Sea Limited (NYSE:SE) stock is trading flat, weighed by the dismal second-quarter results and analyst re-ratings.
On Tuesday, Sea reported second-quarter FY23 revenue growth of 5.2% year-on-year to $3.096 billion, missing the consensus of $3.420 billion. Adjusted EPS of $0.54 missed the consensus of $0.69.
Digital Entertainment revenue decreased 41.2% Y/Y to $529.4 million, E-commerce and other services revenue increased 20.6% Y/Y to $2.1 billion, and Digital Financial Services revenue grew 53.4% Y/Y to $427.9 million.
Goldman Sachs analyst Pang Vittayaamnuaykoon reiterated a Buy on Sea with a price target of $78.
E-commerce adjusted EBITDA contracted Q/Q to $150 million as expected, but the magnitude of the S&M spend still exceeded his expectations, leading to the miss.
Management commentary indicated a significant shift towards a growth-led strategy with e-commerce/group-level EBITDA potentially dipping back to negative territory.
Shopee looks to reinvest in new opportunities and turn from defensive to offensive mode to gain share as peers rationalize, though self-sufficiency is to be maintained.
Pang now expects EBITDA for Shopee to return to the red before returning to positive territory in the second half.
Early signs of a growth recovery with orders +10% Q/Q will persist into the rest of the year.
Gaming delivered a substantial EBITDA margin beat on higher self-developed game mix and cost efficiency.
The analyst acknowledged the risk of heightened near-term volatility given limited visibility on the magnitude of Shopee’s spending, which may limit the share price rebound in the near term.
Pang expects revenue of $12.18 billion in FY23 (prior $12.77 billion), $13.74 billion in FY24 (prior $15.15 billion), and $16.44 billion in FY25 (prior $17.99 billion).
Pang models EPS of $1.22 in FY23 (prior $2.30), $1.54 in FY24 (prior $4.51), and $$3.37 in FY25 (prior $6.50).
Citigroup analyst Alicia Yap downgraded Sea from Buy to Neutral and a $50 price target.
B of A Securities analyst Sachin Salgaonkar maintained Sea with a Neutral and lowered the price target from $73 to $53.
Bernstein analyst Venugopal Garre maintained Sea with an Outperform and lowered the price target from $90 to $70.
Price Action: SE shares traded higher by 0.30% at $40.70 on the last check Wednesday.
