Shares of e-commerce giant Sea Limited (NYSE: SE) are down 16% from all-time highs after the company missed analyst quarterly earnings estimates in Q3. In the third quarter of 2021, Sea Limited reported sales of $2.7 billion and a net loss of $0.84 per share. Comparatively, analysts tracking the company expected it to post sales of $2.5 billion and a net loss of $0.65 per share.
Following the pullback, Sea Limited is now valued at a market cap of $172 billion, and let’s see why it should be part of your growth portfolio.
Sea Limited is part of a rapidly expanding addressable market
Sea Limited is engaged in the digital entertainment, e-commerce, and digital financial service businesses in Southeast Asia, Latin America, and other international markets. It provides a digital entertainment platform called Garena for users to access online games as well as eSports operations. Sea Limited operates an e-commerce platform known as Shopee which is a mobile-centric marketplace that provides integrated payment and logistics infrastructure and seller services.
In Q3, Sea Limited’s sales rose by 122% year over year as gaming revenue grew 93%, payments sales soared by 111% and e-commerce sales expanded by 134% year over year. This allowed the company to expand gross margins by 148% year over year.
However, as the company increased research & development as well as operating expenses, it could not post a positive operating income in the quarter. Sea Limited’s operating loss in fact stood at $458.55 million in Q3 of 2021. Due to rising operating costs, Sea Limited reported an adjusted EBITDA loss of $165 million in Q3 compared to a profit of $120 million in the year-ago period.
Sea Limited’s growth story has been exceptional as the company has increased sales from $414 million in 2017 to $4.37 billion in 2020, indicating an annual growth rate of 119.5%. Now, analysts expect sales to rise by 112% to $9.28 billion in 2021 and by 50.7% to $14 billion in 2022.
This stellar growth rate will allow Sea Limited to narrow its loss per share from $2.78 in 2020 to $1.01 in 2022.
What will drive SE stock higher?
In Q3 of 2021, Sea Limited derived 56% of sales from its e-commerce business. The Shopee platform is also the largest e-commerce marketplace in regions such as Taiwan and Southeast Asia.
Further, 41% of revenue was generated from the digital entertainment business that includes Garena which is a video game publisher. Garena launched Free Fire back in 2017 and it’s the most popular game right now.
The rest of the company’s top-line included sales from its digital financial services business that includes its digital payments vertical called SeaMoney.
We can see that Sea Limited is part of multiple growth segments allowing it to benefit from an expanding market and higher sales going forward.
While several online platforms and gaming companies experienced a slowdown once lockdown restrictions were relaxed in 2021, Sea Limited’s core businesses generated explosive growth in the first nine months of the year.
The company is now fast gaining traction in Latin America and expects e-commerce sales to grow by 135% year over year in 2021, compared to its previous guidance of 118%.
The final verdict
SE stock is valued at a forward price to 2022 sales multiple of less than 13x which is not too frothy given the company’s enticing growth estimates. Its rising revenues, expanding margins, and increasing market share make Sea Limited a top stock for your portfolio today.
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