Aug. 31, 2023 12:28 PM ET Sea Limited (SE)
- The recent earnings result shows that Sea Limited has lost its growth momentum in order to improve profitability.
- Sea Limited is losing market share due to intense competition from Alibaba’s Lazada in Southeast Asia.
- Alibaba’s international commerce segment which includes Lazada reported 60% YoY revenue growth and significant improvement in EBITA margin.
- It would be difficult for Sea Limited to deliver good growth with reasonable profit due to modest investments in first-party logistics.
- We could see further correction in Sea Limited stock over the next few quarters as the company loses market share in key regions.
The article discusses Sea Limited (SE) and its recent challenges in the Southeast Asian e-commerce market. Here are the key points from the article:
- Loss of Growth Momentum: Despite implementing a cost-cutting program to improve profitability, Sea Limited has experienced a decline in its stock price, down by 30% year-to-date. This is in contrast to many U.S. Big Tech companies that have seen stock price gains after reducing their headcounts to improve earnings per share (EPS).
- Competition from Alibaba’s Lazada: Sea Limited faces intense competition from Alibaba’s Lazada in Southeast Asia. While Sea Limited reported a year-over-year (YoY) revenue growth of only 5%, Alibaba’s International Commerce retail segment achieved 60% YoY revenue growth. This competition is impacting Sea Limited’s market share.
- Profitability vs. Growth Dilemma: Sea Limited has been navigating a trade-off between pursuing profitability and sustaining growth. The company’s management has indicated a shift towards prioritizing revenue growth over profitability, which could lead to future losses.
- Market Share Loss: Sea Limited’s pursuit of profitability has led to a decline in market share. Alibaba’s continued investments in Lazada are expected to intensify competition and further erode Sea Limited’s market position.
- Challenges to Sustainable Profitability: The article suggests that Sea Limited may struggle to achieve sustainable long-term profitability given the need to offer incentives to attract both sellers and customers in a highly competitive market.
- Valuation and Risks: Despite a modest valuation multiple based on forward EPS estimates, there are concerns about Sea Limited’s ability to contain costs and maintain profitability as it focuses on revenue growth.
- Upside Potential: Sea Limited could surprise investors with stronger-than-expected earnings results if it can implement effective cost-cutting measures and launch popular new services or games.
- Investor Caution: The article advises potential investors to exercise caution and closely monitor Sea Limited’s performance over the next few quarters before considering an investment.
In summary, Sea Limited is facing challenges in the Southeast Asian e-commerce market, with competition from Alibaba’s Lazada impacting its market share and profitability. The company’s strategy of balancing growth and profitability has raised concerns about its ability to sustainably grow earnings. Investors are advised to closely watch Sea Limited’s performance and consider potential risks before investing in the stock.