Shares of Sea Limited (SE 2.60%) were rallying on Tuesday, up 11.5% as of 2:35 p.m. ET.
The Southeast Asian e-commerce, fintech, and gaming company reported earnings today that were somewhat mixed relative to analyst estimates, but it showed continued improvement across all three of its segments.
NYSE: SE
Key Data Points
Sea's comeback is underway
Sea Limited was one of the darlings of the pandemic era, reaching a high of $372 per share in late 2021. So, with its share price in the mid-$60s heading into earnings, the stock was perhaps primed for a bounce.
Overall revenue surged 23% to $3.81 billion, beating analyst estimates, while earnings per share of $0.14 under generally accepted accounting principles slightly missed estimates of $0.19. But while overall profits missed, it appears the dynamics within each division were enough to satisfy investors.
Importantly, Sea's gaming division, led by the hit game Free Fire, was instrumental in the stock's rise, and then decline after the height of the pandemic. While gaming is the lowest-revenue segment for Sea, it's actually the one with the highest profits.
That division has suffered since early 2022, but over the last couple of quarters, Free Fire's numbers have stabilized and turned upward again. After daily active users bottomed out in the fourth quarter of 2023 at 528.7 million, they have grown each quarter since to reach 648 million in the second quarter, up 19% year over year.
And while the all-important Shopee e-commerce business showed a slight loss in earnings before interest, taxes, depreciation, and amortization, the second quarter was the third straight period of bottom-line improvement since the company pivoted back into growth mode last year.
After the company decided in the third quarter last year to restart growth investments, they appear to be paying off. The bottom line in e-commerce might have caused the headline earnings miss, but management also increased Shopee's forecast for gross merchandise volume for the year to mid-20% growth, up from its initial target of the high teens.
So with the gaming division showing stronger signs of recovery and Shopee's investments yielding results in expected growth and narrowing losses, those were really the two important things investors wanted to see.
Can Sea reach all-time highs anytime soon?
Sea stock probably won't be getting back to the high $300 range anytime soon, but over time, there's certainly a chance. The stock cratered since late 2021, but management has impressively navigated the post-pandemic era, first cutting costs to boost profitability, then pivoting back to growth mode when conditions warranted.
Sea's impressive track record of achieving its business goals should bode well, as the company has now solidified itself as a leader in the high-growth Southeast Asian economy across three different businesses.
