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2021-10-27

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Sea: Don't Be Caught Holding The Hot Potato

Summary Shares of Sea have nearly doubled this year, as the Southeast Asian internet giant continue

Sea: Don't Be Caught Holding The Hot Potato

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":855833018,"tweetId":"855833018","gmtCreate":1635347781733,"gmtModify":1635347781833,"author":{"id":3575032741986642,"idStr":"3575032741986642","authorId":3575032741986642,"authorIdStr":"3575032741986642","name":"AngelAw","avatar":"https://static.tigerbbs.com/e8206a20c5dd9d81d85c5335051c8830","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":1,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Buy can earn profit</body></html>","htmlText":"<html><head></head><body>Buy can earn profit</body></html>","text":"Buy can earn profit","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/855833018","repostId":1186134889,"repostType":2,"repost":{"id":"1186134889","kind":"news","pubTimestamp":1635145020,"share":"https://www.laohu8.com/m/news/1186134889?lang=&edition=full","pubTime":"2021-10-25 14:57","market":"us","language":"en","title":"Sea: Don't Be Caught Holding The Hot Potato","url":"https://stock-news.laohu8.com/highlight/detail?id=1186134889","media":"Seeking Alpha","summary":"Summary\n\nShares of Sea have nearly doubled this year, as the Southeast Asian internet giant continue","content":"Summary\n<ul>\n <li>Shares of Sea have nearly doubled this year, as the Southeast Asian internet giant continues to grow in gaming and e-commerce.</li>\n <li>Sea didn't suffer a massive slowdown in gaming in the post-pandemic period as expected.</li>\n <li>E-commerce GMV continues to explode, though losses are also multiplying.</li>\n <li>Sea recently announced a massive capital raise, which highlights the company's losses.</li>\n <li>Valuation remains the key limiting factor for Sea, with the stock trading at ~14x forward revenue.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/66e280d822cebfb8966ad498a141862e\" tg-width=\"1536\" tg-height=\"1024\" width=\"100%\" height=\"auto\">DeanDrobot/iStock via Getty Images\nIt's tough to stake out a contrarian negative stance against Sea (SE), but I retain my conviction that this Southeast Asian internet conglomerate has run up far too quickly, at least relative to its fundamentals. Few pandemic investments have been as fortuitous as Sea. Prior to the pandemic, this little-known Singaporean internet stock was trading at just $50 per share. Now, as the pandemic has \"activated\" growth in each of Sea's three key segments: online gaming, e-commerce, and online payments - shares of Sea sit above $350, having risen ~7x since the start of the pandemic and nearly ~2x year to date through 2021.\n<img src=\"https://static.tigerbbs.com/da4abad91139d60d01f334013aa4c8c4\" tg-width=\"635\" tg-height=\"417\" width=\"100%\" height=\"auto\">Data by YCharts\nEveryone loves a winner, especially in this year's stock market. But given overall market jitters and a recent September/October correction in growth stocks, we have to ask:does Sea really have upside left?\nI continue to retain my&nbsp;neutral&nbsp;opinion on Sea. I do see the appeal: yeah, major market has an internet e-commerce king (Amazon (AMZN) in the U.S., Alibaba (BABA) in China), and Southeast Asia's most likely winner is Sea. I don't doubt that this stock will continue to be a heavyweight five years down the line. But I'm looking at the next 1-2 year timeframe, and I think the stock has already gotten ahead of itself and won't be able to meaningfully outperform in the short term.\nLet's look at valuation; at current share prices near $355, Sea trades at a market cap of $196.2 billion, already making it a mega-cap that exceeds the size of many of the Dow 30 components. After netting off the $5.89 billion of cash and $1.28 billion of convertible debt on Sea's most recent balance sheet, the company's resulting&nbsp;enterprise value is $191.59 billion.For FY22, Wall Street analysts are expecting Sea to generate $13.54 billion in revenue, representing 49% y/y growth. Against this revenue expectation, Sea trades at a stark&nbsp;14.1x EV/FY22 revenue multiple.As a reminder, Sea's consolidated gross margin stands at only ~40%, and about half of this revenue comes from e-commerce, which carries only a ~15% margin. How much higher can Sea go? It's clear that Sea's stock price advance and its valuation have been decoupled.\nFundamentally, I am impressed by Sea's continued growth in gaming, which has extended further beyond the pandemic than I initially expected (hence why I'm neutral and not bearish on the stock). At the same time, I hesitate to believe that ~$200 billion is an appropriate valuation for a company that is not profitable and hasn't shown a meaningful trajectory to getting there, as adjusted EBITDA losses continue to mount. A recent capital raise, too, may indicate that this will be Sea's pattern for a while: growth at all costs. That mindset worked for investors in 2020 and 2021; but will it stand firm if overall market sentiment continues to sour in 2022?\nIn my opinion, the best move here is to remain on the sidelines.\nGaming remains sturdy\nOne of the biggest upside surprises that Sea delivered in its most recent quarter was strength in gaming. In the gaming sector (and this goes beyond just Sea itself), the biggest fear was that the post-pandemic period, which saw a return to schools and offices, would sap gaming time and paid user counts this fall.\nIf this is to happen, though, it hasn't happened yet. After a Q1 in which Sea's quarterly active user adds slowed to ~38 million, Sea added&nbsp;76 million net-new QAUs&nbsp;in Q2, roughly matching the pace of the prior two quarters combined. Quarterly paid users, meanwhile, grew at 85% y/y to 92.2 million, with paid users representing a record 13% of Sea's total QAUs.\nFigure 1. Sea gaming user counts\n<img src=\"https://static.tigerbbs.com/10ec6773a8f9c4c7506cdce3ade0fc60\" tg-width=\"640\" tg-height=\"326\" width=\"100%\" height=\"auto\">Source: Sea Q2 earnings presentation\nThe paid user ratio is up three points from 10% in the year-ago Q2, and has been rising steadily. Therein lies a big catalyst for investor enthusiasm in this stock, and one that I don't disagree with: Sea already has a large captive audience, and it has also proven adept at content curation and producing its own games (Free Fire, which was developed in-house, remains the company's biggest hit). As paid user ratios rise, Sea may be able to capture more and more revenue from this 700+ million-strong user base.\nHere's some useful anecdotal commentary from Sea CEO Forrest Li on gamer engagement, made during his prepared remarks on the&nbsp;Q2 earnings call:\n<blockquote>\n Free Fire delivered excellent results during the quarter, setting multiple new records. Building on its strong performance across global markets, the game recently exceeded 1 billion cumulative downloads on Google Play. We believe Free Fire is the first ever mobile battle royale game to achieve this milestone.\n</blockquote>\n<blockquote>\n It was ranked third globally by average monthly active users on Google Play in the second quarter, according to App Annie. Furthermore, Free Fire’s peak daily active users hit more than 150 million during the quarter. This is a new record for us, and we believe that few online games globally have ever reached this scale.\n</blockquote>\n<blockquote>\n Meanwhile, Free Fire continued to be the highest grossing mobile game in Southeast Asia, Latin America and India in the second quarter, according to App Annie. The game has now retained its leadership in Southeast Asia and Latin America for eight straight quarters, and in India for three straight quarters. We have also gained traction in certain developed markets like the U.S. where the game was ranked the highest grossing mobile battle royale game for the past two quarters based on App Annie. Free Fire was the second highest grossing mobile game in the U.S. on Google Play across all game categories in the second quarter as well.\"\n</blockquote>\nWe'll have to see, however, what unknown pandemic impacts are baked into these numbers. For example, in Sea's home market of Singapore, schools&nbsp;shifted back to online education&nbsp;after COVID cases spiked this fall. Similar dynamics may be helping Sea's Q2 user counts, and investors may be shocked if growth decelerates down the road.\nSea's digital entertainment bookings grew 65% y/y to $1.2 billion in Q2, but for the full year FY21, the company is guiding to only 45% y/y bookings growth, implying deceleration in the back half of the year.\nLosses and capital raise may raise eyebrows\nThe continued worry we have for Sea, however, is this: when will investors finally be unable to look past the buildup of losses? I continue to emphasize that&nbsp;Sea's gaming division is subsidizing its e-commerce division.Investors are primarily long on Sea for the latter, but the latter cannot stand without the profits of the former.\nFigure 2. Sea adjusted EBITDA\n<img src=\"https://static.tigerbbs.com/3b54d900f9e355c4b49394fb46ead7af\" tg-width=\"640\" tg-height=\"337\" width=\"100%\" height=\"auto\">Source: Sea Q2 earnings presentation\nThe chart above tells us two things:\n<ul>\n <li>Sea is not on a path to stabilization yet; the company had a -$24.1 million adjusted EBITDA loss in FY21 versus $7.7 million of profit on FY20.</li>\n <li>Gaming's ~$300 million y/y buildup of adjusted EBITDA gains was approximately exactly enough to cover a buildup of losses of the same magnitude in e-commerce and digital financial services.</li>\n</ul>\nIt's not all bad news for Sea: the company reported that two markets, Malaysia and Taiwan, have reported division-level EBITDA breakeven in the e-commerce segment. However, Sea's largest market of Indonesia continues to lag (and in this market, where Sea's competition versus the likes of Tokopedia is fierce, the company is chasing growth through offering deeply discounted products).\nGAAP losses are much wider than adjusted EBITDA; year-to-date through Q2, Sea has generated a GAAP loss of -$856.1 million, or a -21% net margin.\nWe note as well that Sea&nbsp;recently did a \"mega financing\", selling $3.5 billion of new American Depository Shares and $2.5 billion in a new convertible bond. This buffering up of cash should be a signal to the markets that Sea is going to need more liquidity support outside of its operations for quite some time.\nKey takeaways\nI don't disagree that Sea remains on a growth tear, but I remain unenthused about the company's prospects. Large losses and a heavy valuation seem like quainter concepts in the 2021 bull market, but looking ahead to 2022 when most of Wall Street is calling for choppy trading ahead may not make growth stocks like Sea the best choice. Steer clear here.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea: Don't Be Caught Holding The Hot Potato</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea: Don't Be Caught Holding The Hot Potato\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-10-25 14:57 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4461654-sea-dont-be-caught-holding-the-hot-potato>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nShares of Sea have nearly doubled this year, as the Southeast Asian internet giant continues to grow in gaming and e-commerce.\nSea didn't suffer a massive slowdown in gaming in the post-...\n\n<a href=\"https://seekingalpha.com/article/4461654-sea-dont-be-caught-holding-the-hot-potato\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4461654-sea-dont-be-caught-holding-the-hot-potato","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1186134889","content_text":"Summary\n\nShares of Sea have nearly doubled this year, as the Southeast Asian internet giant continues to grow in gaming and e-commerce.\nSea didn't suffer a massive slowdown in gaming in the post-pandemic period as expected.\nE-commerce GMV continues to explode, though losses are also multiplying.\nSea recently announced a massive capital raise, which highlights the company's losses.\nValuation remains the key limiting factor for Sea, with the stock trading at ~14x forward revenue.\n\nDeanDrobot/iStock via Getty Images\nIt's tough to stake out a contrarian negative stance against Sea (SE), but I retain my conviction that this Southeast Asian internet conglomerate has run up far too quickly, at least relative to its fundamentals. Few pandemic investments have been as fortuitous as Sea. Prior to the pandemic, this little-known Singaporean internet stock was trading at just $50 per share. Now, as the pandemic has \"activated\" growth in each of Sea's three key segments: online gaming, e-commerce, and online payments - shares of Sea sit above $350, having risen ~7x since the start of the pandemic and nearly ~2x year to date through 2021.\nData by YCharts\nEveryone loves a winner, especially in this year's stock market. But given overall market jitters and a recent September/October correction in growth stocks, we have to ask:does Sea really have upside left?\nI continue to retain my neutral opinion on Sea. I do see the appeal: yeah, major market has an internet e-commerce king (Amazon (AMZN) in the U.S., Alibaba (BABA) in China), and Southeast Asia's most likely winner is Sea. I don't doubt that this stock will continue to be a heavyweight five years down the line. But I'm looking at the next 1-2 year timeframe, and I think the stock has already gotten ahead of itself and won't be able to meaningfully outperform in the short term.\nLet's look at valuation; at current share prices near $355, Sea trades at a market cap of $196.2 billion, already making it a mega-cap that exceeds the size of many of the Dow 30 components. After netting off the $5.89 billion of cash and $1.28 billion of convertible debt on Sea's most recent balance sheet, the company's resulting enterprise value is $191.59 billion.For FY22, Wall Street analysts are expecting Sea to generate $13.54 billion in revenue, representing 49% y/y growth. Against this revenue expectation, Sea trades at a stark 14.1x EV/FY22 revenue multiple.As a reminder, Sea's consolidated gross margin stands at only ~40%, and about half of this revenue comes from e-commerce, which carries only a ~15% margin. How much higher can Sea go? It's clear that Sea's stock price advance and its valuation have been decoupled.\nFundamentally, I am impressed by Sea's continued growth in gaming, which has extended further beyond the pandemic than I initially expected (hence why I'm neutral and not bearish on the stock). At the same time, I hesitate to believe that ~$200 billion is an appropriate valuation for a company that is not profitable and hasn't shown a meaningful trajectory to getting there, as adjusted EBITDA losses continue to mount. A recent capital raise, too, may indicate that this will be Sea's pattern for a while: growth at all costs. That mindset worked for investors in 2020 and 2021; but will it stand firm if overall market sentiment continues to sour in 2022?\nIn my opinion, the best move here is to remain on the sidelines.\nGaming remains sturdy\nOne of the biggest upside surprises that Sea delivered in its most recent quarter was strength in gaming. In the gaming sector (and this goes beyond just Sea itself), the biggest fear was that the post-pandemic period, which saw a return to schools and offices, would sap gaming time and paid user counts this fall.\nIf this is to happen, though, it hasn't happened yet. After a Q1 in which Sea's quarterly active user adds slowed to ~38 million, Sea added 76 million net-new QAUs in Q2, roughly matching the pace of the prior two quarters combined. Quarterly paid users, meanwhile, grew at 85% y/y to 92.2 million, with paid users representing a record 13% of Sea's total QAUs.\nFigure 1. Sea gaming user counts\nSource: Sea Q2 earnings presentation\nThe paid user ratio is up three points from 10% in the year-ago Q2, and has been rising steadily. Therein lies a big catalyst for investor enthusiasm in this stock, and one that I don't disagree with: Sea already has a large captive audience, and it has also proven adept at content curation and producing its own games (Free Fire, which was developed in-house, remains the company's biggest hit). As paid user ratios rise, Sea may be able to capture more and more revenue from this 700+ million-strong user base.\nHere's some useful anecdotal commentary from Sea CEO Forrest Li on gamer engagement, made during his prepared remarks on the Q2 earnings call:\n\n Free Fire delivered excellent results during the quarter, setting multiple new records. Building on its strong performance across global markets, the game recently exceeded 1 billion cumulative downloads on Google Play. We believe Free Fire is the first ever mobile battle royale game to achieve this milestone.\n\n\n It was ranked third globally by average monthly active users on Google Play in the second quarter, according to App Annie. Furthermore, Free Fire’s peak daily active users hit more than 150 million during the quarter. This is a new record for us, and we believe that few online games globally have ever reached this scale.\n\n\n Meanwhile, Free Fire continued to be the highest grossing mobile game in Southeast Asia, Latin America and India in the second quarter, according to App Annie. The game has now retained its leadership in Southeast Asia and Latin America for eight straight quarters, and in India for three straight quarters. We have also gained traction in certain developed markets like the U.S. where the game was ranked the highest grossing mobile battle royale game for the past two quarters based on App Annie. Free Fire was the second highest grossing mobile game in the U.S. on Google Play across all game categories in the second quarter as well.\"\n\nWe'll have to see, however, what unknown pandemic impacts are baked into these numbers. For example, in Sea's home market of Singapore, schools shifted back to online education after COVID cases spiked this fall. Similar dynamics may be helping Sea's Q2 user counts, and investors may be shocked if growth decelerates down the road.\nSea's digital entertainment bookings grew 65% y/y to $1.2 billion in Q2, but for the full year FY21, the company is guiding to only 45% y/y bookings growth, implying deceleration in the back half of the year.\nLosses and capital raise may raise eyebrows\nThe continued worry we have for Sea, however, is this: when will investors finally be unable to look past the buildup of losses? I continue to emphasize that Sea's gaming division is subsidizing its e-commerce division.Investors are primarily long on Sea for the latter, but the latter cannot stand without the profits of the former.\nFigure 2. Sea adjusted EBITDA\nSource: Sea Q2 earnings presentation\nThe chart above tells us two things:\n\nSea is not on a path to stabilization yet; the company had a -$24.1 million adjusted EBITDA loss in FY21 versus $7.7 million of profit on FY20.\nGaming's ~$300 million y/y buildup of adjusted EBITDA gains was approximately exactly enough to cover a buildup of losses of the same magnitude in e-commerce and digital financial services.\n\nIt's not all bad news for Sea: the company reported that two markets, Malaysia and Taiwan, have reported division-level EBITDA breakeven in the e-commerce segment. However, Sea's largest market of Indonesia continues to lag (and in this market, where Sea's competition versus the likes of Tokopedia is fierce, the company is chasing growth through offering deeply discounted products).\nGAAP losses are much wider than adjusted EBITDA; year-to-date through Q2, Sea has generated a GAAP loss of -$856.1 million, or a -21% net margin.\nWe note as well that Sea recently did a \"mega financing\", selling $3.5 billion of new American Depository Shares and $2.5 billion in a new convertible bond. This buffering up of cash should be a signal to the markets that Sea is going to need more liquidity support outside of its operations for quite some time.\nKey takeaways\nI don't disagree that Sea remains on a growth tear, but I remain unenthused about the company's prospects. Large losses and a heavy valuation seem like quainter concepts in the 2021 bull market, but looking ahead to 2022 when most of Wall Street is calling for choppy trading ahead may not make growth stocks like Sea the best choice. Steer clear here.","news_type":1},"isVote":1,"tweetType":1,"viewCount":1169,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":16,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}