Sea Ltd’s Share Price Rose 360% in the Last 12 Months. Here’s Why

Want to know why Sea Ltd (NYSE: SE) stock surged lately? Here’s what investors should know about this e-commerce and gaming stock. – Sea Ltd stock

Sea Ltd (NYSE: SE) is a technology company based out of Singapore. The company operates mainly in the Southeast Asia and Taiwan markets. Its business activities span three main areas; online gaming, e-commerce, and digital financial services.

In the last 12 months, the company’s stock price has surged by an incredible 360%. Here, I’ll try to understand the drivers behind its strong price movement so investors can get a better picture of the company’s prospects.

Solid business performance

Sea reported solid numbers in the last financial year, thanks to the strong performance of its gaming and e-commerce businesses.

Such performance continued in the last quarter, as adjusted revenue grew by 57.9% year-on-year to US$578.8 million while gross profit increased 424.1% to US$206.8 million.

Operationally, Garena – Sea’s gaming division – grew its quarterly active users (QAUs) to 402.1 million, up by 48.0% year-on-year.

Paying users accounted for 8.9% of QAUs, up from 7.6% in the same period last year. Also worth mentioning here is that the average revenue per user (ARPU) expanded from US$1.3 to US$1.4.

Similarly, Sea’s e-commerce segment (Shopee) delivered some outstanding growth, as revenue more than doubled to US$314.0 million thanks to the increase in gross merchandise value (GMV) – up 74.3% year-on-year – and improved take rate.

Its adjusted revenue as a percentage of total GMV increased to 5.1%, up from 3.8% last year. The strong business performance has, understandably, contributed towards the higher stock price.

Market sentiment

Another important factor that drove Sea’s stock price lately is the improvement in market sentiment.

To start with, Sea’s strong financial performance in the last few quarters, as well as the recent Covid-19 lockdown, has fuelled investors’ optimism on the company’s growth rate for the foreseeable future.

Brokerage firms were equally upbeat, with many raising Sea’s target price to as high as US$130,  citing faster growth in existing markets, expansion into new markets, as well as the growth of its fintech business (Sea Money) as some of the key reasons.

Foolish bottom line

Overall, Sea Ltd has benefitted enormously from various tailwinds, such as the growth in e-commerce, digitalisation, and the Covid-19 outbreak.

This explains its strong business performance. Investors, naturally, became optimistic and drove the share price to an all-time high.

Going forward, however, investors should exercise caution since the stock has become too “hot”.

Another risk to note here is that despite its high growth, Sea Ltd is still unprofitable and may remain so for the foreseeable future.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited( 2020

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