Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<ul>
<li>Looks like <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea (SE US)</a> decided to take a detour back to the land of losses this quarter.</li>
<li>But it's not a massive issue. They've maintained close to 7% QoQ revenue growth, so things should be okay.</li>
<li>Investors likely won't delve into the details further to uncover the substantial costs hidden behind that apparent growth.</li>
</ul>


Looks like Sea (SE US) decided to take a detour back to the land of losses this quarter.
But it's not a massive issue. They've maintained close to 7% QoQ revenue growth, so things should be okay.
Investors likely won't delve into the details further to uncover the substantial costs hidden behind that apparent growth.


Sea Ltd: A Detour Back to the Land of Losses

<ul>
<li>We suspect that the recent strength in <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea (SE US)</a>'s price performance is likely due to short covering, with shorts incentivized to cover after a nearly 38% gain.</li>
<li>As earnings approach, short positions have been increasing since late October, likely anticipating another earnings disappointment from Sea Ltd's Q3 report on November 14, 2023.</li>
<li>Consensus estimates for Sea Ltd are at their lowest since its inception. A modest outperformance could lead to a squeeze in short interest.</li>
</ul>


We suspect that the recent strength in Sea (SE US)'s price performance is likely due to short covering, with shorts incentivized to cover after a nearly 38% gain.
As earnings approach, short positions have been increasing since late October, likely anticipating another earnings disappointment from Sea Ltd's Q3 report on November 14, 2023.
Consensus estimates for Sea Ltd are at their lowest since its inception. A modest outperformance could lead to a squeeze in short interest.


China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

<ul>
<li>We expect Shopee's competitive landscape deteriorated in 2Q23, due to increased pressure from TikTok/Lazada in ASEAN, Coupang in Taiwan, and Shein in Brazil. Temu is a large swing factor.</li>
<li>Shopee has been pushing live streaming and its full-management (or consignment) mode. In our view, these will drag down its profit margins and may not be effective in gaining share.</li>
<li>We estimate 2Q23 revenue and non-GAAP net income are 2.5% and (24%) vs cons. We have revised down Shopee's growth expectations for the next 3 years.</li>
</ul>


We expect Shopee's competitive landscape deteriorated in 2Q23, due to increased pressure from TikTok/Lazada in ASEAN, Coupang in Taiwan, and Shein in Brazil. Temu is a large swing factor.
Shopee has been pushing live streaming and its full-management (or consignment) mode. In our view, these will drag down its profit margins and may not be effective in gaining share.
We estimate 2Q23 revenue and non-GAAP net income are 2.5% and (24%) vs cons. We have revised down Shopee's growth expectations for the next 3 years.


[Sea (SE US, SELL, TP US$51) TP Change]: Competitive Landscape Intensifying… Cut TP to $51

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea (SE US)</a> may achieve around $3.0 billion in 1Q23 revenue, in line with consensus, but is likely to miss the consensus OP estimate of $309 million by approximately 10%.</li>
<li>Shopee's profitability is at risk without sustained revenue growth. If the cost-cutting strategy persists, losses are expected by 3Q23 or possibly sooner with a strategy shift.</li>
<li>Amid Free Fire's decline and Shopee's potential losses, the fintech business stands as the sole bright spot.</li>
</ul>



Sea (SE US) may achieve around $3.0 billion in 1Q23 revenue, in line with consensus, but is likely to miss the consensus OP estimate of $309 million by approximately 10%.
Shopee's profitability is at risk without sustained revenue growth. If the cost-cutting strategy persists, losses are expected by 3Q23 or possibly sooner with a strategy shift.
Amid Free Fire's decline and Shopee's potential losses, the fintech business stands as the sole bright spot.


Sea Ltd: Facing an Uphill Battle for Sustainable Profits

<ul>
<li>There have been several developments in the Southeast Asian e-commerce space over the past few days that we believe will have a negative impact on <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea (SE US)</a>’s financial performance.</li>
<li>A few days ago, TikTok, owned by <a href="https://www.smartkarma.com/entities/beijing-douyin-information-service-co-ltd-bytedance" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1439927D CH)</a>, announced a $1.5bn investment in Tokopedia.</li>
<li>Today, Nikkei reported that <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba (ADR) (BABA US)</a> has infused an additional $634m into Lazada, its Southeast Asia e-commerce unit, to enhance its competitive position in the face of escalating competition.</li>
</ul>


There have been several developments in the Southeast Asian e-commerce space over the past few days that we believe will have a negative impact on Sea (SE US)’s financial performance.
A few days ago, TikTok, owned by ByteDance (1439927D CH), announced a $1.5bn investment in Tokopedia.
Today, Nikkei reported that Alibaba (ADR) (BABA US) has infused an additional $634m into Lazada, its Southeast Asia e-commerce unit, to enhance its competitive position in the face of escalating competition.


Sea Ltd: TikTok's Tokopedia Deal and Lazada's Financial Boost Raise Concerns

Singapore

Sea Limited offers information technology services. The Company provides online personal computer and mobile digital content, e-commerce, and payment platforms. Sea serves customers worldwide.

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Sea (SE US)

Sea Ltd: A Detour Back to the Land of Losses

Sea took a detour back to the land of losses this quarter. But it's not a massive issue. They've maintained close to 7% QoQ growth, investors...

Oshadhi Kumarasiri

Sea Ltd: Potential for a Short Squeeze

We find it unlikely that Sea will return to making losses in Q3, as projected by consensus. While cautious about medium-term projections, we...

Oshadhi Kumarasiri

[Sea (SE US, SELL, TP US$51) TP Change]: Competitive Landscape Intensifying… Cut TP to $51

We expect Shopee's competitive landscape further deteriorated in 2Q23, due to increased pressure from TikTok and Lazada in ASEAN, Coupang in...

Blue Lotus Research Institute

Sea Ltd: Facing an Uphill Battle for Sustainable Profits

Shopee's profitability is at risk without sustained revenue growth. If the cost-cutting strategy persists, losses are expected by 3Q23 or possibly...

Oshadhi Kumarasiri

Sea Ltd: TikTok's Tokopedia Deal and Lazada's Financial Boost Raise Concerns

Recent developments in Southeast Asian e-commerce, including TikTok's investment in Tokopedia and Alibaba's infusion of funds into Lazada, are...

Oshadhi Kumarasiri

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Sea Ltd: A Detour Back to the Land of Losses

​Sea took a detour back to the land of losses this quarter. But it's not a massive issue. They've maintained close to 7% QoQ growth, investors...

Oshadhi Kumarasiri

Sea Ltd: Potential for a Short Squeeze

We find it unlikely that Sea will return to making losses in Q3, as projected by consensus. ​While cautious about medium-term projections, we...

Oshadhi Kumarasiri

[Sea (SE US, SELL, TP US$51) TP Change]: Competitive Landscape Intensifying… Cut TP to $51

We expect Shopee's competitive landscape further deteriorated in 2Q23, due to increased pressure from TikTok and Lazada in ASEAN, Coupang in...

Blue Lotus Research Institute

Sea Ltd: Facing an Uphill Battle for Sustainable Profits

Shopee's profitability is at risk without sustained revenue growth. If the cost-cutting strategy persists, losses are expected by 3Q23 or possibly...

Oshadhi Kumarasiri

Sea Ltd: TikTok's Tokopedia Deal and Lazada's Financial Boost Raise Concerns

​Recent developments in Southeast Asian e-commerce, including TikTok's investment in Tokopedia and Alibaba's infusion of funds into Lazada, are...

Oshadhi Kumarasiri

Sea took a detour back to the land of losses this quarter. But it's not a massive issue. They've maintained close to 7% QoQ growth, investors...

We find it unlikely that Sea will return to making losses in Q3, as projected by consensus. While cautious about medium-term projections, we...

Recent developments in Southeast Asian e-commerce, including TikTok's investment in Tokopedia and Alibaba's infusion of funds into Lazada, are...