What happened
Shares of video game, e-commerce, and financial technology company Sea Limited (SE -0.69%) sank like a rock on Tuesday morning after the company reported its results for the first quarter of 2023. As of 2:27 p.m. ET, Sea Limited stock was down by about 19%.
So what
For Q1, Sea Limited reported revenue of $3 billion, which was up just 5% year over year. However, this was basically what Wall Street expected, and the company still showed areas of incredible strength. At one time, its video game unit was its largest, but revenue from that segment was cut in half year over year in Q1. By contrast, its e-commerce revenue surged by 50.7%.
On the bottom line, Sea Limited fell short of expectations, which is likely why investors bid the stock lower Tuesday. Its net income of $87 million worked out to $0.15 per diluted share. Analysts' consensus expectation had been for earnings of $0.39 per share.
Now what
However, if Sea Limited's underperformance on the bottom line is truly the reason traders are selling Tuesday, then I believe the market is being hilariously short-sighted. In Q1, Sea Limited took a one-time $118 million non-cash charge for a goodwill impairment. Without this charge, Sea Limited's diluted earnings per share would have been closer to $0.35.
Moreover, its net income of $87 million was a dramatic improvement from its net loss of $580 million in the first quarter of 2022. Management is controlling spending more than ever: Operating expenses dropped by almost 23% year over year even though revenue was up 5%.
SE Total Operating Expenses (Quarterly) data by YCharts.
Considering how fast its e-commerce business is still growing, its opportunity for an eventual rebound in video games, and the way management is getting costs under control, Sea Limited may be a stock to look at, and Tuesday's sell-off gives investors a better opportunity to buy in.
