Sea Earnings: Fair Value Up 10% on Guidance Raise, but Intense Competition Still Looms

We raise our fair value estimate to $66 per share from $60 for no-moat Sea after the firm lifted its gross merchandise volume, or GMV, guidance for its e-commerce business, Shopee, to mid-20s growth from midteens on a two-year compound annual growth rate basis from 2023-25. Sea also gave an updated margin outlook of 2%-3% in the midterm for Shopee and expects positive EBITDA for the unit next quarter. Despite raising our valuation due to better guidance, we believe shares could see greater volatility due to increasing competitive risks in the industry, which could lead to a higher probability of missed expectations. The stock rose 11% after the earnings, likely reflecting higher GMV forecasts, but we believe investors are focusing too much on its GMV growth and overlooking competitive threats and potential volatility.