Shares of Asian business Sea Limited (NYSE: SE) skyrocketed 76.3% in the first half of 2024, according to data provided by S&P Global Market Intelligence. The stock has been more heavily influenced by investor sentiment than business results, as I'll explain.
Consider that the S&P 500 was up 14.5% in the first half of the year, which is a spectacular six-month return for this large index. In short, there's a bullish breeze in the air, providing a nice tailwind to the sails of Sea stock.
Sentiment regarding the competitive landscape for Sea was also a huge driver of the stock during the first six months of 2024. The company has three different business segments. But its biggest and (unfortunately) least profitable is its e-commerce business, which has no shortage of competition from large players, including TikTok.
TikTok might not seem like an obvious competitor in the e-commerce space. However, retailers can set up shops and integrate advertising with video on TikTok's platform. And the practice is popular. But it's facing regulatory scrutiny in Indonesia and investors increasingly saw this as a benefit for Sea's e-commerce platform, Shopee.
In the chart below, it's clear that Sea stock was already up more than 30% for the year before it had even reported any financial results, supporting my belief that market conditions and thoughts about competition were the bigger drivers of the stock.
Of course, Sea's numbers still matter
As mentioned, there are three parts to Sea's business. In 2023, the company's overall revenue was up 5% year over year to $13 billion and it had net income of $163 million. And in the first quarter of 2024, overall revenue was up a whopping 23% to $3.7 billion but with a net loss of $23 million.
The accelerating growth with deteriorating profitability tells a story: As TikTok and others have somewhat stumbled, Sea's management has seen a chance to gain market share. Therefore, it's ramped up marketing spend, which is paying off with growth. But that increased marketing expense has hit profits.
For now, investors seem to be more encouraged with the improved growth rather than worried about the net loss.
What to watch
When analyzing Sea stock in the first half of 2024, it's also important to note that it traded at its cheapest price-to-sales (P/S) valuation ever in January.
SE PS Ratio data by YCharts
In short, expectations were historically low, setting Sea stock up for outperformance with even just slightly encouraging news.
In summary, Sea stock has benefited recently from a shift in sentiment as much as anything. That can benefit an investment in a short time period. And six months is indeed not much time when it comes to stocks.
Longer-term, investors will want to see Sea establish customer loyalty with its e-commerce platform so that it can keep growing without needing to spend as much to gain and retain users.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Sea Limited. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
