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Why Sea Limited Stock Climbed 25% in August

By John Ballard – Sep 3, 2020 at 2:22PM

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The top e-commerce player in Southeast Asia didn't disappoint when it reported earnings last month.

What happened

Shares of Sea Limited (SE -1.60%) gained 25% in value last month, according to data provided by S&P Global Market Intelligence. The leading e-commerce player in Southeast Asia was well-positioned to experience an uptick in demand during the pandemic, and it delivered with revenue nearly doubling year over year.  

The stock price had been steadily moving higher since March, currently up 269% year to date. Sea's second-quarter earnings report went a long way to validate investors' optimism.

A young woman shops with her credit card on a mobile phone.

Image source: Getty Images.

So what

Sea reported stellar results on Aug. 18, with revenue up 93% year over year, driven by strong gains in digital entertainment. But e-commerce was the star of the show, with the segment growing adjusted revenue by 187%. 

The strong demand pushed Sea's profitability up, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improving from a loss of $11 million in the year-ago quarter to a profit of $7.7 million in the second quarter. 

Quarterly active users across Sea's digital entertainment platform, which includes the popular mobile game Free Fire, reached 499.8 million, up 61% year over year. CEO Forrest Li noted the rapid shift in consumer behavior during COVID-19, stating that this "structural shift to digitalization will be long-lasting." 

Now what

Sea aims to continue investing in new content to grow its successful Free Fire mobile title, which now has 100 million daily active users. Management also sees a long-term opportunity to expand its Shopee e-commerce platform, which seems poised for further robust growth in the short term. "This momentum continued into the third quarter even as most of our markets have emerged from lockdowns," Li said. 

During the conference call, Li suggested the best is yet to come for this growth stock when he said, "We further believe that we are very well positioned to capture the accelerated growth opportunities created by the rapid expansion of the digital economy."  

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sea Limited. The Motley Fool has a disclosure policy.

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