Sea Limited (SE) Stock Performance surged 40% overnight, is it likely to bottom out?

November 28, 2022

By Published On: November 28, 2022Categories: Market UpdatesTags: , , Views: 163

The 11.11 Shopping Day will never be the same for all SEA Limited investors. SEA Limited stock performance this quarter had seen its share price fell from a high of $360 to below $45, its lowest price ever and investors have since suffered a paper loss of more than 80%. Despite this, the company’s share price indicated a revival surge of 40%, bringing the share price up to $60. Is this then, their sign of bottoming out?

3 Types of Core Businesses
1. Garena 
A highly profitable gaming business and organiser of Esports 

2. SeaMoney 
Digital payments and financial services arm

3. Shopee
SEA’s growing e-commerce business that has expanded quickly over the years but is currently a cash-burning business. In this article, GoodWhale will delve deeper into Shopee’s operations and how it has affected SEA Limited stock performance.

Sea Limited (SE) Financial Analysis

investment analysis chart that shows you the company type in one glance

Star Chart (Smart Features):

Since the start of Shopee’s operations, the company has constantly burned its profit in a bid to grow its market share and expand into new markets. Based on the Star Chart analysis, the company has done exceedingly well in terms of growth with a score of 10/10. However, its profitability posted a low of just 2/10.


The Negative Profitability of the Overall Business

Income supplement chart fiscal year


While the company does enjoy close to 40% of gross profit margin, SEA Limited is ultimately still unable to generate a positive operating margin, indicating that the company is operating at a loss. Simply put, even when SEA Limited generates profits, the company hands out its earnings to consumers rather than amassing it. The prolonging of this situation will prove to be unsustainable for SEA Limited without additional investments from shareholders.

Management execution on path to profitability

Despite so, SEA Limited has plans for its e-commerce business, Shopee, to break-even by the end of 2023. In September 2022, Shopee pulled out of Argentina, France, Spain and India due to global market uncertainties.

Garena recently also announced that they will be laying off hundreds of staff from its Shanghai office. Taken together, SEA Limited would likely deploy resources to its core operations to improve efficiencies and focus on the company’s long-term goals.

Chief-executive of SEA Limited Forrest Li recently stated:

I announced in mid-September that the management team will stop receiving cash compensation until we achieve self-sufficiency.

While laying off workers and exiting markets may hurt SEA’s employee and shareholder sentiment, Li’s statement reinforces the dedication of the company’s top management in achieving their break-even target by displaying an all hands on deck mindset which is likely to boost team spirit. With their interests better aligned with stakeholders, this would also improve shareholder confidence in SEA Limited in the near future.

Are we seeing the light at the end of the tunnel?

Hence, the decisive factor would be whether the company able to overturn the situation and achieve their break-even target by the end of 2023. From the last quarterly report, they were able to improve Shopee’s situation by incurring lesser Sales and Marketing Expense. If the management can continue improving the overall business margin, shareholders are likely to see the light at the end of the tunnel. Hence, stay in the loop on SEA Limited’s development by adding it into your watchlist to receive the latest news updates and be an early mover to catch SEA Limited overturning their current situation.

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