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Why Is Sea Limited (SE) Stock Rallying 40% Today?

Investor Place · 11/15/2022 12:24

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Though one of the worst-hit publicly traded companies of the year so far, Singapore-based Sea Limited (NYSE:SE) encouraged embattled stakeholders with a remarkable single-day performance. Essentially, losses for its third-quarter earnings report came in conspicuously lower than analysts initially anticipated. Combined with management’s renewed focus on profitability rather than outright growth, SE stock jumped as much as 40%, extending gains dramatically throughout the day.

According to the company’s press release, Sea generated revenue of $3.2 billion, representing a year-over-year (YOY) lift of 17.4%. Total gross profit came out to $1.2 billion, up 21.7% YOY. On the bottom line, total net loss amounted to $569.3 million, flat against the year-ago period but improved 38.9% quarter-over-quarter sequentially.

However, the key metric centered on total adjusted EBITDA, which pinged at a loss of $357.7 million. To be sure, this figure expanded unfavorably from a loss of $165.5 million one year ago. Nevertheless, analysts had a consensus target of a loss of $457.4 million.

“Given the significant uncertainties in the macro environment, we have entirely shifted our mindset and focus from growth to achieving self-sufficiency and profitability as soon as possible, without relying on any external funding,” said Forrest Li, Sea’s chairman and CEO.

Wall Street Responds Positively With SE Stock

Recognizing the changing business climate and top-level headwinds, management responded with sustainability-bolstering initiatives. “Over the last quarter, we took decisive actions to improve margins, and set clear goals and priorities for the quarters to come,” stated Li. If anything, the words resonated in favor of SE stock.

As Bloomberg noted, Sea incurred a U-turn in the market, almost completing a reversal of fortune since the early days of the coronavirus pandemic. Just a few days ago, losses for SE stock on a year-to-date basis amounted to over 80%. Thanks to its gains heading into the early afternoon hours, Sea now stares at a loss of about 71% for the year.

While still steep, the market clearly appreciates Sea’s leadership team’s recognition of harsh realities. Per Bloomberg, the company cut about 7,000 jobs, or roughly 10% of its workforce. What’s more, management also shuttered operations in India and some European and Latin American markets to reduce costs and reach positive cash flows.

Further, Chief Corporate Officer Yanjun Wang said in a conference call that headcount reductions represent an “ongoing exercise.” This comment signals that additional cuts may be on the way, which may have helped lift SE stock more.

To be fair, enterprises must be judicious with their layoffs, as such actions can cost firms in the long run. That said, SE stock enjoys the advantage of underlying relevancies. Per a Reuters report, the Southeast Asia internet economy could hit $1 trillion by 2030, apparently assuaging the market’s fears.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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