Sea: This Correction Will Pick Up Steam

Seeking Alpha2021-12-20

Summary Shares of Sea have lost more than 40% from all-time highs, an expression of the company's overbloated valuation. Sea, commonly touted as the Amazon of Southeast Asia, continues to see massive...

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精彩评论

Machine23
2021-12-20
Machine23
Ok
Hayz
2021-12-20
Hayz
OKAY, below $200 .... keep hoping, unless "Black Swan" or something .....
arrowt
2021-12-20
arrowt
Yeah
- Machine23:
  ok
US_watchlist
2021-12-20
US_watchlist
Please like and comment. Thanks
- 土金水木火:
  Done
- EVE123:
  1

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Chief among this list is international tech giant Sea (SE), an internet conglomerate based on Singapore that has often been referred to as the \"Amazon (AMZN) of Southeast Asia\".\nThat narrative got a lot of traction amid the pandemic, especially as very strict lockdowns in Sea's home country of Singapore as well as surrounding countries in Southeast Asia fueled a rapid and immediate contingent of gamers to Sea's platform. At one time, Sea's shares had multiplied eightfold since the start of the pandemic.\nYet with the risk-off attitude that has taken hold in the markets, investors are starting to change their tune in this stock. Whereas previously the market had rewarded Sea solely for its growth and without giving regard to its massive losses and the fact that the gaming division was essentially subsidizing growth initiatives at the rest of the company, the market is starting to wake up to the fact that A)Sea's dominance of Southeast Asia may not be a given, especially with so many internet startups vying for market share, and B)Sea's formula relies so completely on the cash flow produced by the gaming division that any slowdown looks frightening.\nTaking these risks into account, plus the general fact that investors have dramatically sold off tech/growth stocks over the past quarter, shares of Sea have lost more than 40%of their market value since hitting a peak above $370.\n\nIn late October, when Sea was trading at ~$350 and near peaks, I had issued a warning article that the stock was overhyped andlong overdue for a correction. Even after this sharp fall in the stock, I still remain cautious andneutralon Sea, and I think there's further pain ahead, especially if the market's rotation away from growth and into value persists.\nValuation still remains expensive\nThe chief reason I'm still unenthused on Sea - even after the sharp 40% fall from peaks, Sea still trades at an unreasonably high valuation. At current ADR share prices near $213, Sea has a $118.02 billion market cap. After we net off the $12.17 billion of cash and $3.50 billion of debt on the company's most recent balance sheet, Sea's resulting enterprise value is $109.35 billion.\nFor next year FY22, meanwhile, Wall Street analysts are expecting Sea's revenues to grow 50% y/y to $14.21 billion (data from Yahoo Finance). Note that this represents quite sharp deceleration from current growth rates near 100% y/y, once the pandemic tailwinds are fully baked into prior-year comps.\nAt this revenue estimate, Sea trades at a valuation multiple of7.7x EV/FY22 revenue.\nSure, this is much cheaper than the mid-teens valuation that Sea used to trade at. But when evaluating this valuation, keep a few things in mind:\n\nSea's revenue skews heavily toward e-commerce, which is low-margin.Non-gaming revenues contributed to 57% of overall revenue; and non-gaming IFRS gross margins were only 14% (both metrics as of YTD 2021).\nSea is hardly the only game in town.While certainly the most recognizable and internationally traded of Southeast Asia's internet giants, Sea is quite significant competition versus the likes of Tokopedia and Lazada.\nSome growth premium is of course warranted for a company growing as quickly as Sea,but note that Amazon's forward revenue multiple is only 3.6x, less than half of Sea's\n\nThe bottom line here: valuation, plus the possibility of continued fundamental risks which we'll discuss in the next section, make me quite nervous that Sea's correction still has legs. I'd be more interested in picking up this stock if it fell to ~$170 (~6x forward revenue, and ~20% further downside from current levels), but until then I'm remaining on the sidelines.\nThe fundamental risks investors should be tracking\nUnlike many other tech stocks this quarter, Sea's correction was not just an expression of weakened sentiment toward growth stocks, but also a reflection of softening fundamentals.\nWe've already noted how critical Sea's gaming division is to the overall operation of the company - while no longer the majority of revenue, it is the most profitable division that helps to finance losses in the rest of the company's loss-leading e-commerce arm. Sea's gaming operations saw dramatic growth during the pandemic as play time soared and willingness to pay increased - but now, amid normalization and competition versus other types of entertainment, Sea's digital entertainment base is starting to show softness.\nTake a look at the chart below:\nFor several quarters, Sea had been adding 30-40 million net-new quarterly active users. In fact, during the preceding quarter, Sea had added a massive ~76 million net-new QAUs. As long as Sea's gaming business continues to grow at a fast enough pace to absorb e-commerce's swelling losses, Sea's formula worked.\nBut this slowdown to barely any (~4 million) net-new QAU adds in Q3 is alarming. Even more so is the fact that paid users only saw a 1 million sequential increase. The good news is that Sea's paid user ratio, at 12.8% this quarter, is the highest it has ever been in the company's lifetime. But we do worry if willingness to pay for gaming, and gaming activity in general, will decline in the post-pandemic period once schools and offices fully return to normal.\nFor over a year now, a lot of Sea's gaming success has been anchored to its internally-developed Free Fire title. Yet games, of course, have a shelf life of when they pass the phase of popularity. One thing that gaming rivals like Activision Blizzard (ATVI) have been tremendously successful at is converting hit titles into sustainable, multi-game franchises like Call of DutyandWorld of Warcraft/Hearthstone.In this regard, Sea is relatively untested, and if it fails at sustainingFree Fire'smomentum, it could be in trouble.\nMeanwhile, in e-commerce, there can be no doubt that Sea continues to expand rapidly. E-commerce revenue of $1.5 billion grew 134% y/y. The company also launched a wave of new markets over the past few months, per CEO Forrest Li's prepared remarks on the Q3 earnings call:\n\n In the recent months, we launched Shopee in Poland, France, Spain and India. From time-to-time, we may test waters in new markets where we believe there may be an opportunity to use our experience in highly diverse environment, to reach underserved buyers and sellers. On the one hand, our core focus remains managing our efficient and sustainable growth in Southeast Asia, Thailand, and Brazil, where we have established and are continuing to grow our strong presents, serving local sellers to the buyers.\"\n\nSea has not yet figured out, however, how to stem the bleeding in its e-commerce business, whose adjusted EBITDA losses more than doubled y/y to -$683.8 million. The 22% y/y growth in digital entertainment EBITDA to $715.1 million was completely consumed by the widening losses in e-commerce, and total adjusted EBITDA swung from a profit of $120.4 million in the prior-year Q3 to a -$165.5 million loss this quarter.\nIn bull markets, investors may not mind this \"growth at all costs\" mindset. But as growth stocks continue to teeter heading into the final trading days of 2022, I think Sea's burgeoning losses are going to raise more eyebrows.\nKey takeaways\nAfter a nearly unbroken two-year rally that at one point took Sea's stock up eightfold since the start of the pandemic, the air is finally starting to seep out of this overhyped balloon. I'm fully aware of Sea's merits as one of the leading and fastest-growing e-commerce brands in Southeast Asia, but I'm waiting until Sea drops below $200 (specifically, ~$170 is my target entry point) before initiating a position.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":693370680,"gmtCreate":1639977761124,"gmtModify":1639977762290,"author":{"id":"3574907279320575","authorId":"3574907279320575","name":"Machine23","avatar":"https://static.tigerbbs.com/4e7c812dbe184947690c36d45b6469be","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3574907279320575","authorIdStr":"3574907279320575"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/693370680","repostId":1199933858,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":693347369,"gmtCreate":1639977594779,"gmtModify":1639978462714,"author":{"id":"3576709204489965","authorId":"3576709204489965","name":"Hayz","avatar":"https://static.tigerbbs.com/d87598e3b13004920f673918b320782e","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3576709204489965","authorIdStr":"3576709204489965"},"htmlText":"OKAY, below $200 .... keep hoping, unless \"Black Swan\" or something .....","listText":"OKAY, below $200 .... keep hoping, unless \"Black Swan\" or something .....","text":"OKAY, below $200 .... keep hoping, unless \"Black Swan\" or something .....","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/693347369","repostId":1199933858,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":693382819,"gmtCreate":1639971386926,"gmtModify":1639971386926,"author":{"id":"3586323389590318","authorId":"3586323389590318","name":"arrowt","avatar":"https://static.tigerbbs.com/fa16cf0381efdbf40a05fa6108bc2ae5","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3586323389590318","authorIdStr":"3586323389590318"},"htmlText":"Yeah","listText":"Yeah","text":"Yeah","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/693382819","repostId":1199933858,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":7052131,"gmtCreate":1639977756981,"gmtModify":1639977757109,"authorId":3574907279320575,"author":{"id":3574907279320575,"idStr":"3574907279320575","authorId":3574907279320575,"name":"Machine23","avatar":"https://static.tigerbbs.com/4e7c812dbe184947690c36d45b6469be","vip":1,"crmLevel":7,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":693382819,"type":1,"supId":0,"prevId":0,"content":"<u>ok</u>","text":"<u>ok</u>","html":"<u>ok</u>"}],"langContent":"CN"},{"id":693334609,"gmtCreate":1639969477214,"gmtModify":1639969478050,"author":{"id":"3581244873474125","authorId":"3581244873474125","name":"US_watchlist","avatar":"https://static.tigerbbs.com/c45e6bbe1cefb0fecde067a20b3c788f","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581244873474125","authorIdStr":"3581244873474125"},"htmlText":"Please like and comment. Thanks","listText":"Please like and comment. Thanks","text":"Please like and comment. Thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":2,"repostSize":0,"link":"https://laohu8.com/post/693334609","repostId":1199933858,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":7051095,"gmtCreate":1639970301521,"gmtModify":1639970301554,"authorId":4087537231786360,"author":{"id":4087537231786360,"idStr":"4087537231786360","authorId":4087537231786360,"name":"土金水木火","avatar":"https://static.tigerbbs.com/b569dff568eac68113202875c896b710","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":693334609,"type":1,"supId":0,"prevId":0,"content":"Done","text":"Done","html":"Done"},{"id":7051005,"gmtCreate":1639969801440,"gmtModify":1639969801549,"authorId":3581577028225498,"author":{"id":3581577028225498,"idStr":"3581577028225498","authorId":3581577028225498,"name":"EVE123","avatar":"https://static.tigerbbs.com/2d9fc87245feb9cc79269f594d4cc961","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":693334609,"type":1,"supId":0,"prevId":0,"content":"1","text":"1","html":"1"}],"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":27,"commentSize":4,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1199933858"}