Shares of Sea Limited (SE 0.99%) fell by 22.3% in December, according to data provided by S&P Global Market Intelligence.
The decline took some shine off the shares of the gaming and e-commerce company, but its stock is still up 14.1% for the year.
Sea had reported a strong set of earnings for its fiscal 2021 third quarter, with total group revenue more than doubling year over year to $2.7 billion. Its digital entertainment division, under Garena, continued to witness encouraging growth. Quarterly active users climbed by 27.4% year over year to 729 million while quarterly paying users jumped by 42.7% year over year to 93.2 million. Garena's popular Free Fire game remained the highest-grossing mobile game in Southeast Asia, Latin America, and India for the quarter, and the game also did very well in the U.S., according to App Annie.
The company's e-commerce division, under Shopee, also recorded strong numbers, with gross orders more than doubling year over year from 700 million to 1.7 billion. Gross merchandise value surged by 81% year over year to $16.8 billion.
Despite the impressive numbers, investors chose to sell the stock as interest rates are poised to rise this year due to inflationary pressures. The higher interest rates could impact Sea Limited should it choose to refinance the $3.5 billion worth of convertible notes on its balance sheet. There was also a general perception that growth may slow for technology-related companies after the pandemic-led surge in 2020 and early 2021 due to the rollout of vaccines.
China's Tencent Holdings just announced that it is cutting its stake in Sea Limited by selling $3 billion worth of the latter's stock, reducing its stake from 21.3% to 18.7%. This divestment, along with the recent poor sentiment for growth stocks, could cause Sea's share price to remain under pressure in the near term.
Investors who focus their attention on the business will find that Sea Limited is continuing to expand its e-commerce business by making inroads into more Asian countries. Shopee is aggressively expanding into South Korea and is hiring around 40 employees there, while also partnering with taxi company Bluebird Group in Indonesia to offer ride-hailing services. The e-commerce outfit also signed a memorandum of understanding with consumer giant Colgate-Palmolive to increase the penetration of oral and personal care products on its platform.