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Why Sea Limited Stock Surged Today

Evan Niu, CFA, The Motley Fool

What happened

Shares of Sea Limited (NYSE: SE) have surged today, up by 19% as of 10:40 a.m. EDT, after the company reported first-quarter earnings results. The digital platform operator beat expectations on both the top and bottom lines.

So what

Adjusted revenue in the first quarter jumped to $578.8 million, easily ahead of the consensus estimate of $434.9 million in sales. That led to an adjusted net loss of $186.7 million, or $0.64 per share, while analysts were modeling for $0.68 per share in red ink. Sea recorded a fair value loss of $436.1 million related to its 2017 convertible notes, as shares prices surged during the quarter and exceeded the conversion prices. The conversion price range of those notes is $13.13 to $14.26, depending on various factors. That accounting loss was excluded from its adjusted net loss.

Female character in Free Fire

Image source: Garena.

Quarterly active users (QAUs) more than doubled to 271.6 million, and quarterly paying users represented 7.6% of QAUs in the first quarter. Average revenue per user was $1.40.

Now what

Sea's Free Fire mobile game, part of the booming battle royale genre, continues to grow, hitting over 450 million registered users and 50 million peak daily active users (DAUs). The company says the game was the second-most downloaded mobile game globally in the first quarter, citing data from App Annie.

On the conference call, CEO Forrest Li reaffirmed Sea's rosy outlook and even suggested that Sea could potentially raise its guidance soon:

Looking for the rest of the year I believe Garena [Sea's game publishing platform] is in a strong position with an excellent slate of games as well as lots of opportunities for growth for the top games in our portfolio and pipeline. Last quarter we provided adjusted revenue guidance for our digital entertainment business of $1.2 billion to $1.3 billion for the full year of 2019. This represents 81.5% to 96.7% growth year on year, which is a highly ambitious goal for the size of our business by any measure. Still we are confident that we are well-placed to meet or even beat this ambitious target. We may choose to revise our full-year Digital Entertainment guidance upwards next quarter when we have more data.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.