What happened
Shares of Sea Limited (SE -2.20%) are down 24% for the week as of 11:39 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence.
The e-commerce leader reported earnings results on Tuesday, Aug. 16 that left investors looking for more growth. Perhaps more disappointing for investors was the company's decision to suspend its forward guidance considering weakening economic conditions.
So what
Sea was a huge beneficiary of the stay-at-home environment during the pandemic, but like Amazon, Etsy, and other leading e-commerce stocks, Sea has suffered from decelerating revenue growth as consumers return to in-store shopping. After soaring to a high of $372 in 2021, the stock has collapsed, not only due to lower revenue growth, but also due to the company's escalating losses.
During the market sell-off this year, investors have become more attuned to profits, not just revenue growth. Many high-growth companies have prioritized revenue growth at the expense of profits in recent years, and Sea has followed the same course, which has contributed to the stock's sharp decline in 2022.
For the second quarter, revenue grew 29% year over year, which is not bad in the context of a challenging economic environment. But its net loss widened to $931 million from a loss of $434 million in the year-ago quarter.
Now what
Management is making efforts to strengthen the bottom line, but the company will need to show investors it can achieve sustainable profitability to help the bullish case for the stock.
The good news is that Sea's Shopee e-commerce store continues to see strong customer growth. Gross orders grew 42% year over year to 2 billion. If management executes on its plan to improve efficiency and tighten costs, Sea should see its net losses narrow and its stock price rise.
