In this article, we discuss the 5 Cathie Wood stocks hedge funds are selling. If you wish to read our detailed analysis of Cathie Wood’s stock picks and the latest market situation, go directly to Hedge Funds are Selling These 10 Cathie Wood Stocks.
5. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 77
Decline in Hedge Fund Holders: 31
ARK Investment Management’s Stake Value: $315.05 million
Percentage of ARK Investment Management’s Portfolio: 1.31%
Sea Limited (NYSE:SE) is a Singapore-based company which provides fintech, e-commerce and digital entertainment services. It is also the parent company of e-commerce platform Shopee. The stock suffered a significant investor selloff at the end of the first quarter of 2022, where 77 hedge funds owned stakes in the company. This is in contrast to 108 hedge funds a quarter earlier. As of June 2, the company shares have slumped 62.81% in the year to date.
On May 18, Cowen analyst John Blackledge lowered the firm’s price target on Sea Limited (NYSE:SE) to $115 from $133 and kept an ‘Outperform’ rating on the company shares. He noted that Q1 results were “mixed”, as the below-expectations revenue was partially offset by higher EBITDA.
For the first quarter, Sea Limited (NYSE:SE) disclosed earnings per share of -$0.80, beating consensus estimates by $0.42. Revenue of $2.9 billion for the quarter exceeded estimates by $41.2 million, and signaled growth of 64.41% from the year-ago quarter.
Cathie Wood held 2.63 million shares of Sea Limited (NYSE:SE) worth $315 million, as reported by her Q1 portfolio. This shows a 302% jump over the previous quarter where she owned 654,000 shares of the company.
Farrer Wealth Advisors, an asset management firm, talked about the market position and future prospects of Sea Limited (NYSE:SE) in its Q1 2022 investor letter. It said:
“Sea Limited 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). 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.”
