What You Should Know Before Sea's Q3 Earnings

The company is projected to achieve a revenue of $4.08 billion, representing a year-over-year increase of 23.32%. Consensus EPS is expected to be $0.26 and the average price target is $104.50, suggesting a potential price increase of 9.57%.

Since hitting a low in January, Sea's stock price has rebounded by 175%, and investors have high hopes for the upcoming Q3 earnings report. Sea is set to announce its financial results before the market opens on November 12, with strong performance anticipated. In October alone, 15 companies have released ratings, all rated as outperform, buy, or overweight.

Shopee has successfully navigated competition from rivals such as ByteDance's TikTok, Alibaba's Lazada, Shein, and Pinduoduo's Temu this year. This success has helped Sea regain investor confidence after a two-year decline in stock prices. Analysts predict that the value of goods sold in this segment will rise by approximately 20%, aligning with Sea's expectations and confirming market forecasts that competition with TikTok and Lazada will ease.

Headquartered in Singapore, Sea has indicated that Shopee's strong market share in Southeast Asia, improved advertising acceptance rates, and enhanced logistics efficiency should enable the segment to achieve adjusted profitability for the September quarter. Sea is focused on increasing its advertising acceptance rate, which currently lags below the industry average. The company has already seen positive results, with a 20% year-over-year increase in the number of sellers paying for advertisements in Q2 2024. Improvements in advertising monetization are expected to continue benefiting the company in the upcoming reported quarter. Additionally, the growing demand for logistics operations may further reduce order costs, potentially enhancing the customer experience through its delivery platform, SPX Express.

With a steady increase in users and loan volumes, SeaMoney's lending business is expected to continue expanding. Strong growth in consumer and SME lending, especially through Shopee and its Off-Shopee program, is anticipated to make a positive contribution to Sea Limited's revenue this quarter.

Sea's digital entertainment division, Garena, reported a 5% quarter-over-quarter decline in gaming revenue, but a 21% year-over-year increase in bookings. The game "Fire" boasts over 100 million daily active users and is expected to remain a significant revenue source for Sea Limited. Additionally, the launch of new games such as "Need for Speed: Mobile" in specific markets is anticipated to further drive growth in the digital entertainment segment during the third quarter.

J.P. Morgan's analysis indicates that the positive performance of Sea's gaming division could lead to favorable earnings revisions. The firm maintains its bullish stance on the stock, reiterating its overweight rating, reflecting confidence in the company’s growth trajectory and future financial performance. The analyst noted that the increase in the number of gamers and higher profit potential are key drivers of the ongoing expansion of Sea's gaming franchise.