Sea Limited (NYSE: SE) shares declined 16% following the company's Q3 results which showed a miss on the bottom-line but a beat on the top-line. Sea Limited is a fintech, gaming, and e-commerce company that operates in Southeast Asia. It's one of the leading digital wallet apps in countries like Indonesia and Malaysia which have large and young populations indicating significant future growth potential. TenCent (OTC: TCEHY) is also a major investor and shareholder in Sea Limited.
Sea Limited has been one of the top growth stocks since its IPO in 2017 with a more than 1,800% gain. This year, the biggest growth driver for the company has been its e-commerce division which continues to grow at an impressive rate. The company has a bright future but faces some short-term headwinds related to valuation and struggles for growth stocks.
Inside the Numbers
In Q3, Sea Limited reported Q3 earnings per share of a loss of $0.84 per share which was a 34% increase from last year. Analysts were looking for a loss of $0.64 per share. The company's revenue topped expectations at $2.7 billion, a 122% increase from last year, vs consensus expectations of $2.5 billion.
Some reasons for the earnings miss were an increase in income taxes, a rise in cost of goods sold, and higher operating expenses. The company's gaming division is now its second-largest segment with $1.1 billion in revenue, a 93% increase from last year.
However, the company remains quite optimistic as it raised guidance for the full-year from its previous range of $4.7 billion to $4.9 billion to between $5.0 billion and $5.2 billion. This correlates to about a 135% increase in revenue, using the midpoint of this new guidance.
Sea's fintech division has about $4.6 billion in managed payment volume during the quarter. E-commerce is now the company's major segment with $1.5 billion inr revenue, a 134% increase. The company is now expanding out of Asia and into Latin America and Eastern Europe.
This means that Sea is moving into the global market, where it will face competition from companies like Amazon (Nasdaq: AMZN) and MercadroLibre (Nasdaq: MELI). Like these companies, Sea is focused on growth and capturing market share over profits or cash flow. However, it's worth noting that Sea has a significantly higher price to sales ratio than these companies.