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Why Sea Limited Stock Sank Today

By Rich Smith – Nov 16, 2021 at 4:09PM

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Sea Limited just crushed on Q3 sales -- but missed badly on earnings.

What happened

Singapore-based e-commerce, payments, and online-gaming company Sea Limited (SE -0.28%) dropped 3.5% through 2:45 p.m. EST Tuesday afternoon after reporting mixed results for its fiscal Q3 2021.

Analysts had forecast Sea would lose $0.65 per share on less than $2.5 billion in sales for the quarter. As it turned out, Sea booked sales of $2.7 billion -- but lost $0.84 per share in the process. 

Person holding head in dismay in front of a stock chart showing a red arrow going down

Image source: Getty Images.

So what

Not all the news was bad. Sales for the quarter not only exceeded expectations but rocketed 122% year over year. Gaming revenue grew 93%, payments were up 111%, and e-commerce did best of all -- up 134% year over year.

Gross profit margins on those sales were also up, and gross profits at the company therefore outperformed sales growth, rising 148%. Nevertheless, Sea Limited also doubled its spending on research and development and sales and marketing, and these higher operating costs prevented the company from turning a profit.

To the contrary, quarterly losses grew by 34%. 

Now what

Don't expect that to change -- or at least not soon. In updating its guidance for the rest of this year, Sea Limited said this morning that it's "for the second time raising the guidance for e-commerce for the full year of 2021," and forecasting 135% year-over-year growth to between $5 billion and $5.2 billion. The company didn't give any guidance for profits, however, and investors, therefore, probably shouldn't expect to see any profit at all.

On the plus side, though, 135% revenue growth at e-commerce is even faster growth than the company just reported for Q3, suggesting that in one respect, at least, Sea Limited is still growing quickly and even accelerating its growth.

Rich Smith 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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