Singapore-based Sea Limited (NYSE:SE) operates e-commerce websites for Southeast Asian countries and Taiwan. In addition, the company provides online video games in Latin America and Southeast Asia. This might, on the face of it, sound like a terrific opportunity to gain international tech-market exposure with SE stock.
In case you didn’t get the memo, technology stocks slid in late 2021, and then really started to tank in January 2022. Investing in Sea Limited doesn’t guarantee refuge from the tech rout, so be cautious before you jump into the trade.
Indeed, SE stock plummeted just as U.S.-based companies’ stocks did during this time. As we’ll see, it’s hard to identify any meaningful support levels at this point.
Moreover, a well-known Asian investment firm unloaded shares of Sea Limited, and that might be a cause for concern. Perhaps most importantly, Sea Limited’s financial profile – and the company’s spending habits – might dissuade even the most audacious contrarians from getting involved.
A Closer Look at SE Stock
Before the big fall, there was the even bigger ascent. Believe it or not, SE stock cost just $10 and change for a while in 2018.
Then, along came a bull run that lasted for the better part of three years. Astoundingly, the Sea Limited share price soared all the way to $372.70 in October of 2021.
That’s when the trouble started, though. Starting in November, SE stock embarked on a relentless decline, landing at about $149 today.
In effect, this meant that value hunters could invest in Sea Limited at September 2020 prices. It’s not every day that you get to turn back the clock like that.
On the other hand, let’s not confuse price with value. Sure, the SE stock price is lower than it once was, but that doesn’t necessarily make the stock a good value.
Furthermore, it’s difficult to establish a support level for the stock if it just keep on falling. Let’s hope, for the investors’ sake, that the selling pressure subsides in the near future.
The Big Sell
Just because a large-scale investor dumps shares of SE stock, this doesn’t mean that you have to do the same thing.
However, it’s not necessarily a good sign when a highly respected firm unloads a large quantity of a particular stock. This is precisely what took place not long ago, according to an update from InvestorPlace contributor Shrey Dua.
As it turned out, Tencent Holdings (OTCMKTS:TCEHY) was reportedly selling a 2.6% stake in Sea Limited. At the time, Tencent was offering 14.5 million shares valued at a predicted $210 per share to raise an estimated $3.1 billion.
With that, Tencent’s ownership in Sea Limited was reduced from 23.1% to 18.7%. Furthermore, Tencent was reported as reducing its voting power in Sea Limited.
“As part of the deal, Tencent is converting its Class B shares, each of which carries three votes, to Class A non-voting shares,” Dua clarified.
A Sea of Problems
No matter what Tencent might say about these developments, it’s evident in Tencent’s actions that the company is distancing itself from Sea Limited.
It’s hard to blame Tencent from doing this. Financially speaking, it appears that Sea Limited isn’t really prepared to limit its spending.
During 2021’s third quarter, Sea Limited generated $2,688,884,000 in revenue, marking an impressive 121.8% year-over-year increase.
That’s not the end of the story, however. Turning to the company’s bottom line, Sea Limited incurred a Q3 2021 net earnings loss of $570,981,000.
That figure is even worse than the year-earlier quarter’s net loss of $425,262,000. How could this have happened?
Digging deeper, we can observe that during 2021’s third quarter, Sea Limited spent an astounding $1,009,601,000 on sales and marketing.
Imagine that: a billion dollars expended in three months’ time. That’s more than twice what Sea Limited spent in the sales and marketing category during the prior year’s third quarter.
The Takeaway
If Sea Limited can curb its spending, particularly in sales and marketing, this could help the company to steer itself towards profitability.
Yet, it’s not even clear that this is a priority for Sea Limited at the moment. So, investors should read any upcoming filings and press releases carefully for clues as to the company’s cost-cutting measures, if there are any.
And if there aren’t any, then this will pose a major problem for SE stock investors. Perhaps Tencent dumped its shares at the right time, irrespective of its reasons for doing do.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
