Sea shares slump 16.5%; analysts deem drop an ‘overreaction’
Citi and Maybank Securities say the sell-off ignores company’s strategic logic
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[SINGAPORE] Shares of Sea fell the most in more than two years despite strong earnings, as investors took a dim view of the company’s “conservative” 2026 profit guidance.
The counter plunged as much as 27 per cent in intraday trading on the New York Stock Exchange on Tuesday (Mar 3) – its steepest drop since August 2023 – before paring some losses to close about 16.5 per cent lower.
While net income for the three months ended Dec 31 rose about 73 per cent to US$410.9 million, it missed the US$442 million average forecast by analysts. The earnings miss, combined with management’s guidance for flat earnings in 2026, spooked a market that had priced in faster margin expansion.
Analysts from Citi and Maybank Securities, however, urged investors to look past the immediate volatility, arguing that the sell-off ignored the strategic logic behind Sea’s spending plans.
“We see the share price sell-off overreaction as an attractive buying opportunity for long-term investors,” Citi analysts wrote in a note on Wednesday, maintaining a “buy” call with a US$151 price target – down from US$184.
They contended that the conservative outlook disguises a “calculated market-share offensive” intended to entrench the company’s dominance.
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Maybank analyst Hussaini Saifee echoed the sentiment, describing the guidance as “short-term pain for long-term gains”.
While Maybank retained its “buy” call, it lowered its target price to US$127 from US$156 to reflect lower margin assumptions for the next two years. Hussaini noted that the correction has left the stock trading near valuations that reflect a “worst-case AI (artificial intelligence) disruption scenario”.
Building a “logistics moat”
At the heart of the strategy is an aggressive push to grow gross merchandise value by 25 per cent in 2026, outpacing the 20 per cent consensus estimate. To drive that volume, Sea is ramping up spending on logistics to enable same-day and next-day delivery.
Shopee is advancing into “Phase 2” of its logistics road map, extending beyond simple parcel delivery into warehousing. Its goal is to double or triple fulfilment penetration by the end of 2026, up from the current 2 to 3 per cent in Brazil and high-single digits in South-east Asia.
Analysts argued that this elevated capital expenditure will serve as a defensive bulwark rather than structural cost creep.
According to Maybank, faster delivery lifts buyer spending by about 15 per cent and supports higher ad yields, creating a “logistics moat” that asset-light competitors or AI agents will struggle to bypass.
The brokerage also noted that competitive intensity remains “rational” across markets, reducing the risk of a subsidy-led spiral.
Funding the moat
Sea is funding this offensive with cash from its profitable gaming and financial services divisions.
Its digital finance arm Monee saw its loan book swell 80 per cent year on year to about US$9.2 billion in the quarter, while maintaining disciplined underwriting. Growth has increasingly diversified away from the main e-commerce platform, noted Hussaini, with “off-Shopee” loans surging more than 300 per cent to make up over 15 per cent of the portfolio.
Simultaneously, the gaming unit Garena remains a prolific cash generator with its mobile game Free Fire.
While the investment phase will weigh on near-term results, Maybank expects a visible return on investment by the fourth quarter of 2026, resetting the margin base and paving the way for a profit recovery in 2027.
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