3. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 55
Sea Limited (NYSE:SE) is a Singapore-based game development and publishing corporation. The company is known for coming up with the Free Fire title, which became the most downloaded mobile game in 2019 and had over 150 million daily active users (DAUs).
In a research note issued on November 17, Mark Goodridge at Morgan Stanley gave Sea Limited (NYSE:SE) a target price of $95 along with an Overweight rating. The target price provides a potential upside of more than 58% as of December 20. The analyst appreciated the company’s Q3 2022 results, which reflected a solid beat and showed a clear pathway to profitability for Sea Limited’s (NYSE:SE) subsidiary Shopee, which is the biggest e-commerce platform in the Southeast Asia region with over 343 million monthly active users (MAUs). There is a widespread belief that the subsidiary of Sea Limited (NYSE:SE) is in a strong position to dominate the e-commerce space in the region.
Here’s what Hayden Capital said about Sea Limited (NYSE:SE) in its Q3 2022 investor letter:
“Sea Limited (NYSE:SE) reported earnings last week, after which the share price rebounded +36% in a single day. The most obvious question that comes to mind, is why didn’t we sell more last year, when prices were still high? The truth is that we did sell a significant amount, but in hindsight obviously wish we were more aggressive with the sales.
For example, we owned the peak number of shares of Sea Ltd in Q1 2020, and steadily trimmed over the next two years. From Q1 2020 to Q1 2022, we trimmed ~39% of our shares over that period. However, the issue was that the investment continued to grow as a percentage of the overall portfolio, since the share price appreciated much faster than our sales (+620% from 1Q20 to 3Q21). This was a similar case for our other long-tenured positions as well.
So why didn’t we trim more aggressively and just hold cash? The answer is that at its core, I believe that holding cash is implicitly a market timing call. I certainly didn’t foresee a likely recession on the horizon so quickly after the turbulence of Covid already had on the economy. Even in late 2021, after it was clear interest rates would start rising, we were still operating under the assumption that rates would cause valuations to compress, but likely wouldn’t have an impact on the overall earnings trajectory. Given our expectations for strong earnings growth, we thought this could more than offset the valuation compression over time, and would still generate strong IRRs over a 3 – 5 year timeframe…” (Click here to see the full text)
