What happened
Shares of Sea Limited (SE -0.43%) charged higher on Tuesday, surging as much as 9.7%. As of 1:40 p.m. ET, the stock was still up 9.5%.
The catalyst that sent the tech giant higher was some positive commentary from a Wall Street analyst.
So what
Sea Limited announced yesterday that Shopee, its e-commerce arm, would cease operations in India. Morgan Stanley (MS -1.28%) analyst Mark Goodridge has weighed in on the move, viewing the decision as "a clear positive." In fact, he maintained his overweight (buy) rating and $220 price target on the stock.
Image source: Getty Images.
He cites two key factors supporting his view. First, the risk/return profile has clearly changed for Sea Limited's entry into India, which the analyst believes is no longer attractive. Secondly, by leaving the market, Sea Limited will limit the losses that normally accompany the early expansion in a new e-commerce market.
Goodridge views Sea Limited as "an emerging Super App in South East Asia" and believes investors are failing to properly value the company's budding e-commerce business.
Now what
Investors may recall that early last month, Sea Limited stock was rocked when Free Fire, the company's most successful video game, was banned in India. While Sea Limited is based in Singapore, regulatory officials in India cited security concerns due to its long-standing connections to China and Tencent Holdings, which owns 19% of Sea Limited's stock.
It's important to note that while India represented a significant opportunity for Sea Limited, it hadn't yet amounted to any more than a rounding error for the company's business. The country accounted for less than 3% (roughly $33 million) of Sea Limited's gaming sales, or about 1.2% of the company's total revenue.
Still, Sea Limited has challenges ahead. During its fourth-quarter earnings report, released earlier this month, the company reported a slowdown in its gaming business, as bookings of $1.1 billion climbed just 7% year over year after increasing 111% in the prior-year quarter.
This could just be a one-time thing, but investors should watch this metric carefully, as it's often a harbinger of things to come.
