- Cathie Wood's Ark Invest sees opportunity in the more than 60% decline in Sea Limited over the past year.
- The disruptive innovation manager bought nearly 150,000 shares of Sea Limited worth about $20 million on Monday.
- Shares of Sea erased $16 billion in market value on Monday after India banned its gaming app.
Sea Limited stock spiked as much as 8% on Tuesday after Cathie Wood's Ark Invest bought nearly 150,000 shares of the mobile game developer.
The roughly $20 million purchase by Ark came on Monday, the same day Sea erased about $16 billion in market value and plunged as much as 20% after India banned a number of mobile apps, including Garena Free Fire, which is one of the world's most popular mobile games owned by Sea.
Monday's purchases by Ark Invest accelerates a cadence of recent buys of Sea shares, with Ark doubling its stake in the company so far this month, now owning more than 1.8 million shares. The recent buying by Ark comes as Sea trades at its lowest level since August 2020, down more than 60% from its record highs.
Ark, which bought Sea in its Next Generation Internet and Fintech Innovation ETFs, reduced its position in Sea significantly during the second half of 2021, with its stake falling from more than 3 million shares at its peak to less than one million shares last month, according to data compiled by Cathie's Ark.
But now Ark sees value in the beaten down and profitless game developer. And so does Goldman Sachs, which rates the company as a "Buy" with a $300 price target, representing potential upside of 114% from current levels.
Goldman analyst Piyush Mubayi said in a Monday note that if the Free Fire app is permanently removed from India, its projected valuation of the company would decrease by about $6 billion, or $10 per share. But Mubayi notes that after the battle royale-style PUBG game was banned from India, it was able to reenter the market last year through its Korean developer.
Ultimately, Goldman views Sea as "a winner in the fast-growing gaming, ecommerce and digital finance markets in Asia, and expect further upside from its successful move into Latin America," Mubayi said.
Whether the recent spate of buying in Sea shares proves successful for Ark Invest remains to be seen, but ongoing pressure from rising interest rates could continue to have a negative impact on the speculative stocks held by the innovation manager.