Is Sea Limited a Buy?
It’s time to talk about a high flying tech name that has been hidden within the market. Here is the breakdown on $SE, otherwise known as Sea LTD.
Current Price: $231.83
52/Wk High: $285.00
52/Wk Low: $35.61
Market Cap: $118 Billion
Read below for the breakdown!
Sea Limited ($SE) is a diverse provider of an online platform made of three core businesses. Sea Ltd operates in three core segments; Digital Entertainment, Financial Services, and E-Commerce.
First up is Gerena, which is the company's Digital Entertainment segment. Second up is Shopee, which is Sea Limited’s e-commerce segment. Finally, SeaMoney is the company's Financial Services segment, which offers digital wallet services and much more.
Taking a look at where Sea LTD operates, the majority of the company's business is within South East Asia, Taiwan, and Latin America.
Given Sea’s heavy exposure to the e-commerce and digital space the stock has gone on a massive run, rallying over 454% to the upside in just the past year alone, leaving investors to wonder if the stock is still a buy.
Digging into the numbers, Sea Ltd missed Q4 expectations, delivering an EPS of $-0.87, lower than the analysts EPS consensus estimate of $-0.54. On a year over year basis, EPS declined 64.15%.
On a positive note, revenues increased by 102% year over year to a strong $1.566 billion. Below is a breakdown of revenues by segment;
Digital Entertainment: $693.4 Million
E-commerce: $842.2 Million
Digital Financial Services: $24.4 Million
Other: $6.6 Million
Closing out revenues it is important to note that digital entertainment revenues finished the quarter up 71.6% year over year while e-commerce revenues finished up 178.3% year over year.
As for gross profit, Sea Ltd reported a quarterly gross profit of $533.7 million, representing an increase in gross profit of 101.5% on a year over year basis.
Rounding out the quarter, total EBITDA was $48.7 million, representing a strong improvement over the Q4 2019 EBITDA of $-104.9 million.
Taking a closer look at Sea’s e-commerce segment, the segment experienced a gross orders increase of 134.6% year over year and reached a strong gross merchandise value (GMV) of $11.9 billion, representing a 112.5% GMV jump.
Highlighting the full year, FY 2020 revenues increased by 101.1% to $4.4 billion while total gross profit increased by a strong 123% to $1.3 billion.
Management provided strong guidance as well, expecting FY 2021 bookings for the digital entertainment segment to total $4.3 billion to $4.5 billion.
Leadership is also expecting e-commerce revenues to land within a range of $4.5 billion and $4.7 billion, representing a midpoint FY 2021 increase of 112.3%.
Shifting into the balance sheet, the numbers are solid.
Total Debt: $1.840 Billion
Total Liabilities: $7.073 Billion
Total Assets: $10.456 Billion
Cash & Short Term Inv: $6.293 Billion
On a valuation basis, Sea Ltd does trade at a premium.
Price to Sales: 27.56x
Price to Book: 32.62x
Management on the other hand has work to do.
Return on Equity: -71.20%
Return on Assets: -20.73%
Return on Invested Capital: -37.64%
Given the numbers the analysts are bullish with a mean price target of $285.29/share, representing a 23.13% gain.
The high price target is $330/share, representing a 42.43% upside while the low price target is $240/share, representing a 3.59% upside.
The big money is quite involved as well with 72.20% of Sea Ltd being owned by institutions. Top holders include T. Rowe Price Associates, Sands Capital Management, and Capital World Investors.
On a technical basis Sea Ltd could be presenting an opportunity. According to the six-month charts the MACD is moving to the downside with significant momentum within a range of -0.89 down to -4.14.
The six-month charts are also indicating an RSI of 47.57 and CCI of -107.09, both of which are on the low end.
In short, Sea Ltd is a solid company with consistent growth, exposure to booming industries, and plenty of room to improve in the many years to come.
EAT - SLEEP - PROFIT
Disclaimer: This is not direct financial advice, simply an opinion based on independent research.