Shares of Sea Limited (NYSE: SE) experienced a significant rally on Tuesday, climbing 13.75% to $130.59 in late trading, after the company reported second-quarter revenue that substantially exceeded Wall Street expectations. The stock's surge reflects growing investor confidence in the company's e-commerce and digital financial services segments, despite ongoing concerns about rising expenses.
Sea's revenue for the quarter reached $7.79 billion, surpassing the $7.06 billion consensus estimate from LSEG by approximately $728 million, or 10.3%. This strong performance was primarily driven by its e-commerce platform Shopee and digital financial services arm Monee. Revenue grew 48.1% year-over-year, while gross profit increased 47.3% to $3.55 billion.
However, profitability gains were more modest. Adjusted EBITDA rose 10.6% to $917.2 million, and net income grew 10.6% to $458.1 million. Diluted earnings per share came in at $0.70, up 7.7% from the prior year. Operating income increased 33.3% to $650.3 million, but operating expenses jumped 50.9%, underscoring the company's aggressive investment strategy to protect market share and expand its credit business.
Shopee, Sea's core e-commerce unit, achieved record highs in gross merchandise value (GMV), orders, and revenue. GMV reached $38.3 billion, up 28.4% year-over-year, while gross orders climbed 27.5% to 4.2 billion. Shopee's revenue surged 48.9% to $4.93 billion, with adjusted EBITDA of $255.4 million, up 12.2%.
Sea's chairman and CEO, Forrest Li, expressed optimism about Shopee's earnings trajectory, stating: "With this solid momentum, we are optimistic that Shopee will achieve the milestone of US$1 billion in adjusted EBITDA for the full year." To reach this target, Shopee must generate approximately $521.4 million in adjusted EBITDA during the second half, an increase of about 8.9% from the first half's $478.6 million. This translates to a quarterly average of roughly $260.7 million.
While the target appears attainable, it is not guaranteed, especially as expenses continue to escalate. Sales and marketing costs surged 64.5% to $1.66 billion, while credit-loss reserves jumped 71.5% to $555.2 million. Monee, the digital financial services segment, reported loans totaling $11.1 billion, a 62.5% increase, with the 90-day non-performing loan ratio holding steady at 1.0%.
Analysts have taken note of Sea's performance. UBS has a Buy rating with a $130 price target, which the stock has now surpassed. Bernstein SocGen rates the stock Outperform with a $150 target, while JPMorgan and Citi both have Buy ratings with $162 targets. The S&P Global consensus poll shows an average target of $142.26, implying about 8.9% upside from current levels.
Despite the positive momentum, risks remain. Marketing expenses are growing faster than revenue, and credit provisions are climbing even more rapidly. Softer consumer demand, intensified competition in e-commerce, or escalating loan defaults could further pressure profitability. The key test for Sea will be execution—delivering on the $1 billion EBITDA promise for Shopee while managing cost growth.
