Citi Research analysts have maintained their “buy” call on NYSE-listed Sea Limited, with a lowered target price of US$80 ($107.54), from US$81 previously.
This precedes Sea’s 2QFY2024 results, which is set to be released around mid-August.
According to analysts Alicia Yap, Nelson Cheung and Vicky Wei, the group’s second quarter should see softer seasonality, coming off the back of strong Chinese New Year and Ramadan promotional activities in 1Q2024.
In their July 22 report, the analysts forecast Sea’s 2QFY2024 total generally accepted accounting principles (GAAP) revenue to come in at US$3.7 billion, 3.3% lower than its previous estimate and currently in line with the Street’s. The analysts also estimate non-GAAP net profit for 2QFY2024 to come in at US$127 million, 19% higher, but still lower compared to the Street’s US$228 million forecast.
Group total adjusted ebitda for the quarter is expected to come in at US$441 million, 5.4% higher than the analysts’ previous estimates, to reflect stronger gaming profit.
In their 2QFY2024 preview, the analysts forecast Sea’s digital entertainment segment’s GAAP revenue to fall by 8% y-o-y to US$486.5 million. The segment is expected to gross US$512 million or 16% higher y-o-y, reflecting stronger-than-previously expected momentum in Free Fire despite softer seasonality.
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Shopee’s gross merchandise value (GMV) is expected to come in at US$22.94 billion for the 2QFY2024, 3% lower q-o-q but 24% higher y-o-y. Shopee’s revenue is tipped to grow by 27% y-o-y to US$2.68 billion in the same quarter. Adjusted ebitda loss for the segment is tipped to improve to US$10.8 million.
For Shopee, the analysts expect an estimated 24% y-o-y increase to US$22.9 billion and 27% y-o-y increase to US$2.68 billion for its GMV and GAAP revenue, respectively. This was driven by a 31% y-o-y increase of its order growth, which stands at 2.52 billion.
“We expect Sea to report in-line to slightly beat result especially on gaming booking and ebitda margin,” the analysts write.
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Shopee has launched several initiatives including its 6.6 mid-year sale in Malaysia. The e-commerce platform is also expected to ramp up its sale of South Korean goods in Vietnam and Thailand. Shopee Thailand has launched a reality TV show for its sellers, while Shopee Mexico has launched its combined payment feature.
Shopee was also found to lead Lazada in the number of app downloads in countries like Indonesia, Vietnam, Thailand, Philippines, Malaysia and Singapore on both iOS and Android.
In response to the accusations from Indonesia’s antitrust agency on violating anti-competition rules, Shopee says it will remain committed to complying with the local laws and regulations.
For Garena, following Free Fire’s promotions in celebration of its 7th anniversary, it has gained improving momentum towards the June and July period which would translate to better bookings and ebitda margin for the group’s digital entertainment business in 2QFY2024, in the analysts’ view.
Free Fire has also achieved a “steady” performance in recent months, ranking third and fourth in Google Play grossing in Vietnam and Indonesia respectively, as at July 21.
“Into 3QFY2024/2HFY2024, while we expect overall GMV and market share dynamic for Shopee to remain intact, amid intensified competition in Brazil and potential step-up of competitor(s)’ promotion subsidies in Asean markets, we conservatively tweak down our ebitda assumption for 2HFY2024 though still expect Shopee to turn profitable in ebitda by 3QFY2024,” say the analysts.
The analysts have since updated their FY2024 estimates for the group’s total revenue, non-GAAP net profit and total adjusted ebitda to a decrease of 1.5%, 1.0% and increase of 1.6% respectively.
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This comes on the back of stronger gaming momentum, intact progress in Shopee and the group’s digital financial services business.
In 3QFY2024, Sea is expected to report total GAAP revenues of US$3.91 billion and adjusted net profit of US$171 million.
As at July 21, shares in Sea Limited are trading at 2 US cents higher or up 0.03% at US$67.49.
