Was Sea’s 22% stock plunge after Q2 results an overreaction?

Sea’s latest results have not found favor with investors.

The Southeast Asian tech giant’s shares crashed 22% in the three days of trading following the release of its Q2 2022 earnings earlier this week, despite beating analysts’ earnings forecasts and only narrowly missing on revenue predictions (US$2.9 billion versus estimates of US$2.98 billion).

Was the market’s reaction justified? Tech in Asia digs deeper into the results to find out.

Scrapping guidance creates uncertainty

Perhaps the most surprising move was the company’s decision to suspend 2022 revenue forecasts for its ecommerce unit, Shopee, which contributed nearly 60% of Sea’s total revenue in the most recent quarter.

The firm’s management attempted to present this decision as being part of its “efforts to adapt to increasing macro uncertainties” and as something it was doing “proactively… to further focus on efficiency and optimization for the long-term strength and profitability” of Shopee.

However, it is likely that Sea’s management has realized that it was questionable whether Shopee would reach even the low end of its revenue guidance of US$8.5 billion for 2022.

Tech in Asia reached out to Sea for comment but had not heard back as of the time this article was published.

Indeed, in the first half of 2022, Shopee generated US$3.2 billion in revenue, which is only 38% of its full-year target.

Photo credit: Shopee

However, by suspending guidance, the company whipped up even more uncertainty, which investors hate. From this lens, the market’s reaction to the news made sense.

Others have gone through something similar. Financial firm S&P Global saw its shares open 10% lower after it suspended its financial guidance for 2022 on June 1 this year, though they subsequently recovered.

Similarly, construction company Tutor Perini saw its shares fall almost 19% after it suspended full-year guidance and delivered worse-than-expected earnings at the start of this month.

On Sea’s earnings call, an analyst even questioned whether the outlook was “really that cloudy” for Shopee.

Still, the suspension of guidance doesn’t necessarily mean the ecommerce major’s revenue will stagnate for the rest of the year.

Focus on Shopee’s unit economics

Garena a mixed bag

SeaMoney needs more time