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Sea: 3 ways to participate in the Singapore tech giant’s share price moves

  • Sea shares have lost two-thirds of their value since January.
  • First quarter results are expected on May 17.
  • Buy-and-hold readers might consider buying SE shares now.
  • For tools, data and content to help you make better investing decisions, try InvestingPro+.

Long-term shareholders of Southeast Asian tech name Sea (NYSE:) have seen the value of their investment fall by around 65% in the past 12 months and 66.2% since the start of the l year (YTD).

By comparison, the has lost 40.0% so far this year. And the tech-heavy has lost 24.1% so far this year.

Chart: Investing.com

On October 19, 2021, SE shares broke above $372 to hit an all-time high. But on May 12, they hit a multi-year low of $54.06, down more than 85% from their all-time high. The market capitalization (cap) currently stands at $42.2 billion.

Based in Singapore, Sea operates in the digital entertainment, e-commerce and digital financial services sectors. The company is a well-known name in the region thanks to its popular mobile game, Free Fire, and its e-commerce platform, Shopee. Through SeaMoney, it also provides digital payments and financial services.

Recent metrics underscore the strength of the Shopee app both in Singapore and in many countries including Taiwan, Indonesia and Brazil. For example, “Overall, Shopee was the top-ranked app in the Shopping category by downloads in Q4 and for all of 2021.”

However, anticipated U.S. rate hikes dragged down the shares of many Southeast Asian tech companies. The sea faces strong headwinds as global inflation rises and Covid-19 lockdowns continue to disrupt supply chains, particularly in Asia.

How the recent measurements arrived

Sea released the fourth quarter and full year 2021 metrics on March 1. grew 106% year over year (YoY) to $3.2 billion.

The digital entertainment segment saw $1.1 billion in bookings and generated $1.4 billion in revenue, up 104% year-on-year. Similarly, revenues from the E-commerce segment increased by more than 89% to reach $1.6 billion. Finally, digital financial services revenue was $197.5 million, up 711.1%.

Meanwhile, fourth-quarter net loss widened to $483.5 million, or a loss of 88 cents per share, from a loss of $430.7 million, or a loss of 84 cents per share. in the quarter of the previous year.

Regarding the results, CEO Forrest Li said:

“We currently expect Shopee to achieve positive Adjusted EBITDA before cost allocation from SE Asia and Taiwan headquarters by this year and SeaMoney to achieve cash flow positive by next year. As a result, we believe that by 2025, the cash generated by Shopee and SeaMoney will collectively enable these two businesses to substantially self-fund their long-term growth.

For the full year 2022, management now expects digital entertainment bookings to be between $2.9 billion and $3.1 billion. Meanwhile, e-commerce revenue is expected to be between $8.9 billion and $9.1 billion, and digital financial services revenue between $1.1 and $1.3 billion.

Therefore, the first quarter metrics to be released on May 17 could be a litmus test for the rest of the year. Readers should expect some volatility when the company releases its results.

Prior to the fourth quarter earnings announcement, SE shares were changing hands at around $132. But, it’s now $75.40, down more than 40%.

What to expect from SE stocks

Among 26 analysts surveyed via invest.com, SE stock has an “outperform” rating, with a 12-month average price target of $209.79 for the stock. Such a move would suggest an increase of around 178% from the current price. The target range is between $400 and $110.

SE Consensus Estimates

Source: Investing.com

However, under a number of valuation models, including P/E or P/S multiples or terminal values, the average fair value of SE shares at InvestPro amounts to $74.60.

SE fair value estimates

Source: InvestingPro

In other words, the fundamental valuation suggests stocks could fall around 1% (or stay flat).

As part of short-term sentiment analysis, it would be important to also look at implied volatility levels of SE options. Implied volatility generally shows traders the market’s view of a security’s potential moves, but it does not predict the direction of the move.

SE’s current implied volatility is around 14% higher than the 20-day moving average. In other words, implied volatility tends to rise, while options markets suggest more volatility ahead.

We expect SE stocks to build a base between $65 and $85 in the coming weeks. Subsequently, stocks could potentially start a new stage.

Add SE stocks to portfolios

Sea Limited bulls who aren’t concerned about short-term volatility might consider investing now. Their target price would be $209.79, according to the target provided by analysts.

Alternatively, investors could consider buying an exchange-traded fund (ETF) that holds SE shares as an asset. Examples include:

  • iShares MSCI Singapore ETF (NYSE:)
  • FMQQ The Next Frontier Internet & Ecommerce ETF (NYSE:)
  • VanEck Gaming and eSports ETFs (NASDAQ:)
  • ARK Fintech Innovation ETF (NYSE:)
  • Roundhill Ball Metaverse ETF (NYSE:)

Finally, investors expecting SE stocks to rebound in the coming weeks might consider setting up a covered call.

Most options strategies are is not suitable for all retail investors. Therefore, the following discussion of SE stocks is offered for educational purposes and not as an actual strategy for the average retail investor to follow.

Covered Call on SE Stock

Pricing at time of writing: $75.40

For 100 shares held, the covered call strategy requires the trader to sell a call option with an expiration date at some point in the future.

Investors who think there may be short-term profit taking soon could use a slightly in-the-money covered call (ITM). A call option is ITM if the market price (here, $75.40) is higher than the strike price ($75).

So the investor would buy (or already own) 100 SE shares at $75.40 and, at the same time, sell an SE call option on August 19 at $75. This option is currently offered at the price (or premium) of $15.90.

An option buyer would pay $15.90 X 100 (or $1,590) premium to the option seller. This call option will cease trading on Friday August 19th.

This premium amount belongs to the option writer (seller), no matter what happens in the future – for example, on the day of expiration.

The $75 strike offers more downside protection than an at-the-money (ATM) or out-of-the-money (OTM) call.

Assuming a trader now enters this covered buy trade at $75, at expiration the maximum return would be $1,550 i.e. [$1,590-($75.40 – $75) X 100]excluding commissions and trading costs.

The trader realizes this $1,550 gain as long as the SE stock price at expiration remains above the call option strike price (i.e. $75 here).

At expiration, this trade would break even at SE’s stock price of $59.5 (i.e. $75.40 – $15.90), excluding commissions and trading fees.

On August 19, if SE stock closed below $59.50, the trade would start losing money under this covered call setup. Therefore, by selling this covered call, the investor has some protection against a potential loss. In theory, the price of a stock could drop to $0.

As we have noted in many articles, such a covered call would limit the upside profit potential. The risk of not fully participating in the potential appreciation of SE stock would not appeal to everyone. However, in their risk/reward profiles, others might find this acceptable in return for the premium received.