AFTER a peer-beating 175 per cent stock rally from its January low, South-east Asia’s top online shopping company Sea faces a high bar to impress investors with its upcoming third-quarter earnings report.
The Singapore-based firm is expected to deliver solid results next Tuesday (Oct 12), with its e-commerce arm Shopee moving into the black on an adjusted basis. Analysts forecast the value of goods sold by the division rose in the mid-20 per cent range, in line with Sea’s guidance and confirming market expectations of easing competition with TikTok and Lazada.
With Sea’s US-listed shares trading at expensive levels, the market will be scrutinising details on its profitability as well as efforts in live streaming and games. The options market implies the stock could move 12 per cent following the results.
Sea’s rally appears to have priced in strong revenue for the latest quarter, Morgan Stanley analysts including Divya Gangahar Kothiyal wrote in a note last month. Margins in the e-commerce business “may be lower than buy-side expectations, which may lead to the stock giving up some of the recent gains”.
Shopee has shown success this year in fending off rival services, from ByteDance’s TikTok and Alibaba Group Holding’s Lazada to Shein and PDD Holdings’ Temu. That’s helped Sea win back investors after a two-year decline in its share price.
The market is eager to see signs of reduced spending on costly promotions and discounts to stay ahead of the competition. Shopee hiked the fees it charges merchants in many core markets earlier this year, one move that may help improve its profitability.
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Sea has also been investing in livestreaming as a means to help drive momentum in its e-commerce operation. Its digital entertainment business – which is leaning heavily on its Garena game platform’s hit title Free Fire – is expected to post a third-quarter revenue decline of 20 per cent compared with a year earlier.
“We are keen to see more evidence of commission rates rising, and less competitive intensity,” said Sat Duhra, a fund manager at Janus Henderson Group. “Any visibility on live streaming would be helpful, as they are growing but not yet profitable. Any update on new games to reduce reliance on Free Fire would be helpful too.”
With Sea’s big gain this year, it’s now trading at 22.9 times forward enterprise value to earnings before interest, taxes, depreciation, and amortisation, above its three-year median level of 20.8 times. The Solactive E-commerce Index of global peers is at 10 times the estimated electric vehicle to Ebitda.
Sea has helped power the MSCI Singapore Index to a 23 per cent gain so far this year, outpacing the 13 per cent rise in the Straits Times Index comprised solely of locally listed stocks. Still, the e-commerce firm’s American depositary receipts remain 74 per cent below their pandemic-driven peak in 2021.
Duhra said his dividend-focused strategy holds shares in Sea even though it has a 0 per cent yield. The stock can gain further on “any positive surprise” in the results, he said, adding that gains in China peers on expectations for a boost from stimulus could also help lift the South-east Asian company’s shares.
“We feel this is a unique exposure,” he said. There is “plenty of choice for North Asia e-commerce names but nothing similar in Asean”. BLOOMBERG
