In this article, we discuss the 5 stocks hedge funds are dumping amid the tech selloff in 2022. In order to read our detailed review of the latest market situation around tech stocks, go directly to Tech Selloff: Hedge Funds are Dumping These 10 Stocks in 2022.
5. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 77
Decline in Hedge Fund Holders: 31
Sea Limited (NYSE:SE) provides a range of e-commerce, fintech and digital entertainment services around the world. It is based in Singapore, and operates e-commerce platform Shopee, and provides payment processing services through its brands ShopeePay, SPayLater, and SeaBank.
Shares of the company have experienced a decline of 66.10% so far in the year as of May 25, and hedge fund sentiment is also negative around the stock. 77 hedge funds owned positions in Sea Limited (NYSE:SE) at the end of Q1 2022, down from 108 hedge funds a quarter earlier.
HSBC analyst Piyush Choudhary reiterated a ‘Buy’ rating on Sea Limited (NYSE:SE) shares on May 4, and lowered the price target to $145 from $150. The analyst expects the firm’s e-commerce platform Shopee to post a jump of 40% in gross merchandise volume in comparison to last year, and sees Sea Limited’s (NYSE:SE) adjusted revenue growing 32% year-over-year in the first quarter.
For the first quarter, Sea Limited (NYSE:SE) reported earnings per share which beat market estimates by $0.42. $2.9 billion in revenue for the quarter outperformed analysts’ forecasts by $41.2 million, and showed a jump of 64.41% from the year-ago quarter.
Here is what investment firm Farrer Wealth Advisors had to say about Sea Limited (NYSE:SE) in its Q1 2022 investor letter.
“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.”
