Sea Limited: One Month Later, E-Gaming Company Holding On to Huge Gains

Sea Limited Holding On to Huge Gains
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Sea Limited Stock Soars on Q4 Results

Singapore-based digital entertainment company Sea Ltd (NYSE:SE) is one of those stocks that could really soar after reporting solid financial results.

In May 2018, Sea Limited stock jumped more than 40% after reporting strong first-quarter revenue results. And on February 27, 2019, Sea Limited announced that revenue for 2018 beat midpoint guidance by 10%. Over the next couple of days, SE stock climbed roughly 50%

Fast-forward to the present and Sea Limited continues to hold on to those strong gains.

Even after such a strong boost, the electronic gaming company still has room to run in 2019. With 11 analysts providing a 12-month forecast, their median estimate suggests a 13.6% increase from the current price of $22.88 and their high estimate suggests a 39.9% increase from that price to $32.00.

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Sea Limited Overview

Sea Limited is an Internet and mobile company that operates three platforms: “Garena” (digital entertainment), e-commerce “Shopee” (e-commerce), and “AirPay” (digital financial services). (Source: “About Us,” Sea Limited, last accessed April 17, 2019.)

Through Sea Limited’s Garena platform, users can access the company’s mobile and PC games. The target geographic audience is in Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore.

In these regions, Garena is the exclusive provider of League of Legends, FIFA Online 3, Point Blank, Blade & Soul, and Arena of Valor. Garena also organizes e-sports events in Southeast Asia and Taiwan.

Shopee is the leading e-commerce platform in Southeast Asia and Taiwan, providing buyers and sellers with a secure and fast online shopping experience.

AirPay, meanwhile, is Sea Limited’s digital financial services platform, providing e-wallet services to consumers and small businesses.

Through AirPay, users can either use the company’s app or its brick-and-mortar locations to make payments for everyday products and services or to pay bills.

It’s sort of a reverse ATM in that the AirPay service network takes your money—an important service for densely populated regions that have no access to banks

Sea Limited Stock Information
Market Cap $10.2 billion
52-Week Change 115.7%
52-Week High $25.14
52-Week Low $10.06
Shares Outstanding 450.0 million
Float 173.7 million
50-Day Moving Average $23.12
200-Day Moving Average $15.69

(Source: “Sea Limited (SE),” Yahoo! Finance, last accessed April 17, 2019.)

Sea Limited stock was listless in 2018 until it announced strong first-quarter earnings results on May 16, 2018. Unfortunately, the marketwide sell-off in the fourth quarter essentially wiped out the stock’s gains for the year.

It has been a different story in 2019. SE stock enjoyed the benefits of the prolonged January effect; over the first two months, its price increased by 50%.

The stock then went ballistic on February 27 after the company reported financial results that beat expectations for both the top and bottom lines. The results helped Sea Limited shares finish the month up 53.5%.

Sea Limited’s share price was mostly flat in March, but at least it has been holding on to its recent gains. Does this mean investors should jump in?

Patience might be a virtue, since Sea Limited will be releasing its first-quarter results on May 21. It will be interesting to see how the company’s results stack up against Wall Street estimates.

SE stock has been hovering near $23.00, with resistance at the $25.00 level.

Chart courtesy of StockCharts.com

Q4 Revenue Up 136.6%, 2018 Revenue Up 99%

On February 27, Sea Limited announced its financial results for the quarter and year ended December 31, 2018.

Fourth-quarter revenue came in at $389.3 million, a 136% increase from the $164.5 million in the same period a year earlier and a 60.3% increase sequentially. Fourth-quarter revenue was up 30% over Wall Street estimates of $297.3 million. (Source: “Sea Limited Reports Fourth Quarter and Full Year 2018 Results,” Sea Limited, February 27, 2019.)

This translated into a fourth-quarter net loss of $276.1 million versus a loss of $263.1 million in the fourth quarter of 2017. Adjusted net loss was $321.2 million, a 61% improvement from the $199.6 million recorded in the fourth quarter of 2017.

Total 2018 revenue increased by 99.7% to $827.0 million from $414.2 million recorded in 2017. Total adjusted revenue for full-year 2018 was $1.0 billion, an 89% increase from the $553.8 million recorded in 2017.

Revenue for 2018 was more than 10.4% above the midpoint of previous guidance, which was revised upward twice during 2018.

Digital entertainment revenue was up 26.6% at $462.5 million, e-commerce and other services revenue was up 469.2% at $270.0 million, and sales of goods revenue was up 5,882% at $94.5 million.

Sea Limited reported a full-year 2018 net loss of $961.0 million. In 2017, the company reported a smaller loss of $561.2 million. Adjusted net loss was $944.2 million in 2018 and down to $480.6 million in 2017.

Looking ahead for 2019, Sea Limited expects its adjusted revenue for digital entertainment to be between $1.2 and $1.3 billion, representing year-over-year growth of 81.5% to 96.7%.

Adjusted revenue for the e-commerce segment is projected to be $630.0 to $660.0 million, which would translate to year-over-year growth of 116.7% to 127%.

In 2018, digital entertainment revenue accounted for 63% of the company’s total adjusted revenue, while the e-commerce segment accounted for 27% of its total adjusted revenue.

Analyst Take

Sea Limited stock has made huge gains in 2019, up 105% year-to-date. The company has given us good reason to be optimistic and to look forward to additional gains.

After a strong finish to 2018, when the company beat its own personal and Wall Street guidance, it is expecting 2019 to be even better. That’s a lofty goal, but Sea Limited has been raising its own projections and then beating them.

If the company continues to do that in the upcoming quarters, you can expect the SE stock price to increase in kind.