UPDATE: Goldman Sachs Downgrades Sea Ltd. (SE) to Buy
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Goldman Sachs analyst Piyush Mubayi downgraded Sea Ltd. (NYSE: SE) from Conviction Buy to Buy with a price target of $300.00.
The analyst comments "In a rising rate environment, the market has quickly shifted toward lower risk assets, i.e. those offering a high degree of visibility, are positive FCF and resilient in a post Covid19 environment and not vulnerable to normalizing consumer behavior that could drag down online spend. While SEA remains on a growth path, with an expanding ecommerce footprint and its multiple studios finalizing games to be released in the next few quarters, SEA’s positioning across its three business lines suggests that 1) spending on gaming is slowing and predicting the next stage of growth as we wait for new game releases is challenging; 2) though Shopee remains one of the fastest growing ecommerce platforms globally in 4Q21E and its growth is relatively predictable in ASEAN given Shopee's market share and the sector's penetration, the reopening of the economy has slowed down growth through the quarter; and 3) FCF will remain under pressure, but is adequately covered by the company’s cash on balance sheet of more than US$11bn as of 3Q21. With this report we adjust for normalizing consumer spend post Covid, which impacts SE's gaming, ecommerce and fintech businesses. We still believe that mid-to-long term fundamentals for SE remain strong but as the near-term visibility remains challenging, we remove the stock from our AeJ Conviction List but stay Buy. We continue to view Sea as a winner in the fast-growing gaming, ecommerce and digital finance markets in Asia, and expect further upside from its successful move into Latam, with potential upside from its expansion into Europe and India ecommerce markets. Our 12-month SOTP-based TP is now US$300 (121% upside potential) from US$460 prior, as we factor in slower growth from all three segments, increasing WACC for SE unprofitable business, and lower TGR for its gaming business."
Shares of Sea Ltd. closed at $135.61 yesterday.
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Related EntitiesGoldman Sachs Conviction Buy List, Goldman Sachs
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