Morningstar’s main sea metrics
Sea earnings update
We downgraded Sea SE’s fair value estimate to $54 from $70 after the company reported second quarter 2023 revenue of $3.1 billion which was 10% below our consensus estimate. Not only was Sea’s revenue underappreciated, but concerns about profitability resurfaced as the company indicated that there may be periods of operating losses as it begins to focus on growth again.
We believe Sea will again start increasing subsidies and free shipping to defend market share in response to Lazada and ByteDance’s expansion into Southeast Asia. We have previously confirmed that Al Bahar will experience challenges to achieve growth and profitability at the same time; However, there are now concerns about both metrics as we may see more losses, which is the main reason for the rating downgrade.
For the quarter, we estimate that e-commerce monetization was down 100 basis points while total transaction value, or GTV, was up slightly by only 3%. While GTV’s performance wasn’t as sharp as peer GoTo’s reported decline of 11% year-over-year, we believe it’s a long way from previous consensus expectations for double-digit growth in the short term.
The stock fell 29% on August 15th after the earnings, and while we think there are still other near-term risks, we think the market has overreacted, given that it has shown positive operating margins for two consecutive quarters, however, you might want to weather the volatility before To have a better view of the long-term prospects due to increased competition amid slowing growth. This finding supports our Morningstar extremely high uncertainty rating on the stock.
We believe GTV’s growth will remain an expected headwind given the increasing competition in the region, with competitors already announcing plans to expand e-commerce operations. Lower monetization is also due to increased subsidies used to compete for customers, which is likely to put pressure on operating margins as well as net revenue.
