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Sea Limited Turned on the Money Printer: Time to Buy the Stock?
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Sea Limited (SE - Free Report) , a diversified technology company focused on the Southeast Asian economy reported very positive earnings results Tuesday morning. SE’s businesses include an e-commerce division, online gaming, and digital financial services.
SE beat analysts’ expectations for both sales and earnings and proved it can turn a profit. The stock has broken out above the critical $70 level. Will the rally continue?
Image Source: TradingView
From Darling to Dog
During the post pandemic boom Sea Limited became one of Wall Street’s favorite stocks. Between March 2020 and October 2021 SE stock went up nearly 10x, as its high gross margin, diversified businesses, in the rapidly growing SE Asian market tantalized investors.
SE was one of these growth stocks that ran at an earnings loss, and in hindsight was trading at absurdly high valuations. Reality hit investors like a ton of bricks though, and from high to low the stock corrected a brutal -90%.
Image Source: TradingView
Earnings Summary
It seems SE is turning things around, and this earnings report demonstrates management has shifted priorities to start showing a profit. Sales were expected at $3.1 billion but came in at $3.5 billion, which was a 7% YoY increase. Earnings were projected to be a -$0.55 loss per share, but surprised massively and came in at $1.01 earnings per share.
The shift to positive earnings is extremely impressive, and marks a turning point for SE. This transition to profitability is a trend that is taking over across many technology and growth companies that have sacrificed profit for growth. But with the new economic environment of higher interest rates, businesses no longer have the luxury of sacrificing earnings for growth.
SE’s digital entertainment business did quite poorly in the quarter, with sales declining -33% YoY to $949 million, and cut quarterly active users from 568 million to 486 million. But the other segments more than made up for the losses.
E-commerce and other services revenue increased 51% YoY to $2.3 billion in the quarter, and digital financial services grew 93% YoY to $380 million.
Outlook
Sea Limited currently sports a Zacks Rank #2 (Buy), indicating an upward trend in earnings revisions. SE did not provide guidance, but if you project the Q4 earnings a year out, SE is trading at about 23x EBITA. This is a reasonable valuation and a far cry from 25x sales, where the company was trading two years ago.
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Sea Limited Turned on the Money Printer: Time to Buy the Stock?
Sea Limited (SE - Free Report) , a diversified technology company focused on the Southeast Asian economy reported very positive earnings results Tuesday morning. SE’s businesses include an e-commerce division, online gaming, and digital financial services.
SE beat analysts’ expectations for both sales and earnings and proved it can turn a profit. The stock has broken out above the critical $70 level. Will the rally continue?
Image Source: TradingView
From Darling to Dog
During the post pandemic boom Sea Limited became one of Wall Street’s favorite stocks. Between March 2020 and October 2021 SE stock went up nearly 10x, as its high gross margin, diversified businesses, in the rapidly growing SE Asian market tantalized investors.
SE was one of these growth stocks that ran at an earnings loss, and in hindsight was trading at absurdly high valuations. Reality hit investors like a ton of bricks though, and from high to low the stock corrected a brutal -90%.
Image Source: TradingView
Earnings Summary
It seems SE is turning things around, and this earnings report demonstrates management has shifted priorities to start showing a profit. Sales were expected at $3.1 billion but came in at $3.5 billion, which was a 7% YoY increase. Earnings were projected to be a -$0.55 loss per share, but surprised massively and came in at $1.01 earnings per share.
The shift to positive earnings is extremely impressive, and marks a turning point for SE. This transition to profitability is a trend that is taking over across many technology and growth companies that have sacrificed profit for growth. But with the new economic environment of higher interest rates, businesses no longer have the luxury of sacrificing earnings for growth.
SE’s digital entertainment business did quite poorly in the quarter, with sales declining -33% YoY to $949 million, and cut quarterly active users from 568 million to 486 million. But the other segments more than made up for the losses.
E-commerce and other services revenue increased 51% YoY to $2.3 billion in the quarter, and digital financial services grew 93% YoY to $380 million.
Outlook
Sea Limited currently sports a Zacks Rank #2 (Buy), indicating an upward trend in earnings revisions. SE did not provide guidance, but if you project the Q4 earnings a year out, SE is trading at about 23x EBITA. This is a reasonable valuation and a far cry from 25x sales, where the company was trading two years ago.