Sea Limited Slides 33% in 3 Months: Time to Exit or Hold the Stock?

Core Insights - Sea Limited (SE) shares have declined by 33.5% over the past three months, underperforming the broader Zacks Computer & Technology sector, which grew by 9%, and the Zacks Internet - Software industry, which saw a decline of 10% [1][3] Competitive Landscape - The competitive environment for Sea Limited is intensifying across e-commerce, digital entertainment, and digital financial services, leading to increased challenges in maintaining market share [5] - Shopee, while a leading platform, faces significant competition from Lazada (owned by Alibaba), which is aggressively competing on pricing, logistics, and seller incentives, forcing Shopee to increase spending on subsidies and marketing [6] - In digital financial services, Monee is contending with strong competition from regional fintech ecosystems and super-apps like Grab Holdings, which has expanded into digital payments, increasing user acquisition costs and regulatory risks [7] - Garena competes with industry leaders like Take-Two Interactive in the gaming market, where high standards for content quality and engagement are set, further complicating SE's competitive position [8] Cost Structure - Rising costs are becoming a significant risk for Sea Limited, with total cost of revenues increasing by over 37% year-over-year in Q3 2025, primarily due to higher logistics expenses [10] - Other segments also face cost pressures, with digital entertainment experiencing higher fees and royalties, and digital financial services incurring increased server and hosting costs [11] Earnings Estimates - The Zacks Consensus Estimate for SE's Q4 2025 earnings is 94 cents per share, reflecting a 6.9% decrease over the past 30 days, while the estimate for Q1 2026 has been revised down to $1.35 per share, a 9.4% decline [12] - SE has consistently missed earnings estimates in the past four quarters, with an average negative surprise of 16.09% [13] Valuation Concerns - Sea Limited's stock is currently considered overvalued, with a trailing price-to-book (P/B) ratio of 7.33X, significantly above the industry average of 6.0X, indicating a premium pricing relative to its book value [16][17] - This elevated valuation is driven by investor optimism regarding Shopee's GMV growth and Garena's bookings rebound, but execution challenges and margin pressures could lead to multiple contractions [17] Investment Outlook - Given the mounting competitive pressures, rising costs outpacing revenue growth, and downward earnings revisions, the risk-reward profile for Sea Limited has weakened significantly [19] - Persistent margin pressure, intensified competition, and consistent earnings misses cloud near-term visibility, making SE less compelling as an investment [19][20]