Bank of America analyst Sachin Salgaonkar has shared key takeaways from meetings with investors, where Sea Ltd. (NYSE:SE) was one of the most discussed stocks.
Key findings and feedback on SE were:
- 2022 e-commerce guidance is too aggressive, there are downside risks;
- Difference of view on Brazil between Asia & US investors;
- Q1 likely a muted quarter;
- Sea stock appears to be moving in-sync with the China internet names.
Another key topic for investors is how to properly value the e-commerce business. Salgaonkar notes that valuations are not providing support to the stock price.
“Most investors with whom we spoke want to see inflexion points in business mainly – 1) bottoming out of gaming revenue and 2) visibility on cash-burn at the Brazil business. Overall, we found the comfort on Sea mgmt execution amongst to be very high with ask for better & sustained new disclosures. The two commonly asked questions were – expected impact from higher inflation on the business and long-term steady state EBITDA margins. Currently we expect limited impact on overall e-com spending from higher inflation given the high-end users mainly using internet (evident from lower penetration) and low ticket long tail items largely purchased. We expect c.12%+ as sustained EBITDA margins,” Salgaonkar wrote in a client note.
Net-net, the analyst reiterated a Buy rating on Sea stock as he sees risk-reward favorable at current levels. The price target of $230.00 per share offers a 112% risk-reward from current levels.
By Senad Karaahmetovic