4. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 65
Sea Limited (NYSE:SE) is a diversified technology company. The company has been featured in the Duquesne Capital portfolio consistently since the first quarter of 2019. Back in 2019, the holding consisted of around 22,000 shares purchased at an average price of $17.52 per share. The share price of the firm, as of September 8, is in excess of $58 per share. At the end of the first quarter of 2022, the firm owned nearly 48,000 shares in the company. Duquesne had been selling the stock since late 2020.
On August 18, Barclays analyst Jiong Shao maintained an Overweight rating on Sea Limited (NYSE:SE) stock and lowered the price target to $114 from $125, noting that many macro factors had become more uncertain in recent months for the firm.
At the end of the second quarter of 2022, 65 hedge funds in the database of Insider Monkey held stakes worth $2.6 billion in Sea Limited (NYSE:SE), compared to 77 in the previous quarter worth $5 billion.
In its Q1 2022 investor letter, Farrer Wealth Advisors, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:
“Sea Limited (NYSE:SE) had been selling off since its peak in early November of ~$363/share. This was driven by both a general sell off in tech, especially non-profitable tech, and a general belief that its gaming arm (Garena) was experiencing a slowdown due to its flagship game Free Fire. Free Fire has experienced a slowdown for three reasons: it is a victim of its own success, and by the end of Q321, nearly 10% of the world’s population already played the game, and thus reaching new users was difficult; A return to normal with people traveling/going out more and spending less time playing games; and the Indian market imposed a ban on the game due to anti-Chinese sentiment (Tencent is a large shareholder in Sea Limited (NYSE:SE)). We believed that these issues, while worth considering, were a bit overblown, and some of the data we saw from 3rd party sources showed that though Free Fire usage was dipping, it wasn’t too drastic. Thus, we marginally added to the position throughout the quarter. This was a mistake. During Sea’s earnings report in early March, the company guidance for Garena (down nearly 35% yoy) showed that the slowdown was far worse than predicted. Secondly, Shopee (Sea’s ecommerce arm) has pulled out of certain markets (in Europe and India), which long-term is probably the right strategy, but short-term hampers the optionality of the business. After considering this information and the guidance from earnings, we decided to significantly trim the position. In our opinion, management does have a bit of egg on its face from an overly aggressive expansion or as one investor called it, “bull market hubris.” We think management’s moves were mostly logical, it’s just that their failures came during an unforgiving market. While we believe that Sea’s future is still bright (especially with regards to their e-commerce and financial services), it will take a few quarters of strong earnings for them to regain their momentum, and for now the capital can be better spent elsewhere.”
