Sea Ltd (SE) Shares: What To Look For Before Investing In A Free Fire Owner Company

Widespread digital adoption has positively impacted the performance of consumer internet company Sea Limited (NYSE: SE), driving user growth and engagement. The Singapore-based company is banking on the ongoing digital shift to meet its growth targets after becoming a pandemic winner, capitalizing on the success of its e-commerce and mobile gaming businesses.

Stock peaks

Last month, shares of the diversified tech company, which owns famous game developer Garena and e-commerce platform Shopee, hit an all-time high. The stock, which closed the last trading session at $ 267, is estimated to have the potential to grow double digits over the next twelve months. Likely, SE has never looked so attractive as it is today, but that doesn’t mean it’s entirely risk-free.

Read management / analyst comments on quarterly reports

Market watchers in general are bullish on the company because they believe the stock has what it takes to consistently deliver shareholder value. Additionally, the price is reasonable – although not cheap – and the recent downturn offers a new buying opportunity, especially for investors interested in internet / gaming stocks with growth potential.

The power of Free fire

Sea’s core business Gerena thrived on the blockbuster Free fire franchise which continues to make a significant contribution to turnover, in particular in the Southeast Asian and Latin American markets where it is well established. The emerging e-commerce business, with accelerating revenue growth, looks poised to compete fiercely with Alibaba (NYSE: BABA) in the Asia-Pacific region.

Given that the company has yet to become profitable – more than a decade after its inception – stakeholders are reportedly seeking updates on its turnaround strategy, which some analysts say could take place in 2023. The elusive profitability is a cause for concern, given the company’s high debt that remained above $ 2 billion in the last quarter. For leadership, strengthening the ecosystem and expanding into new markets are key priorities, which require heavy investments.

Beyond COVID

To a large extent, the outlook for the future would depend on how the COVID situation evolves and whether the current boom continues into the post-crisis period. While experts believe the new buying behavior is here to stay regardless of the pandemic situation, it remains to be seen what effect the reopening of the market would have on Sea’s entertainment business in terms of user engagement.

From Sea’s first quarter earnings conference call:

“Going forward, we continue to plan for a large pipeline of innovative content, new partnerships and exciting esports activities to engage more and better with our growing global user communities. We also strive to ensure that our long-term gains to form the the pipeline remains strong. A significant number of our more than 1,000 internal skin developers around the world are constantly working on new ideas as we continue to engage with third party game studios… ”

Mixed T1

The company started fiscal 2021 on a mixed note, with a net loss widening to $ 422.1 million in the first few months of the year. This despite an increase in revenue, which more than doubled to $ 1.76 billion. The net result was negatively impacted by a sharp increase in operating expenses. Excluding special items, EBITDA was $ 88.1 million, an improvement over last year’s loss. During the quarter, the SeaMoney mobile wallet saw strong adoption and the number of paid users exceeded $ 26 million.

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Sea’s stock traded higher in the early hours of Friday, continuing its rally after the recent decline. The value has more than doubled since last year, although the stock has seen high volatility in recent months, mostly due to the ongoing tech sell-off.

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