The stock market is nearing the end of a very busy earnings season for the quarter ended June 30. Investors have been looking for clues about the health of the consumer as the broader economy grapples with high inflation and rising interest rates. 

Singapore-based Sea Limited (SE -4.33%) offers some unique insights thanks to its focus on the digital economy, which is occupying a growing share of consumers' wallets. Like many technology companies, Sea Limited is experiencing a slowdown from the lofty growth rates it generated during the height of the pandemic.

But there were some positives beneath the surface of its top-line results in the second quarter, and here are the details.

Sea Limited's revenue growth is rapidly decelerating

Sea Limited is a triple threat when it comes to the digital economy. It operates in three main segments, with its largest being e-commerce, followed by digital entertainment and digital payments. The company's region of focus is Southeast Asia, which is one of the fastest growing markets for online sales in the world.

During the worst of the pandemic in 2020 and 2021, many countries enforced lockdown rules and recommended companies allow their employees to work from home. This drove a surge in demand for e-commerce and online entertainment, especially gaming, which sent Sea Limited's total revenue soaring. 

A chart of Sea Limited's quarterly revenue and revenue growth rate.

However, there has been a notable drop in the company's year-over-year growth rate more recently. Make no mistake, a 29% jump in revenue is still incredibly strong, but the fact Sea Limited didn't grow at all between the first and second quarter this year suggests a further dip might be coming, especially as a much stronger comparable is approaching from the fourth quarter of 2021.

Gaming has taken a dive

The driver of Sea Limited's digital entertainment revenue is gaming, led by its Garena development studio, which is responsible for creating Free Fire, one of the highest-grossing mobile games in the world. It continued to be the most downloaded game globally in the second quarter. 

But the title is facing a series of challenges. Late last year, Free Fire was banned in India alongside hundreds of other games with little explanation. In addition, it's seeing a general slowdown in usage like many other games right now, as pandemic restrictions continue to ease around the world. 

In the second quarter, quarterly active users for Sea Limited's digital entertainment segment as a whole fell by 14% to 619 million, but there was a staggering 39% drop in the number of users paying to play. The result was a contraction in segment revenue overall. 

A chart of Sea Limited's quarterly digital entertainment segment revenue.

But on a positive note, e-commerce remained strong

While digital entertainment was a drag on Sea Limited's broader business, the e-commerce segment remained strong in the second quarter. It's led by the company's flagship Shopee app, which facilitates consumer-to-consumer and business-to-consumer sales. 

The number of orders placed on the platform jumped 41% year over year to 2 billion, and they had a gross value of $19 billion, up 27%. It led to an incredibly strong revenue increase of 51%, though it's still a notable slowdown from the growth numbers Sea Limited's e-commerce business was doing just a year ago. 

A chart of Sea Limited's quarterly e-commerce revenue and revenue growth rate.

Beyond its financial performance, Shopee remained the No. 1 app in the shopping category in Southeast Asia by the number of monthly active users and the amount of time they spent on the platform. 

Sea Limited is aiming for profitability

Sea Limited stock fell 13% on the day it reported its second-quarter earnings, and it has declined by 79% from its all-time high set last year. Investors typically want to avoid owning shares in a slowing business, so Sea Limited might have to arrest the present trend of decelerating growth over a series of quarters before its stock regains meaningful ground. 

Sea Limited isn't profitable just yet because it has invested heavily in growth initiatives over the past few years, but it's now in the process of shifting its focus toward cash flow and earnings to de-risk the business and chart a sustainable path forward. The company lost $569 million in the second quarter alone, but it does have over $7.7 billion in cash, equivalents, and short-term investments on its balance sheet, so it has plenty of runway to find a healthy mix between growth and profits. 

However, it's important to focus on the big picture. According to an estimate by Grandview Research, the global e-commerce market will be worth $13.6 trillion in 2022, and it could grow to $27.1 trillion by 2027. That's a sizable opportunity for Sea Limited to chase, and it leaves plenty of room for its largest segment to expand even further. If the company can grow into that opportunity profitably, its stock could be destined for much higher ground in the long run.