Sea Limited is an integrated platform company that offers gaming, e-commerce and digital financial services. Its main operating divisions are Garena in digital entertainment, Shopee in e-commerce and SeaMoney in digital financial services.
Sea is a market leader in Southeast Asia, where it operates with a combined customer base of 670 million people. Its digital platform includes mobile and PC games, a third-party marketplace through Shopee and a range of payment services and loans to individuals and businesses.
It is backed by Chinese Internet giant Tencent Holdings Ltd, which holds a 19.3% stake in Sea. Its shares have been a major driver of Singapore’s market capitalization.
Despite a recent surge in Sea stock price, analysts warn investors to beware of this company. The gaming company has been grappling with a number of issues, including a slowdown in the economy and surging inflationary pressures.
The firm has slashed jobs, shuttered operations in some markets and reduced expenses as it struggles to keep its head above water. It is trading below its 52-week high and has a year-to-date loss of over 50.5%, a sign that investors are not confident in the company’s long-term growth prospects.
While Sea’s stock has been volatile, it remains an attractive investment opportunity for investors who are willing to take risks in this market. However, investors should be aware that the stock could fall significantly in the short-term if the company continues to struggle with these issues.
Investors should also be concerned about the high cash burn rate of Sea, which is largely attributable to its unprofitable gaming business. As a result, it is crucial that the company is able to reduce its cash consumption in the near future to improve its profit margins.
According to the latest quarterly earnings report, Sea’s adjusted EBITDA dropped by more than 50% compared with a year earlier. This is mainly due to a decline in Garena’s revenue, which accounts for nearly half of its total revenue.
Analysts believe that the company’s losses are likely to widen in the coming quarters, primarily as a result of weaker gaming demand and reduced reach from its Shopee platform. Moreover, competition is intensifying and a broader tech selloff has heightened concerns.
Nonetheless, the company is still growing its core businesses, and it has a strong market position in its key markets. It has also secured a digital banking license in Singapore to accelerate its digital financial services ambitions.
In addition, it is gaining ground in emerging markets, and its strategy of building out its logistics capabilities is paying off. It has launched a new logistics service, Shopee Xpress, that enables a faster delivery of products to its users.
While the company has made progress in the last few years, its overall profitability is still very low. This is mainly because of its reliance on one game, Free Fire, for most of its earnings.
It is important for Sea to continue to protect its partnership with Chinese publisher Tencent, which has been its biggest partner since it launched the Garena game in 2009. It can do this by bringing back Tencent on board, convincing them that it is worth their investment, and winning another extended publishing deal. The longer this partnership lasts, the more Sea can rely on it to help it maintain its dominant position in the Southeast Asian gaming market.
