Singapore-based internet services company Sea Limited on Monday posted better-than-expected sales for its December quarter and gave a positive outlook for its e-commerce business. Sea stock surged by double-digits in early trading before easing back to more modest gains later in the day.
Sea reported Monday that the company lost 19 cents per share on sales of $3.62 billion for the fourth quarter. Analysts polled by FactSet, on average, expected a loss of 20 cents on revenue of $3.57 billion.
On the stock market today, Sea stock is up more than 6% in recent action at 54.51. Shares were up as much as 19% in premarket trades immediately following the report.
Sea stock has gained more than 30% in the first two months of 2024. But Sea slumped last year as it warned investors it needed to ramp up spending for its Shopee e-commerce business to compete with challengers in the Southeast Asia market, including TikTok Shop and Temu. It was a shift for a company that in 2022 focused on cutting costs to reach profitability.
The 19 cent loss for the December 2023 quarter compares to earnings of 72 cents per share in the same period for 2022. Meanwhile, sales for the December quarter increased 5% year over year.
Sea Stock: E-Commerce Sales Up 23%
Sea is one of the largest internet services providers in Southeast Asia. It operates businesses in digital entertainment, e-commerce, and digital payments and financial services. The company's products include the e-commerce focused Shopee which services Southeast Asia and Taiwan. The company also owns digital-payments provider SeaMoney and Garena, a global online games developer.
For the December quarter, Sea's e-commerce sales increased 23% year over year to $2.6 billion. Sea Chief Executive Forrest Li told analysts Monday that the e-commerce performance shows that its investments into the business that started last summer are paying off.
"Despite an environment of intensified competition in Southeast Asia, we believe we had a meaningful gain in market share between the start and the end of 2023," Li told analysts. "We are happy to have solidified Shopee's market share in the region, and we intend to maintain our market share in 2024."
Further, Li said Sea expected Shopee's full-year gross merchandise volume, or the total value of goods sold, to grow in the "high-teens range" for 2024. GMV for Sea's overall e-commerce operations grew 7% year over year in 2023 to $78.5 billion, the company said. Li also said Shopee's adjusted EBITDA will turn positive in the second half of the year. EBITDA refers to earnings before interest, taxes, depreciation and amortization.
Digital Gaming Revenue Slides
Other businesses lagged behind e-commerce. Sales for the company's digital entertainment division fell 46% to $511 million for the fourth quarter. That missed expectations of $546 million, according to FactSet. But Li noted to analysts that Garena's Free Fire mobile game was the most downloaded globally in 2023, citing research firm Sensor Tower.
Loop Capital analyst Rob Sanderson maintained a neutral hold outlook on SE stock following the report.
"Management's confidence and outlook for positive adj. EBITDA margin in the commerce segment will embolden the bulls," Sanderson wrote to clients on Monday. "By providing guardrails on spending levels and committing to a profitable year ahead, bulls will likely become more vocal on market leadership, scale benefits, improving unit economics and valuation."
On the other hand, Sanderson wrote, those more bearish on Sea stock will point to the company's miss for gaming revenue in the quarter, as well as TikTok's rapid e-commerce expansion in the region as a challenge for Shopee.
TikTok shut down its shop in Indonesia in October to comply with a law that banned online shopping via social media platforms. But TikTok reached a deal in December to partner with Indonesian e-commerce platform Tokopedia to return its operations to the country, which has the largest economy in Southeast Asia.
Sea Stock Technical Ratings
Sea stock ranks No. 12 out of 60 stocks in IBD's Retail-Internet industry group, according to IBD Stock Checkup. It has a so-so IBD Composite Rating of 68 out of 99.
IBD's Composite Rating combines fundamental and technical metrics for an overview of a stock's strengths. The best-rated growth stocks have a Composite Rating of 90 or better.
But prior to its earnings report, Sea stock had reclaimed its 200-day and 40-week lines, according to MarketSurge charts. The gains Monday pushed shares further above both averages.
