Market Data 
On Monday, Morgan Stanley upgraded shares of Sea Ltd. (NYSE:) to Overweight from Equal-Weight, while also raising the price target to $70 from the previous $65. The revised outlook is attributed to a more favorable risk-reward balance, driven by positive developments in the company’s e-commerce arm, Shopee. The firm cites Shopee’s market share trends, gross merchandise volume (GMV) growth, improved unit economics, strategic competitor commission adjustments, and management’s outlook as key factors for the upgrade.
The path to profitability upturn is “getting clearer,” according to analysts at the investment bank.
Morgan Stanley has expressed a higher level of confidence in its earnings forecasts for Sea Ltd, which are above consensus for the years 2024 and 2025. This confidence is bolstered by year-to-date momentum and what they perceive as rational competition in the e-commerce space. Morgan Stanley anticipates the first quarter results of 2024, expected to be reported in mid-May, to serve as a catalyst, predicting an adjusted EBITDA of $265 million, which surpasses the Street’s expectation of $190 million.
Sea Ltd’s e-commerce losses are projected to narrow to $128 million for the first quarter, a significant improvement from the $225 million loss recorded in the fourth quarter of 2023. This estimate is notably lower than the consensus forecast of a $184 million loss. The firm attributes this to Shopee’s improved unit economics, optimized sales and marketing expenses, and increased take rates. Additionally, a strong quarter is expected for Sea Ltd’s Digital Entertainment division, thanks to the momentum of its game Free Fire and the seasonal effects of the Lebaran holidays.
Morgan Stanley has maintained its consolidated annual earnings forecasts for Sea Ltd for 2024 and 2025. For the first quarter of 2024, they project revenues of $3.67 billion, marking a 24% increase year-over-year and a 3% rise quarter-over-quarter. Although this revenue forecast aligns closely with the consensus, their adjusted EBITDA estimate of $267 million is notably higher than the consensus figures of $190 million by VA and $186 million by Bloomberg. The main difference lies in the anticipated e-commerce segment losses and, to a lesser extent, in the Digital Entertainment segment.
The firm’s optimism is further supported by recent market trends, including strong GMV growth, stable market share, rational competitor behavior, and improving unit economics. Despite the dynamic nature of competition, recent trends have strengthened Morgan Stanley’s comfort with their above-consensus assumptions for Sea Ltd’s performance in the upcoming years.
