Why Sea Limited (SE) Stock is Up Over 10% Today

The sudden rise comes after the company’s shares dropped 20% over the past few days.

Shedding a fifth of its value in the past five days, multi-sector Asian technology company Sea Limited (NYSE: SE) saw an exodus of investors despite posting a major fourth quarter (Q4) revenue beat on March 2nd. However, today, it’s bouncing back strongly, trading up more than 10% in Tuesday afternoon trading.

The company’s price seems to be on a roller coaster, but why is this the case? Here’s a closer look at why, and where it’s likely to go from here.

Why SE Stock Plunged and is Rebounding Today

Said to combine features of online retailer and tech company Amazon, Inc. (NASDAQ: AMZN), online sports platform DraftKings (NASDAQ: DKNG), payment manager PayPal (NASDAQ: PYPL), and gaming company and World of Warcraft operator Activision Blizzard, Inc. (NASDAQ: ATVI), Sea Limited saw an initial upward lurch of its stock value immediately following its Q4 and full-year earnings release and conference call.

However, by the following day, March 3, investor sentiment had flipped and the company’s share price began a downward slalom taking it from a peak of $259.80 to yesterday’s closing price of $206.11.

The company, which handles e-commerce, online payments, e-sports, and gaming across multiple countries in Asia, saw its Q4 revenue, which amounted to $1.56 billion, skyrocket 100.7% year over year.

Its digital entertainment bookings climbed 111.1% to $1 billion, the top line of e-commerce exploded 178.3% to $842.2 million, while its new SeaMoney digital financial services handled $7.8 billion in payments during 2020, with $2.9 billion in Q4, showing acceleration toward year’s end.

Nevertheless, the company generated a $281.9 million net loss for the quarter and a $1.46 billion loss for the year, significantly missing analysis consensus on earnings per share (EPS). The major earnings miss was enough to send the stock tumbling after an initial euphoric reaction, a slump that continued steadily through Mar. 8.

Today, however, Sea Limited has suddenly reversed its downward slide. Registering dramatic gains of more than 10% in afternoon trading, the company appears to have not only stopped its bleed-out of value for the moment but to be rallying strongly. What happened?

The answer is a Macquarie analyst, Zhiwei Foo, gave the company a bullish upgrade yesterday, though the market didn’t have the chance to price in the swing in sentiment this caused until today. Changing the company’s rating from Neutral to Outperform, Macquarie also assigned a $280 price target to its shares.

This represents a 125.8% boost from its previous $124 price target, and an approximate 36% upside from yesterday’s price at stock market close.

Foo founded his bull case “on the back of the strong company guidance,” according to his research note. He argues Sea Limited’s digital finance sector is currently undervalued by the market. If the market prices the actual worth of its digital finance services in, as Foo believes it will, the company will see a fair value boost of 18%.

What the Future Holds for Sea Limited

Sea Limited is clearly a volatile stock with powerful reactions to the latest news item, whether the news is good or bad. The fact that its operations are spread over multiple countries, where it can be affected by the decisions and laws of several different governments, varied in-country conditions, and even divergent cultural factors also makes it a more unstable stock than a company with a solid base in a single large country, even if it also has operations overseas.

Worth considering, against this backdrop, is Sea Limited’s confident guidance for 2021. The company thinks it is likely to generate between $4.3 billion and $4.5 billion in bookings with its digital entertainment segment, with a midpoint scenario representing 38.1% year over year growth. It also expects a midpoint result of 112.3% rise in e-commerce segment revenue.

These explosive growth figures are supported by the actual results generated in Q4 2020, and continue trends already visible in last year’s full-year results.

With the digital finance segment’s contribution added in, as Macquarie notes, both results and guidance overall appear to support a bullish scenario. If you don’t mind a measure of risk and riding out some volatility, Sea Limited looks like it might be a rewarding stock for 2021.

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