Is Sea Ltd's Recent Short Interest Decline a Sign of Rebuilding Market Confidence?

The recent fluctuations in short interest for Sea Ltd (SE) have sparked debate about whether they signal a shift in investor sentiment. As of October 15, 2025, Sea Ltd's short interest stood at 3.64% of its float, a 1.9% increase from Q2 2025's 2.85%. However, by November 28, 2025, the short interest had dropped to 16.73 million shares, representing 5.68% of the public float. This apparent decline in shorted shares, despite a rise in the percentage of float, raises questions about whether the market is beginning to rebuild confidence in the company. To answer this, we must contrast these short interest trends with Sea Ltd's recent earnings performance and fundamental challenges.

Short Interest Trends: A Mixed Signal

Short interest is a barometer of bearish sentiment, but its interpretation requires nuance. Sea Ltd's short interest ratio-a metric that divides shorted shares by average daily trading volume-remained at 5.0 as of October 2025, indicating moderate pessimism. While the November decline in shorted shares (from 21.4 million to 16.73 million) suggests reduced bearish bets, the percentage of float shorted rose to 5.68%. This paradox can be explained by a shrinking public float, which amplifies the relative impact of shorted shares. Notably, 5.68% is still below the 10% threshold typically associated with high short interest, implying that skepticism remains moderate rather than extreme.

Earnings Performance: Strengths and Weaknesses

Sea Ltd's Q3 2025 earnings report revealed a mixed bag. Revenue surged 38% year-over-year to $6 billion, driven by robust growth in Shopee and SeaMoney. Shopee's gross merchandise value (GMV) hit $32.2 billion, up 28% year-over-year, while SeaMoney's loan book expanded 70% to $7.9 billion. Garena, the company's gaming division, also delivered its best quarter since 2021, with bookings rising 51% to $841 million according to analysis.

However, the company missed earnings per share (EPS) estimates by 42.16%, reporting $0.59 against an expected $1.02. This shortfall, coupled with ongoing challenges like low e-commerce penetration in key markets, regulatory risks in digital finance, and economic instability in Brazil, has created short-term uncertainty. Competitors such as JD.com and MercadoLibre further complicate Sea Ltd's growth trajectory in Southeast Asia and Latin America according to market analysis.

Contrasting Short Interest and Fundamentals

The decline in shorted shares from October to November could suggest that investors are cautiously optimistic about Sea Ltd's operational strengths. For instance, management's focus on AI integration, logistics improvements (e.g., SPX Express in Indonesia and Brazil), and the Shopee VIP program's success-now boasting 3.5 million members-demonstrates strategic momentum. CEO Forrest Li's emphasis on AI's transformative potential and long-term GMV growth targets also signals confidence in the company's roadmap.

Yet, the EPS miss and persistent macroeconomic headwinds cannot be ignored. While the short interest decline may reflect reduced bearishness, the fundamentals still present risks. For example, Sea Ltd's expansion into digital finance exposes it to regulatory scrutiny, and currency fluctuations in emerging markets could erode margins. Additionally, the 5.68% short interest as of November 2025, though moderate, remains higher than Q2 levels, indicating lingering caution.

Conclusion: A Cautious Outlook

Sea Ltd's recent short interest decline, particularly in absolute terms, may hint at a tentative shift toward confidence. However, this must be weighed against the company's earnings volatility and structural challenges. The market appears to acknowledge Sea Ltd's operational resilience-particularly in Shopee and SeaMoney-while remaining wary of its near-term profitability and external risks. For investors, the key takeaway is that short interest trends should not be viewed in isolation. Instead, they must be contextualized within Sea Ltd's broader earnings performance and strategic environment. While the decline in shorted shares is a positive sign, it does not fully offset the uncertainties posed by regulatory, competitive, and macroeconomic factors.