Services

What Cathie Wood's ARK Invest Likes About Internet Company Sea

Sea Ltd. (NYSE: SE) reported fiscal fourth-quarter and full-year 2020 results before markets opened Tuesday. For the quarter, the Singapore-based digital services company posted a diluted loss per share of $0.53 on total revenue of $1.57 billion. In the same period a year ago, the company reported a loss per share of $0.87 on total revenue of $777 million. Fourth-quarter results also compare to the consensus estimates for a loss of $0.51 per share and $1.9 billion in revenues.

For the full year, Sea posted a $2.78 loss per share on revenue of $4.38 billion, slightly worse than the consensus estimate for a loss per share of $2.60 on revenue of $5.1 billion.

So why were the shares trading up more than 8% early in the premarket session Tuesday? Investors may have determined that analysts were being a bit too aggressive with their estimates. Sea more than doubled both its quarterly and full-year revenue. Cost of goods sold also doubled, but so did gross profit, from $605 million to $1.35 billion for the full year.

One firm that’s a believer in Sea is Cathie Wood’s ARK Invest, which includes the stock in two of its ETFs: the ARK Next Generation Internet ETF (NYSEARCA: ARKW) and the ARK Fintech Innovation ETF (NYSEARCA: ARKF). Sea accounts for a weight of 1.43% in the internet fund (about $120.3 million) and 3.31% of the innovation fund (almost $148 million).

ARK is not the only believer. Other institutional investors like T. Rowe Price and JPMorgan own about 71% of Sea’s outstanding shares, and ARK is not among the top 10 holders.

While Sea’s revenue and expenses were doubling, the net loss for the year rose by just 11% year over year, and the quarterly net loss rose by 86%, closer to double, but not quite there. The operating loss for both the quarter and the year only increased by around 50%.

The company called out its mobile wallet, SeaMoney:

Our mobile wallet total payment volume exceeded US$2.9 billion for the quarter and US$7.8 billion for the full year of 2020. Moreover, quarterly paying users for our mobile wallet services surpassed 23.2 million in the fourth quarter with monthly paying users in Indonesia surpassing 10 million during the quarter.

In the Asia-Pacific region alone, the mobile wallet share of point-of-sale transactions increased by nearly 4.5 percentage points, rising from 35.9% in 2019 to 40.2% in 2020 according to a recent report from FIS Worldpay. That’s on top of e-commerce transactions in the region that are expected to grow at a rate of 14% annually through 2024. In 2020, digital wallet payments exceeded 60% of all e-commerce transactions in the region.

According to Worldpay, digital wallets have become the leading e-commerce payment method in India, where they account for nearly 40% of all e-commerce sales and nearly 30% in Indonesia. Digital wallets are also gaining users in Australia (24.1%), Hong Kong (28.9%) and New Zealand (20%).

This adds up to fiscal 2021 guidance for GAAP revenue of $4.5 billion to $4.7 billion for Sea’s e-commerce business, another doubling. The company’s digital entertainment business is also forecast to increase to between $4.3 billion and $4.5 billion year over year in 2021, a jump of around 38%.

Shares traded almost 5% higher just after Tuesday’s bell, at $260.34 in a 52-week range of $35.61 to $285.00. The consensus 12-month price target on the stock is $252.84.

Catherine Wood, ARK Invest CEO, is a shareholder of 24/7 Wall St. LLC.