Why Sea Limited Stock exploded higher on Monday
Sea Limited (SE 4.66%) was sailing well above the waves at the start of the trading week. Shares of the Singapore-based specialty technology company closed nearly 5% higher on Monday as investors welcomed an analyst’s positive view on their company’s exit from some tough markets.
That report was published by Reuters, which wrote on Friday morning that Sea’s e-commerce operation, Shopee, would significantly reduce business in several major Latin American markets. Citing “people familiar with the matter,” the news agency said Shopee was to close its local operations in Mexico, Colombia and Chile, and would exit Argentina altogether. Additionally, Sea’s gaming division, Garena, will lay off hundreds of workers in Shanghai.
Reuters cited an internal company email it had seen, written by Shopee chief executive Chris Feng, which said that “in light of the current elevated macroeconomic uncertainty”, there is a need for the company to “focus resources on core operations”.
An eminent observer of the sea, Morgan Stanley analyst Mark Goodridge reiterated his bullish view on the company’s stock on Friday night.
In a new research note, he said he was maintaining his recommendation to overweight (read: buy) the stock and his price target of $123 per share. Goodridge pointed out that the gross value of goods from the four countries only represents about 3% market share. He estimated that withdrawing from those markets could save Sea about $180 million in expenses.
While it’s never particularly encouraging to hear about a company pulling out of a major region of the world, Sea continues to struggle, so perhaps pulling out and consolidating is an appropriate strategy at this time. Investors certainly like the idea of the company shrinking its global footprint, at least for now.
Eric Volkman has no position in the stocks mentioned. The Motley Fool holds positions and recommends Sea Limited. The Motley Fool has a disclosure policy.