Garena’s parent company, Sea Ltd. lost more than $16 billion of value on 14th Feb after closing at $129.17 per share on NYSE in its biggest daily market drop after a strong closing of $158.40 per share on 11th Feb. The share closed the week in red at $127.69 after losing more than 20% of its value compared to the closing of $158.40 in the previous week.
The drop in its value comes after India abruptly banned its most popular mobile gaming title, Free Fire which commanded a comfortable lead in the battle royale category in India after the PUBG ban in 2020.
Investors are growing concerned the ban may just be the start of the company’s troubles as the company has been shedding its value since the start of the year and one of its key investors, Tencent Holdings Ltd. also sold some of its stake in the company to raise funds.
While the revenue of the company is skyrocketing YoY, Sea Ltd is far from making any profits. The company heavily relies on the popularity of Free Fire to push people towards its e-commerce platform Shopee.
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The company generated a net loss of $571 million in Q3, but that news didn’t cause much panic among investors as its behemoth Free Fire was still growing like crazy.
India contributes to more than 1/3rd of Free Fire’s player base and is the biggest market of the game in terms of players. While the revenue from India represents a measly 3% of Sea’s gaming revenue, or roughly $33 million, or roughly 1.2% of total sales, the immense Indian player base benefited the game in reaching the top chart of “The Most Played Game” in both iOS and android store.
The stock price also benefitted heavily from Free Fire’s popularity last October as Sea Ltd’s stock hit an all-time high of $372. The rise at the time was also backed by heavy buying in tech and gaming shares caused by the pandemic surge.
Since then the stock price has plunged 63% as the markets are slowly turning away from previously high-flying tech and gaming stocks even after a piece of slight negative news.
The most immediate question is whether Sea Ltd. can appeal to India’s decision to ban its gaming app and reverse it. If the talks with India fails, the uncertainty of the ban extending to its other businesses in the world’s fastest-growing internet economy also looms on the horizon, which will cause a further drop in investor confidence and result in more “sale” calls.