Sea Limited (SE) recently reported earnings for its second quarter of Fiscal Year 2022. Adjusted earnings per share came in at -$1.03, which beat analysts’ consensus estimate of -$1.14 per SE share. In the past nine quarters, the company has beat estimates three times. Nevertheless, shares fell by more than 9% shortly after the market opened.
Sales increased 29% year-over-year, with revenue hitting $2.9 billion compared to $2.3 billion. The increase in revenue can be attributed to the strong growth from SE’s E-commerce and Other Services segment, which saw a 75.6% increase.
However, gross profits increased by 17.1%, which means that the company did not demonstrate operating leverage since it increased less than revenue. Indeed, the gross margin contracted from 40.8% to 37.05%. This, along with an increase in operating expenses, caused the company’s operating loss to increase from $334 million in the comparable period to $837 million now.
Moreover, Sea Limited also withdrew its outlook for e-commerce in 2022. This highlights the macroeconomic uncertainties that continue to impact discretionary businesses.
Investor Sentiment is Negative for SE Stock
The sentiment among TipRanks investors is currently negative. Out of the 554,668 portfolios tracked by TipRanks, 1.6% hold SE. In addition, the average portfolio weighting allocated towards SE among those who do have a position is 3.6%. This suggests that investors of the company are fairly confident about its future.
However, in the last 30 days, 1.1% of those holding the stock decreased their positions. As a result, the stock’s sentiment is below the sector average, as demonstrated in the following image:
What is the Target Price for SE Stock?
Sea Limited has a Strong Buy consensus rating based on 10 Buys, three Holds, and zero Sells assigned in the past three months. The average SE price target of $119.46 implies 41.4% upside potential.
Takeaway – Revenue Growth is Becoming More Expensive
Sea Limited saw strong revenue growth in the quarter, as revenue increased substantially while adjusted earnings came in better than expected. However, the contracting margins and the widening losses are not what investors want to see, especially in the current market environment. As a result, it’s clear that revenue growth is becoming more expensive as SE wasn’t able to achieve operating leverage.