Sea Stock Jumps 35% in 3 Months. Can Its Strong Rally Keep Going?

Sea’s Three-Month Surge Has Fundamental Support

Sea’s first-quarter revenues increased 46.6% year over year to $7.1 billion. Total adjusted EBITDA rose 9.3% to $1 billion, exceeding the $1 billion level for the first time. 

All three core businesses remained profitable on an adjusted EBITDA basis. That breadth matters because the rally is being supported by more than Shopee alone, with Monee and Garena also contributing meaningfully to earnings.

Shopee Growth Gives SE More Room to Monetize

Shopee gross merchandise value increased 30.2% to $37.3 billion, while gross orders rose 29.3% to 4 billion. Core marketplace revenues, mainly transaction-based fees and advertising, climbed 61% to $3.8 billion.

Advertising is becoming a larger monetization lever. Management said ad revenues increased 80% year over year, while higher buyer activity and purchase frequency expanded the base from which Shopee can generate marketplace fees.

Monee and Garena Broaden Sea’s Earnings Base

Monee revenues advanced 57.8% to $1.2 billion, while consumer and small-business loans principal outstanding reached $9.9 billion. Loans past due by more than 90 days remained 1.1% of principal outstanding.

Garena bookings rose 20.1% to $931.4 million and adjusted EBITDA increased 25.2% to $573.6 million. The improvement gives Sea another profit contributor alongside commerce and financial services.

SE Still Faces Margin and Credit-Cost Pressure

Shopee adjusted EBITDA fell to $223.2 million from $264.4 million despite rapid gross merchandise value growth. Higher investment in delivery, fulfillment, the Shopee VIP membership program and user acquisition weighed on profitability.

Provision for credit losses increased 65.1% to $465.5 million as Monee expanded lending. Competition also remains demanding. MercadoLibre MELI operates a major commerce and fintech ecosystem in Latin America, while Nu NU is a large digital financial services platform across Brazil, Mexico and Colombia. Grab Holdings GRAB challenges Sea Limited through digital financial services and ecosystem competition in Southeast Asia.

In the past three months, SE outperformed MercadoLibre, Nu and Grab Holdings, shares of which have returned 17%, 3.3% and 0.2%, respectively.

SE Price Performance

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Sea’s Valuation Leaves Room but Not Much Cushion

SE trades at 1.98X forward 12-month sales, below its five-year median of 2.25X and the Zacks Internet Software industry’s multiple of 4.06. That discount provides valuation support after the recent share-price gain.

SE Valuation

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Still, valuation alone may not sustain the rally. Further appreciation would depend more heavily on Sea maintaining high growth while improving margins and keeping credit quality under control.

SE’s Signals Temper the Momentum Case

Sea’s business momentum remains constructive, but the recent stock advance has already raised the bar. The operating case is broadening, yet Shopee investment and faster credit-loss provisions leave execution risk in place.

The stock currently carries a Zacks Rank #4 (Sell). Sea also has a Growth Score of A, Momentum Score of B, Value Score of C and VGM Score of B. The favorable Growth and Momentum Scores support the company’s operating and price trends, but Style Scores complement rather than override the Zacks Rank. That combination suggests caution on the near-term rally despite the longer-term growth opportunities.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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