5 Epic Video Game Stocks to Buy Now

2. Sea Limited (NYSE:SE)

Number of Hedge Fund Shareholders: 68

Sea Limited (NYSE:SE) operates three primary services: an e-commerce platform, a financial services platform, and a gaming platform that helps funnel users into the company’s other offerings. Sea’s mobile games are headlined by the popular Garena Free Fire, which is one of the most downloaded and highest grossing games in the world.

Despite Free Fire’s ongoing popularity, the game is losing paid players at a rapid rate, with that figure crumbling by 39% during the second quarter. As a result, Sea Limited (NYSE:SE)’s digital entertainment revenue fell by 10% year-over-year to $900 million during Q2. In contrast, the company’s other two segments are still growing at a rapid rate. e-Commerce sales were up 52% year-over-year to $3.2 billion during the first half of 2022, while the company’s much smaller financial services segment grew GAAP revenue by 214% during Q2 to $279 million.

Hedge funds have been selling off Sea Limited (NYSE:SE) in droves over the past three quarters, with a 44% decline in ownership of the stock during that time. Crispin Odey’s Odey Asset Management and Scott Bessent’s Key Square Capital Management were among the many funds to unload their SE positions during Q2.

The Baron New Asia Fund also sold out of its Sea Limited (NYSE:SE) position this year, citing the company’s slowing revenue and user growth, as detailed in its Q1 2022 investor letter:

“Sea Limited, a global digital gaming and e-commerce company, detracted from performance for the period held. Similar to other online consumer businesses, Sea faced significant multiple compression in the quarter, exacerbated by a slowdown in user growth at its key Free Fire digital game and mounting investments in its e-commerce operation, particularly in new markets like Brazil. We exited our position as we lost confidence in the long- term unit economics in some of Sea’s new markets and were concerned by the simultaneous slowdown in revenue growth and increase in underlying cash burn.”