On Tuesday, BofA Securities increased its price target on shares of Sea Ltd (NYSE:SE) to $134 from $115, maintaining a Buy rating on the stock. The adjustment follows Sea's revenue surpassing estimates by 4% and a significant outperformance in adjusted EBITDA, which reported at $521 million.
Sea's e-commerce arm, Shopee, recorded adjusted EBITDA profits of $34 million, with positive developments noted in both Garena, Sea's digital entertainment platform, and DFS, its digital financial services. Notably, Shopee achieved adjusted EBITDA breakeven in Brazil during the third quarter. Additionally, management has updated its guidance for Garena, anticipating a 30% year-over-year growth in bookings for the popular game Free Fire.
The company's leaders expressed on the earnings call their intention to sustain growth while ensuring profitability. This strategy appears to be bearing fruit, as Shopee's Gross Merchandise Volume (GMV) for the third quarter reached $25.1 billion, consistent with quarterly expectations, and saw an increase in take rates to 12.7%. Gaming revenue also saw a robust quarter-on-quarter growth of 14%, exceeding BofA Securities' estimates by 15%, with Average Revenue Per User (ARPU) surpassing expectations.
In light of the strong momentum in Sea's business segments, BofA Securities has revised its earnings per share (EPS) estimates for the fiscal years 2025 and 2026.
The firm has also raised the target multiples for gaming to 8 times the fiscal year 2025 estimated Enterprise Value/EBITDA (from 7 times) and for Shopee to 0.45 times the fiscal year 2025 estimated EV/Gross Merchandise Value (from 0.4 times). The sum-of-the-parts based price objective has been adjusted accordingly to $134, reiterating a Buy rating due to the continued favorable risk-reward profile of Sea Ltd. (NYSE:SE)
In other recent news, Sea Ltd. has seen a series of developments that could potentially impact its future trajectory. Citi has raised Sea Ltd.'s price target to $113, citing improved EBITDA and growth in the company's Shopee and digital entertainment segments. The firm also anticipates a mid-20% year-over-year growth in Gross Merchandise Value (GMV) and expects Shopee to achieve an EBITDA-positive status starting in the third quarter of 2024.
Sea Ltd. has also recently partnered with YouTube to enhance Shopee's reach within the livestreaming e-commerce space, a strategic move expected to provide a competitive edge against rivals in the region. This collaboration is part of a broader trend of expansion and innovation within the company.
Analysts from Jefferies, BofA Securities, and JPMorgan (NYSE:JPM) have all expressed positive sentiments towards Sea Ltd. Jefferies raised the stock price target from $92.00 to $114.00, maintaining a Buy rating, while BofA Securities increased the price target from $84 to $96. JPMorgan reaffirmed its Overweight rating on the stock, underscoring the growing number of gamers and potential for higher monetization.
In terms of financial performance, Sea Ltd. reported a 23% year-over-year increase in total GAAP revenue to $3.8 billion in the second quarter. The company's e-commerce platform, Shopee, showed a 29% year-over-year increase in GMV, reaching $23.3 billion.
InvestingPro Insights
Sea Ltd's recent performance aligns with BofA Securities' optimistic outlook. InvestingPro data shows that Sea's revenue growth remains strong, with a 22.97% increase in the most recent quarter. This growth trajectory supports the company's strategy of balancing expansion with profitability.
InvestingPro Tips highlight that Sea "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations," indicating a solid financial position that could fuel further growth initiatives. The company's stock has also shown a "strong return over the last three months," with InvestingPro data revealing a 45.64% price total return over that period, reflecting investor confidence in Sea's recent performance and future prospects.
While Sea is currently "not profitable over the last twelve months," InvestingPro Tips suggest that "analysts predict the company will be profitable this year," aligning with management's focus on profitability. For investors seeking more comprehensive analysis, InvestingPro offers 14 additional tips for Sea Ltd.
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