Investors battled challenging conditions in 2023, but resilience in mega-cap stocks powered the S&P 500 to a 19% annual gain. Yet beneath the surface, retailers and software firms faced substantial headwinds from high inflation and rising rates.
2024 could tell a different story if the Fed cuts interest rates as expected, reigniting consumer and business spending. Against this backdrop, Sea Limited and Bill.com appear primed for massive rebounds after their steep sell-offs.
Broader Markets Mask Underlying Weakness
A select group of giant technology and industrial corporations lifted the S&P 500 benchmark in 2023, obscuring pervasive weakness in industries directly exposed to consumer spending.
Elevated inflation compelled households to limit non-essential outlays, while small and mid-sized businesses carefully managed costs, crimping software expenditure.
But the stage may be set for a reversal next year. Economists predict the Federal Reserve could slash interest rates three times in 2024 if price pressures continue easing.
That prospect already buoyed stocks in recent weeks, foreshadowing the potential for robust consumer and business demand next year.
With valuations beaten down by 89% in some cases, Sea Limited and Bill.com display promising turnaround potential as the economy mends.
Sea Limited: Pan-Regional E-Commerce and Gaming Giant
Valued at over $100 billion just 18 months ago, Sea Limited (SE) now sports a market capitalization under $30 billion after its shares plunged 89% from all-time highs. The Singapore-based tech conglomerate operates e-commerce, digital entertainment, and payments platforms across Southeast Asia, Taiwan, and parts of South America.
Straddling these high-growth regions positions Sea Limited to capitalize on a massive secular opportunity. But near-term headwinds from cautious consumer outlays have weighed heavily on performance.
Slowing E-Commerce and Gaming Growth
Sea Limited’s e-commerce division accounted for 67% of total Q3 revenue, generating $2.2 billion. However, growth slowed to just 16% annually against an easy comparison, reflecting still-elevated inflation. The company’s gaming segment struggled even more, with bookings sinking 33% amid declines in paying users.
Silver Lining: Leaner Cost Structure
Shrinking sales and bookings growth is far from ideal. However, Sea Limited took the opportunity to slash operating expenditures, cutting marketing spend 35%. Though revenue expansion suffered in the near term, the company is now solidly profitable after losing money as recently as Q1 2022.
With a leaner expense structure in place, Sea Limited looks poised to leverage even a moderate recovery in consumer spending next year. E-commerce penetration across Southeast Asia, Taiwan, and Latin America remains low, underlying the potential for many years of rapid growth. Meanwhile, bookings could rebound swiftly if gamers become more comfortable spending as macro conditions improve.
Bill.com: Mission-Critical Software for SMBs
Bill.com (BILL) provides digital payment and expense management software to small and mid-sized businesses. By aggregating invoices and connecting directly into accounting systems, Bill.com’s platform helps SMBs simplify workflows while maintaining financial visibility. It serves over 470,000 customers currently, tapping into a total addressable market exceeding 70 million businesses globally.
Surging Rates Stifle Growth
With interest rates marching higher, small businesses curtailed investments this year, slowing Bill.com’s growth. Q1 revenue grew 32%, but a 65% reduction in net losses signaled a prudent approach to cost management. Slower sales growth is far from ideal, but slimming losses during a difficult period sets the stage for extreme profitability when conditions improve.
Poised to Capitalize on SMB Recovery
If the Fed successfully tames inflation and cuts rates in 2024 as expected, small business health may rebound sharply. Bill.com’s comprehensive invoicing, payments, and expense management system would prove even more mission-critical with greater transaction volumes.
Meanwhile, new customer acquisition and product development could accelerate sustainably based on a leaner cost structure.
With shares trading 80% below all-time highs, Bill.com offers substantial upside potential as the SMB environment stabilizes. Secular digitization tailwinds remain firmly intact.
Bottom Line
The S&P 500 showed remarkable resilience in 2023 considering the macro headwinds. Yet beneath the surface, retailers, software firms, and other consumer-facing companies faced serious growth stalls.
With inflation appearing to peak and the potential for rate cuts next year, the stage looks set for these beaten-down sectors to come roaring back. Sea Limited and Bill.com stand out in this regard, coupling structurally-promising long-term opportunities with much-improved profitability after right-sizing their operations.
If even modest consumer strength returns in 2024, these stocks could deliver outsized gains off their highly compressed valuations.