As is widely known, an unresolved prolonged border dispute is ongoing between India and China. That dispute has led to stricter laws in India regarding investments from China. The implications are visible in the recent news reported by Bloomberg, which states that 54 apps of Chinese origin are banned by India on security concerns.
Particularly, India’s Ministry of Electronics and Information Technology has banned apps of Chinese tech firms, including Tencent (TCEHY), Alibaba (BABA), and NetEase (NTES), along with re-branded versions of apps that were banned in 2020 by India.
Among other companies, Singapore-based internet and mobile platform company Sea Limited (NYSE: SE) bear the brunt of the ban, with its shares plummeting over 18% to close at $129.17 on Monday. According to media reports, Garena’s marquee game Free Fire has been banned in India, one of the biggest markets for the game. Garena is the gaming arm of Sea.
Free Fire, the battle royale shooter, is among the world’s most popular mobile games. It has a record of over a billion downloads on Google Play, aiding the significant growth of the company. Backed by Tencent, the largest shareholder of the company, Sea is focused on expanding gaming and e-commerce business globally. As a result of the ban, on February 12, the game was removed from the Google Play Store and Apple’s App Store in India.
According to industry tracker App Annie’s report, in Q3 2021, the game was the highest grossing mobile game in India, with a significant number of monthly active users. Nevertheless, the ban is likely to have minimal impact on Sea’s revenues, as India accounted for a mere 2.6% of Sea’s overall mobile-gaming net sales in 2021, according to the source.
No official comments have been announced either by India’s Ministry or Sea.
Wall Street’s Take
Following the recent news and its impact on Sea stock price, J.P. Morgan analyst Ranjan Sharma maintained a Buy rating on the stock but lowered the price target to $250 (93.54% upside potential) from $420.
Also, Goldman Sachs analyst Piyush Mubayi reiterated a Buy rating and a price target of $300 (132.25% upside potential) on Sea, with the assumption of $10 per share risk to his price target following the ban.
Over the long-term, Mubayi remains bullish on Sea and believes the company will be a “winner in the fast-growing gaming, eCommerce and digital finance markets in Asia.” The analyst expect to see further upside from Sea’s growing position in the Latam markets.
Consensus among analysts is a Strong Buy based on 9 Buys versus 1 Hold. The average Sea price target of $299.10 implies 131.56% upside potential from current levels. However, shares have lost 42.9% over the past year.
Risk Analysis
According to the new TipRanks Risk Factors tool, Sea stock is at risk mainly from two factors: Finance and Corporate and Legal and Regulatory, which contribute 23 and 14 risks, respectively, to the total 54 risks identified for the stock.
Sea is at a higher risk, from a financial and a legal standpoint, than other companies in its industry. Given its higher-risk profile and current stock movements, investors might be wary about investing in this stock.
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