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SE Stock Alert: What to Know About the ‘Free Fire’ Ban Dragging Sea Limited Down

This week hasn’t started off well for Sea Limited (NYSE:SE). The global consumer internet firm was trading at some impressive all-time highs just a few months ago. Since hitting its peak of $367 per share in October 2021, though, it has…

This week hasn’t started off well for Sea Limited (NYSE:SE). The global consumer internet firm was trading at some impressive all-time highs just a few months ago. Since hitting its peak of $367 per share in October 2021, though, it has been on a downward trajectory. For plenty of experts, this pattern of decline is more opportunity than crisis. InvestorPlace contributor Josh Enomoto was calling it a good long-term buy as recently as last week. However, today has brought some news that is pushing SE stock down. India and China’s border dispute has started to affect the latter’s tech sector, and SE is among the stocks paying the price.

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What’s Happening With SE Stock

This morning began with the news that India was cracking down on smartphone apps of Chinese origin. This ban includes “Garena Free Fire,” a popular multiplayer video game published by Sea. It was the most downloaded mobile game of 2021, but now users in India are out of luck. Bloomberg reports that India’s government cited security concerns as the primary reason for the crackdown.

A ban in a large gaming market was exactly what Sea didn’t need following its difficult start to the year. SE stock was down 9% in premarket trading, and since then, it has only kept falling. As of this writing, it is down almost 15% for the day and shows no signs of rebounding. Shares began declining slightly last week, but today’s plunge has pulled them into the red by 13% for the week and 23% for the month.

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As can be expected, other Chinese tech stocks are also suffering due to this development. Tencent Holdings (OTCMKTS:TCEHY) plunged straight down this morning, falling 0.5%. NetEase (NASDAQ:NTES) is down 1.35%, while industry giant Alibaba (NYSE:BABA) is down 1.4%. All three companies have apps that are subject to the ban. It’s also worth noting that Tencent is Sea’s largest stakeholder.

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Why It Matters

The border conflict between India and China is nothing new. It’s been steadily brewing for roughly two years along the Himalayan border with lives being lost on both sides. A former Indian ambassador to China has claimed the conflict is unlikely to cease anytime soon.

With diplomatic relations failing to yield a compromise, it’s not surprising that the two countries would be moving to target each other’s business interests. But while this news has sent Chinese tech stocks down across the board, it’s not likely to lead to consequences for SE that are too severe. Bloomberg also notes that despite Free Fire’s popularity in India, the country as a whole accounted for only 3% of Sea’s 2021 mobile-gaming net sales.

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Since Free Fire is Sea’s most popular game, further bans in India shouldn’t push SE stock down in the future, at least not by a significant amount. With its three primary areas, digital entertainment, e-commerce and digital payments/financial services, Sea should be able to withstand further action against China from India.

What It Means

That doesn’t mean that the company won’t face further market problems down the road. InvestorPlace contributor Larry Ramer compared SE stock to a falling knife last month, touting its potential but warning that the market’s general attitude toward it should caution investors.

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Right now it’s hard to see if market sentiment toward Sea has improved or when it will. The news out of India, though, should not be seen a reason for a bearish play on SE stock. It doesn’t diminish the company’s growth potential in markets that matter.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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