Sea Limited (NYSE:SE) has dipped 1.8% amid a generally higher gaming market space after a downgrade to Market Perform at Cowen, which sees a “lack of visibility” in both its Gaming and Commerce exposures.
“We are moving to the sidelines on SE as the outlook for both core business lines becomes increasingly murky,” said analyst John Blackledge.
Headwinds from increased consumer mobility have driven declines in users and payers in Garena gaming, where the company is absorbing “major” drops in user engagement, especially with hit entry Garena Free Fire, Blackledge said. But pay ratios have also “fallen materially” and quarterly paying users fell 45%; “When or if the declines in these key metrics stabilize remains to be seen especially as the macro environment remains challenging.”
At e-commerce wing Shopee, order growth and gross merchandise value rose 19% and 14% respectively in the third quarter, but those growth rates represent a “dramatic” deceleration from 2021 (117% order growth and 77% GMV growth). Meanwhile, significant EBITDA losses continue there, Blackledge noted.
The firm cut its long-term take rate assumptions on Shopee, which correspondingly cut its outlook for earnings before interest, taxes, depreciation and amortization. Blackledge also cut the forecast for active and paying users for Garena for the fourth quarter and for 2023.
That means its revenue outlook slips 4% and EBITDA by 14%, and it’s cut its price target to $60 from $72, trimming implied upside to 13%.
Wall Street analysts rate Sea a Buy on average, as do Seeking Alpha authors. Seeking Alpha’s Quant Ratings consider Sea Limited a Hold.