Recession fears don’t represent an exclusive domain of American investors, as Singapore-based Sea Limited (NYSE:SE) fell sharply amid rising pressures. The technology conglomerate posted its financial results for the second quarter, notably producing an adjusted earnings loss below expectations. Sea joins other e-commerce firms attempting to navigate an ambiguous global economic outlook. SE stock dipped 10% before extending the red ink further in the afternoon session.
For the June quarter, Sea posted an adjusted loss before interest, taxes, depreciation and amortization (EBITDA) of $506.3 million. However, heading into Q2, covering analysts projected a loss of $482.3 million. In terms of net loss, Bloomberg reported that the company doubled this particular crimson hue to over $931 million. On a positive note, total GAAP revenue was $2.9 billion, up 29% year-over-year.
However, few investors took any silver linings for SE stock seriously. Unfortunately, the glaring earnings miss occurred after management cut its full-year e-commerce revenue outlook in May. At the time, Sea adjusted sales expectations to a low of $8.5 billion versus $8.9 billion previously.
To be fair, Sea’s chairman and CEO Forrest Li characterized the Q2 results as a reflection of “continued progress in enhancing efficiency and strengthening” its ecosystem. Still, SE stock faces a number of fundamental headwinds that have worried investors.
SE Stock and the Heap of Troubles
Primarily, global economic woes impose substantial concerns over SE stock. Per Bloomberg, “Shoppers emerging from pandemic lockdowns are cutting back on online purchases, shifting toward essentials during a potential recession.”
While the inflationary trend of the U.S. dollar obviously garners the most attention, Sea’s home nation hasn’t been immune. Indeed, another Bloomberg report last month noted that Singapore’s inflation rate increased 4.4% in June from a year ago. Therefore, the news agency stated that this dynamic bolsters the case for more tightening.
Another issue stems from Tencent (OTCMKTS:TCEHY). The Chinese multinational tech and entertainment conglomerate represents Sea’s biggest investor. However, Beijing’s crackdown on anticompetitive behavior may force Tencent to sell all or much of its $24 billion stake in food delivery giant Meituan, per Reuters.
Adding to the worrying narrative, Tencent last year disclosed plans to sell shares in investees such as JD.com (NASDAQ:JD) and SE stock.
Vey-Sern Ling, a managing director at Union Bancaire Privee, stated, “The real fundamental impact of such divestments are usually minimal because business relationships are retained, but there may be short-term pressure not just on Meituan’s share price but also on Tencent’s other investees across the tech industry in China and globally.”
If these pressures weren’t already enough for SE stock, Sea suffered a sudden ban of its most popular mobile game in India. Eventually, the company’s e-commerce operations closed in that country.
Why It Matters
On a year-to-date basis, SE stock has hemorrhaged nearly 66% of its market value, giving up most of its post-pandemic gains. While the narrative is certainly ugly now, it’s important to note that longer term, the framework could shift positively. According to a Reuters report, Southeast Asia’s internet economy could hit $1 trillion by 2030.
On the date of publication, Josh Enomoto 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.
