Sea Ltd. lost half of its value in 3 months

Valued at over US $ 100 billion, Sea Ltd, the parent company of Shopee and Garena, is Singapore’s largest company by market capitalization.

However, just three months ago, in mid-October, it was valued at around US $ 200 billion, more than all Singapore banks (DBS, OCBC and UOB) put together.

As I reported earlier, Shopee, Sea’s primary growth driver, performed very well in 2021, exceeding expectations and even eclipsing Alibaba’s overall international e-commerce business (excluding China). , made up of brands like AliExpress, Lazada and Trendyol (combined).

So what’s going on with Sea? Is the business losing momentum as the world tries to live with Covid-19? Has it lost the confidence of investors, taking their money to greener pastures? Does this mean problems for Shoppe?

Not at all.

Its location, however, provides an excellent lesson in why companies should not be judged by their market capitalization.

performance of marine stocks 2021-2022
Sea stock performance over the past year, with the 50% decline since October highlighted / Image credit: Google

That’s a far cry from what banking analysts predicted just two months ago, with expected prices varying between US $ 380 and US $ 416 per share as late as mid-November.

In fact, the crisis is so severe that it has completely erased the gains recorded over the whole of 2021, placing the company 20% below the level at which it started the year in mid-January 2021.

In 2022, therefore, Sea has returned to pretty much where it closed 2020.

This despite the good performance of the company throughout the year, and no new information has been released that would significantly change this. At least no new information on Sea itself …

A rising tide lifts all the boats …

… But the reverse is also true. When the tide goes down, all the boats go down with it.

The share price depends only partially on the performance of the company. The other important factor is the general market environment – and for most of the past two years it has been, ironically, very favorable.

Since the crisis of early 2020, governments around the world have triggered fiscal and monetary stimuli, desperately trying to prop up the economy.

Much of this fresh minted money, especially in America, ended up in the stock market and cryptocurrencies (in the absence of other good investments).

stock market performance of the S & P500 index
Performance of the S & P500 index, followed by the 500 largest US companies / Image credit: Google.

Between the trough induced by the pandemic in March 2020 and the current peaks, the index of the 500 largest American companies has jumped by more than 100%. It’s less than two years.

To know how long it had taken previously to register a similar gain, peaking in February 2020, we would have to go back to the fall of 2013.

In other words, the US stock market swelled between 2020 and 2022, as much as it had previously gained between 2013 and 2020 – and it did so amid a global pandemic and the worst disruption to business. human for a century.

Some of the companies clearly performed extremely well, benefiting from the provision of digital services, while millions of people remained locked in their homes or had significantly reduced outdoor activity. But in general, stocks have been largely disconnected from the underlying economic issues.

No more.

Where exactly does that put Sea?

Sea Ltd. is one of the biggest winners from the pandemic as its digital entertainment and e-commerce businesses have benefited from the pandemic as the internet was the only window to the world open to people.

Its performance has confirmed this with rapidly growing sales figures, even though the company is still losing money in the pursuit of market share.

quarterly sales of shopee 2020-2021

Shopee’s quarterly sales have more than tripled in a year and a half / Data source: Annual reports

However, just as its growing sales and Shopee’s beginnings in new markets in Europe and India have sparked interest in the company, it has undoubtedly benefited from the excess money circulating in the market, which has raised its share to almost US $ 400 per share.

Today, as inflation hits many developed markets – including the United States, where it hit seven percent in 2021, the highest since 1982 – stock market money appears to be falling, by the same more than the US Fed raises interest rates and will likely start rolling. its quantitative easing program, instituted after the 2008/09 crisis (which was largely an unorthodox money printing operation).

As a result, headlines like the one below from Bloomberg started appearing in January:

nasdaq actions
Image Credit: Bloomberg

As you can see, then, Sea is not alone. In fact, nearly half of the companies listed on the Nasdaq Index (40% of them to date) have lost 50% or more of their highs recorded in 2021, that is, a few years ago. barely months.

In other words, it is not the sea that has a problem, but the all stock Exchange.

How does this affect the future of Sea?

If the business is doing well, relatively speaking, what does this mean for the years to come? Well, he has managed to raise around US $ 9 billion since the end of 2020, which is enough to keep him going for the next few years.

It made full use of its high valuation, raising capital around its all-time high stock price, thus avoiding unnecessary dilution of the property, just before the market plunged.

Sea Limited Capital Raised
Image Credit: Finding Alpha

At this point, current stock prices won’t be their main concern, especially since everyone is equally affected.

A bigger challenge – though always one that would ultimately hurt everyone – is the possibility of an economic downturn, as governments around the world feel the brunt of high inflation and are required to fight it.

A stock market crash – which is not out of reach within a year or two – would certainly lead to a more serious economic crisis, affecting millions of people, resulting in reduced spending, long before Shopee was able to do so. achieve balance (or generate profit).

So far, the platform is doing well to gain a foothold in its new markets, as indicated by the traffic figures on its respective websites:

shopee poland website traffic
Shopee has managed to attract over four million visitors to Poland, its biggest EU market, during the Christmas spending season / Image credit: Similarweb
shopee india website traffic
Despite controversies in India, over its Chinese co-ownership by Tencent, Shopee is quickly attracting new users / Image credit: Similarweb
shopee brazil website traffic
In Brazil, Shopee has gained more than 20 million new monthly users in the past six months (up 45%), while the market leader – Mercado Livre – has lost 12 million, despite the Christmas period which makes generally climb the numbers. / Image credit: Similarweb

Timing is everything

Success in business is not about being the first or the greatest, but about synchronizing your movements well.

Some of the world’s biggest brands eventually collapsed. Some of the early adopters failed before the successors took over (Facebook was not the first social media site, Google was not the first search engine, Apple was not the first nor the largest personal computing company).

In Sea’s case, it is certainly not the first ecommerce platform, but it seems like a platform that syncs its business perfectly, even when its huge competitors are struggling (like Lazada, owned from Alibaba, and Alibaba itself).

The Singaporean startup made the most of the pandemic, using it to catapult itself among the world’s biggest companies and raising significant sums just before the opportunity to do so cheaply closed.

As a result, no matter what the immediate future holds for all of us, this is one of the best-prepared (young) companies to deal with it.

Featured Image Credit: Reuters

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