Southeast Asia internet services firm Sea Limited is the IBD Stock Of The Day for Friday. Sea stock is hovering near a 76.60 consolidation buy point despite a recent pullback and is finding support at its 21-day moving average.
On the stock market today, Sea stock slid 2% to close at 77.18. But Sea shares have gained more than 90% year to date in a comeback year.
The stock tumbled in the back half of 2023, after Sea's leader detailed plans to ramp investments in its Shopee e-commerce business. The online marketplace is facing challengers in Southeast Asia that include Chinese tech giants like Temu parent PDD Holdings, Alibaba and TikTok parent ByteDance.
Those efforts appear to be paying off. Sea stock has rallied back as e-commerce sales growth accelerated, starting in the first quarter of the year. Singapore-based Sea also operates digital-payments provider SeaMoney and Garena, a global online games developer.
Sea Stock: 'Firing On All Cylinders' After Q2
Sea stock gained 12% on Aug. 13 after its second-quarter earnings report. Earnings decreased 75% year over year to 14 cents per share for the June-ended period, missing analyst consensus by 1 cent, as tracked by FactSet. But it was Sea's first profitable quarter since the June 2023 period, when company leaders announced plans to ramp up investments.
Meanwhile, Q2 revenue increased 23% to $3.8 billion, ahead of expectations for 20% growth. E-commerce sales grew 33.7% to $2.8 billion.
"Sea has been attempting to keep one eye on holding or gaining share and one eye on profitability, and seems to be succeeding," Deutsche Bank analyst Peter Milliken wrote in a client note following Sea's report. Deutsche Bank is neutral on Sea stock.
JPMorgan upgraded Sea stock to a positive overweight rating following the report. The company is "firing on all cylinders," the firm said. Along with being bullish on the e-commerce business, JPMorgan analyst Ranjan Sharma says the company has been bringing new content to its Garena gaming business. Garena owns Free Fire, a popular battle royale-style game similar to Fortnite.
"With stable e-commerce competition and all major platforms raising take-rates, we believe Shopee's profitability could now see material improvement," Sharma told clients in an Aug. 14 note. "Moreover, strong growth in gamers should underpin healthy growth in gaming gross bookings in the near term."
Sea's Shopee Competes With TikTok, Temu
This year's rally continues a choppy run for Sea stock. The company was a Covid-era highflier. But a sell-off in 2022 wiped out much of those gains, as Sea's losses mounted and the market turned against money-losing tech firms.
A focus on profitability sparked a bounce-back in the first half of 2023. But Sea stock again slipped in August of that year, after the company said it needed to ramp up investments in its e-commerce business to respond to competition.
While still well off highs near 372 reached in late 2021, Sea has nearly recovered to the highs it reached during its rally in early 2023.
Wedbush Securities analyst Scott Devitt wrote following Sea's report on Aug. 13 that "cross-border entrants" to Shopee's markets have been an overhang on Sea stock for several quarters. That includes Temu selling into Thailand, Malaysia and the Philippines. But Sea told analysts it has advantages to ward off competition.
"The cost advantages of cross-border selling in the region are considerably lower than in higher-cost markets like the U.S. and Europe, and Shopee's scale and domestic seller base allows the platform to have a price advantage relative to Temu in markets where they currently compete, per commentary from management," Devitt wrote.
Devitt rates Sea stock as outperform.
Sea Stock: Recent Breakout
Following its earnings report, Sea stock broke out at a 76.60 buy point from a consolidation base pattern, according to IBD MarketSurge charts. Shares advanced to reach a 52-week high of 83.69 on Aug. 23 before a recent pullback.
The stock has remained mostly in the 5% buy zone since its breakout, according to MarketSurge. Investors could use Thursday's high of 80 as a new entry.
Sea's relative strength line is near recent highs. The stock has an IBD Relative Strength Rating of 96 out of a best-possible 99.
Meanwhile, Sea stock holds an IBD Composite Rating of 78 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one. The best growth stocks typically have a Composite Rating of 90 or better.
