Sea Limited operates as a consumer Internet company. Its three business segments include digital entertainment, e-commerce, and digital payments and financial services. Its Garena platform offers mobile and PC online games for global audiences; and its Shopee e-commerce portal serves customers in Southeast Asia and Latin America. It also provides digital payments and insurtech services to consumers under its SeaMoney, ShopeePay and SPayLater brands.
As of the end of 2021, Sea has a market value of $27 billion. Its shares are trading for a 13% discount to its value in October last year.
The stock price has been trending lower in recent days, owing to rising worries about global economic growth and increasing inflation pressures across multiple developed countries. This prompted a selloff in bonds and riskier asset classes like equities.
With these concerns in mind, investors may want to reconsider their investment thesis for Sea Limited. While it is a high-growth company that has seen significant growth since inception, its current outlook is less encouraging than it was a few months ago.
While many of Sea’s competitors have refocused their business model and shifted to profitability, it appears that the Singapore-based company is struggling to do the same. As a result, the stock has fallen significantly over the past few months.
As of March, Sea’s adjusted EBITDA loss widened to $593.6 million, from a loss of $107 million one year earlier. Analysts expect this figure to widen in the coming quarters.
Despite this setback, the company continues to focus on its Brazil business and plans to launch new games for Garena in the next few months. According to the CEO, “Brazil is still a growth market and we will continue to invest in it.”
The decline in the share price of the company has been particularly harsh for founder Forrest Li and his cofounders. They saw their net worth plummet to $1.9 billion in the wake of the company’s warning that its gaming business would face headwinds this year.
In addition, analysts are forecasting a loss before interest, taxes, depreciation and amortization of $357.7 million in the third quarter. This will be a significant downgrade from the previous quarter, when Sea posted a profit of $59.6 million.
Aside from the ongoing struggles of the online gaming industry, Sea’s share price has been hammered by a string of other negative developments in its businesses. Its popular video-game Free Fire has been banned in India, and the company’s e-commerce platform Shopee has pulled out of several markets.
As a result, Sea’s total cash balance has dropped from $10.8 billion at the end of 4Q20 to $7.8 billion as of 2Q22. This represents a reduction of $757 million in loan receivables and $427 million in time deposits and liquid investments that can be turned into cash if needed.
The stock remains in a downtrend and is expected to remain so for the foreseeable future. Investors should consider the potential for the share price to remain weak for an extended period of time as the company continues to struggle to grow and find profitable ways to compete with its competitors.