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Why Sea Limited Was a Wreck on Monday

By Rich Smith - Mar 8, 2021 at 5:12PM

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At least one investor still likes Sea Limited -- but others may prefer bonds.

What happened

Shares of Southeast Asian e-everything tech stock Sea Limited (SE 3.60%) closed down 10.3% on Monday. That's a shame because the only real news about Sea stock today was of the "good news" variety.

So what

This morning, analysts at Australian investment bank Macquarie upgraded shares of Sea Limited to "outperform" (i.e., buy), reports TheFly.com, and more than doubled their price target on the e-commerce star. At $280 per share, Macquarie's target implies as much as 35% upside from Sea's closing price for the day.

Macquarie cited Sea's "strong financial outlook" in which the company predicted that it will more than double its e-commerce business this year compared to 2020 and grow its digital entertainment revenues by 38%. These two businesses, combined, made up more than 95% of Sea's $4.4 billion in total revenues last year, according to data from S&P Global Market Intelligence. This amount could double again in aggregate in 2021, to $9 billion.  

Big red arrow going down over a stock chart.

Image source: Getty Images.

Now what

Even in a worst case scenario in which Sea's fintech business doesn't grow at all, there's an excellent chance that Sea will still more than double its total revenues in 2021. So why was Sea stock down today?

Maybe for the same reason that it is down more than 25% over the last couple of weeks: Macquarie ascribes the sell-off to investors worrying that rising bond yields on "safe" bond investments will attract investors who are afraid of Sea's sky-high valuation of 24 times trailing sales and its lack of profits.

With Sea's generally accepted accounting principles (GAAP) profitability still at least two years away (according to analysts) but bond rates rising today, that may be a good reason to worry.

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