Consumer internet company Sea Limited (NYSE: SE) saw its stock fall by more than 18% yesterday. The firm, which operates in digital entertainment, e-commerce, and the digital payments industry, fell victim to a wholesale clampdown by the Indian Ministry of Electronics and Information Technology on over 50 China-based apps.
India, the world's second most heavily populated country, decided to outright ban a whole host of apps originating from China, citing security concerns as the reason behind the crackdown. Among these apps was 'Free Fire,' Sea Limited's most popular title. Sea has close ties to Chinese conglomerate Tencent, which owns approximately 19% of its stock. As such, despite Sea being based out of Singapore, it got caught in the crossfire.
'Free Fire' was the highest-grossing mobile game in India in the third quarter of 2021, and with a population of over 1.4 billion people, that represents quite a significant market for Sea. As concerns grew over Sea's ability to do business in India, investors sold off quickly, sending Sea's shares plummeting.
While every sudden drop in share price isn't always a cause for concern, they are all causes for investigation. In this case, we have to figure out just how much this news truly affects Sea Limited's ability to continue to grow. And, while getting locked out of one of the world's largest markets is certainly nothing to be celebrated, it's also not as big a deal as it seems.
Despite showing rapid growth in India, the country only accounted for 2.6% of Sea's mobile gaming revenue during 2021. When we take into account that Sea also possesses e-commerce brands such as Shopee, and a swelling financial services arm, this number shrinks to 1.2% of its total revenue for the year.
Sea is continuing to expand in other markets, with a concerted focus on expansion into South America and Europe paying rich dividends. Despite significant competition across all sectors and headwinds such as this app ban in India, the company looks set to continue to prosper and offer value to investors long-term.
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