What Happened:

Shares of e-commerce and gaming company Sea Limited (NYSE:SE) jumped 14.1% in the afternoon session after the Jakarta Post reported that Indonesia's government plans to introduce regulations governing the use of social media for e-commerce. The move comes in response to concerns about predatory pricing by e-commerce sellers. The report noted that some officials specifically highlighted TikTok, which could be regarded as a competitor to Sea. Sea operates Shopee (an e-commerce platform ) in Southeast Asia, including Indonesia.

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What is the market telling us:

Sea's shares are very volatile and over the last year have had moves greater than 5%. But moves this big are very rare even for Sea and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was about one month ago, when the stock dropped 11.3% on the news that the company reported second quarter results that missed analysts' revenue estimates. Notably, the digital entertainment segment had revenue of US$529.4 million compared to US$900.3 million in the same period last year due to "moderation in user engagement and monetization year-on-year." As a result, the number of quarterly paying users was down year on year, though it increased compared to the previous period. 

On the other hand, adjusted EBITDA beat and was much improved compared to a year ago. Earnings per share also came in above expectations. Moving ahead, management signalled that the company would be stepping up investments. This shows some optimism around the market opportunity but could depress profits in the near to medium term. 

Overall, it was a weaker quarter considering the topline miss, and the fall in monetized user base, which was down significantly compared to the previous year. These factors are likely weighing heavily on investors' minds, regardless of the profits or cashflows booked during the quarter.

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