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Sea’s (NYSE:SE) stock rose about 6% premarket on Monday after BofA upgraded the shares to Buy from Neutral citing improving momentum.
The firm set a $70 price target on the Singapore-based company, which operates the e-commerce platform Shopee.
The competition is stabilizing and take-rates would improve, said a team of analysts led by Sachin Salgaonkar. The latest data points from South East Asian markets indicate that Shopee and other platforms have gradually raised take-rates, on average 3%-7% to 5%-10%. J&T first quarter 2024 data suggest that South East Asia parcels grew 55% year-over-year implying good uptake, the analysts added.
The analysts believe Shopee is well-placed to defend its market share. Shopee also has a well-scaled Buy Now, Pay Later, or BNPL, offering differentiator compared with TikTok, owned by ByteDance (BDNCE).
In addition, the analysts estimate that EBITDA losses in the e-commerce business have bottomed out and expect a gradual improvement in EBITDA with the business turning EBITDA breakeven in the third quarter of 2024. The analysts estimate Shopee EBIT margin to improve from -12% in the fourth quarter of 2023 to 3% in the fourth quarter of 2024 steered by take-rate improvements, ad yield increase, reduction in live-streaming investments and better cost efficiencies.
The analysts noted that the gaming business is turning around as seen by its high frequency data, which indicates a jump in the first quarter 2024 revenues and Monthly Active Users, or MAUs, close to two-year high. Even profitability for the financial business is improving given the mix shift to high margin BNPL business, the analysts added.
Sea (SE) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is more positive with a Buy and so is the average Wall Street analysts’ rating, Buy.