Shares of Southeast Asian "super-app" Sea Limited (SE 2.89%) fell as much as 26.8% on Tuesday, before recovering to a 16.4% decline by the end of trading.
Sea reported fourth-quarter earnings today that beat both revenue and earnings expectations; however, a rise in certain costs related to its fintech arm Monee appears to have investors nervous. Furthermore, its high-profit Garena gaming division saw a quarter-over-quarter decline in bookings, even as bookings were up strongly year over year.
All in all, these were imperfections in an otherwise strong earnings report, which may open up an opportunity in this market leader, given that Sea's stock has been more than cut in half from its 52-week high.
NYSE: SE
Key Data Points
Sea delivers sterling growth, but not enough for a jittery market
In the fourth quarter, Sea Limited grew revenue 38.4% to $6.85 billion, with earnings per share up 61.5% to $0.63. Both figures beat analysts' expectations.
These figures seem really good, so what's the problem? For the answer, one has to delve into the details of each of Sea's three divisions: Shopee e-commerce, Monee fintech and lending, and Garena mobile gaming.
In the Shopee e-commerce segment, Sea grew revenue by 35.8%. Still, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew by only 33%, suggesting limited operating leverage, even as Sea increased seller take rates.
Second, in the Monee segment, Sea stepped on the gas to issue loans, with its loan book growing by over 80% to $9.2 billion and revenue surging 54.3%. However, that segment's adjusted EBITDA only grew 24.7%. This was due to a 66.7% increase in provisions for credit losses. So, investors may have been nervous about the company expanding its loan book so quickly, given that lending can be a dangerous business if the economy turns down.
Meanwhile, the Garena segment delivered solid results, with bookings up 23.8% and adjusted EBITDA up 25.5%, which, unlike the other two segments, showed a margin expansion. However, users, while up year over year, actually fell quarter over quarter, as did bookings. Whether the fourth quarter marked a trend change or just quarterly noise remains to be seen.
Image source: Getty Images.
But Sea's investments could pay off
Investors seem a little anxious that Sea's accelerating growth segments saw margin compression, while its high-margin gaming segment posted a quarterly decline. Still, the optimist could see the margin compression across Shopee and Monee as tied to investments in future growth.
Shopee's decreased margins were a result of management aggressively expanding its VIP program, which could tie customers more closely to Shopee's ecosystem over the long-term. Meanwhile, in the Monee segment, Sea said it felt confident it could expand its lending to more types of customer and use cases thanks to AI-assisted underwriting. Given the aggressive expansion to new borrowers, a higher provision seems prudent.
Meanwhile, Garena's bookings growth on a full-year basis was much better than Q4, and on the conference call with analysts, CEO Forrest Li said he still expects double-digit bookings growth in that segment in 2026.
All in all, it seems like today's sell-off may be overdone, especially in light of the sell-off Sea had already experienced over the past six months. E-commerce investors should consider buying the dip.
