quarter, on the other hand, may signal a more positive trend. Sales of 3.3 billion were nearly 5% more than in the same quarter of 2022. It was also 3.14% higher than the analysts’ predictions. There was also impressive growth across all three segments for Sea Limited.

Financial services were up 36.5% year-over-year, and e-commerce increased by 16.2% over the same period. While the digital entertainment arm underperformed last year by over 30%, the segment still improved from the 2nd quarter by 11.9%.

Another point of concern is the net loss of $144 million for the quarter. While it was a year-over-year improvement from the loss of $593 million in the same quarter of last year, it wasn’t enough to get investors excited about Sea stock like they were a few years ago.

Will Sea Limited Stock Bounce Back?

The company’s promising potential is the reason Sea Limited stock was trading above $300 per share, and that potential is still largely there. There were valid concerns that TikTok’s shopping platform would eat into Shopee’s revenue in Indonesia, the largest economy in Southeast Asia.

Those concerns have been mostly allayed by recent news that the Indonesian government banned TikTok Shop in the country. The prohibition came due to concerns about the conflation of social media and e-commerce.

While that’s a short-term win, Shopee still faces threats to its dominance, something the company has tried to combat by increasing marketing expenses.

The 49% year-over-year increase in marketing expenditures has yet to deliver substantial growth, and it’s one of the reasons Sea Limited isn’t profitable.

But Sea still has avenues for growth in its digital entertainment and fintech segments. Recent speculation that Free Fire could once again become available in India’s massive gaming market would certainly be a catalyst for sales growth.

SeaMoney may not garner the headlines of the other two segments, but the fintech platform actually leverages the users of both Garena and Shopee.

SeaMoney has been consistently growing, and now it offers full banking services through Maribank in Singapore and SeaBank in Indonesia. If the company can continue to build synergy between its companies, the stock could certainly recover.

What Do Analysts Say About Sea Limited?

That potential, along with the sell-off, has made Wall Street analysts come around on SE again.

Out of 35 analysts who have weighed in on the stock, 23 call it a buy at this price point. That includes 5 analysts who forecast SE share price will outperform the market over the next year. The highest estimate calls for the stock to skyrocket by 289% to $145 per share over the next 52 weeks.

The consensus vote still has SE jumping 53% over the next 12 months to $57. Outside of the buy ratings, there are 10 analysts who recommend that investors hold the stock. There are only 2 sell ratings at this price point, with the most bearish analyst predicting the stock will drop 22% over the next year.

Is Sea Limited Stock Undervalued?

According to 35 analyts, Sea Limited stock is undervalued by 51.2% with a price target of $56.98 per share. The Price-to-Sales (P/S) value of 1.65 is another indicator that seems to back the analysts’ bullishness.

That P/S value is far below the comparable figure reported by many of Sea’s competitors, a further sign that the stock could be trading at a cheap valuation.

And a growing business that’s approaching profitability, fueled by operations in 3 growth segments supports the optimism.  

Sea Limited Stock: Buy or Sell?

There are certainly many indicators on the buy side for SE. The main reasons to sell would be the company’s dwindling revenue from gaming and concerns about competition for Shopee.

While the digital entertainment arm may still struggle in the short-term, it’s a positive that sales increased from last quarter. And immediate concerns about Shopee competition seem to have been quelled. Concerns also abound regarding the marketing costs the company has shelled out to stay relevant in the e-commerce world.

Still, Sea Limited has enough potential for long-term investors to give the stock strong consideration.

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