Sea Limited stock overview





The business of Sea Limited (NYSE: SE), in Southeast Asia, is developing in three main areas:

  1. Electronic commerce;
  2. Digital payments;
  3. Video games.

These industries have grown rapidly in recent years and Sea Limited’s shares are up 250% since the beginning of 2018.

The tech company currently has a market capitalization of $ 133 billion. Given that Sea Limited’s business has already reached enormous proportions, does the company have the potential for further growth? Let’s take a closer look at it.

Sea Limited

In the markets of Southeast Asia

Sea Limited operates in the markets of seven countries of Southeast Asia:

  1. Vietnam;
  2. Malaysia;
  3. Singapore;
  4. Thailand;
  5. Indonesia;
  6. Philippines;
  7. Taiwan.

As of April 2021, the combined population of these countries was 614 million, and the size of GDP was $ 4.0 trillion (according to the IMF World Economic Outlook). By comparison, the U.S. population is currently 332 million and its GDP is $ 22.7 trillion.

However, Southeast Asia is now experiencing a period of rapid economic growth. Before the pandemic, GDP in Sea Limited’s seven major markets grew faster than that of the United States. And since the consequences of the pandemic are not so critical (as it was seen by many in the early stages of its development), this trend is expected to continue.

Great market opportunities

Sea Limited divides its business into three segments:

  1. Garena;
  2. Shopee;
  3. SeaMoney.

Garena develops, licenses and publishes mobile and computer video games. This segment is best known for Free Fire, the world’s most downloaded mobile game in 2020. Free Fire was also the highest grossing mobile game in Latin America, Southeast Asia and India, and the company retained that leadership in the first quarter of 2021.

Shopee Is an e-commerce platform. Like Amazon, it generates revenue by providing services to third-party sellers and selling products directly to consumers. Shopee is the largest e-commerce market in the region, according to Frost and Sullivan.

Finally, SeaMoney Is a digital payment platform that provides consumers with digital wallet services and merchants with the ability to accept and process payments. According to International Data Corp. (IDC), SeaMoney is also the leader in this market.

So, how big are the possibilities for Sea Limited? When the company filed its F-1 ** application with the SEC, it valued its market at $ 116 billion by 2021. But that was before the pandemic and, accordingly, did not take into account the impact it would have on the digital payments, e-commerce and video game markets. Although the management has not updated this figure, the actual figures (for now) are already higher than the original forecast.

Moreover, these markets are still growing rapidly. According to research by Google, Temasek and Bain, GMV *** of digital commerce is expected to grow by 23% per year until 2025, and digital payments by 15% per year. In other words, over the next five years, the digital commerce market will almost triple and the digital payments market will double.

In addition, it is worth noting the fact that Sea Limited is slowly but surely expanding beyond the borders of Southeast Asia. Garena’s Free Fire is now available in 130 markets including North America, while Shopee recently launched in Brazil and Mexico. With these moves, Sea Limited is further expanding its market opportunities, although it faces strong competition from MercadoLibre in Latin America.


** Form SEC F-1 – an application filed by foreign companies with the US Securities and Exchange Commission for the purpose of further registration on the US stock exchange.

*** GMV – Gross Merchandise Volume – the total volume of goods turnover, or, in other words, the total value of all goods sold for a given period of time.

Financial performance

COVID-19 has greatly contributed to the adoption of digital services in Southeast Asia. In fact, 40 million new users joined the Internet in this region during 2020. At the same time, 36% of all consumers began using new digital services during the pandemic.

Sea Limited Stock Chart

This has helped Sea Limited achieve impressive financial results:

  • Garena’s paying users jumped 120% (resulting in an 80% increase in bookings);
  • GMV Shopee is up 101%, resulting in 160% revenue growth;
  • SeaMoney ended 2020 with 23.2 million mobile wallet users, more than double the 10.5 million users at the start of the year.

While COVID-19 has certainly impacted the company’s recent performance, it is worth noting that Sea Limited has grown at a very impressive rate through 2020.

Indicator2017Q1 2021 (TTM **)CAGR
Revenue, $ billion0.4145.4121%
Free cash flow, billion $(0.339)1.1N / A
TTM is a 12-month moving average. CAGR – compound annual growth rate

Investors should bear in mind that Sea Limited prioritizes growth over profitability. To this end, over the past 12 months, the company has spent $ 2.2 billion (representing 41% of revenue) on sales and marketing. Despite the positive free cash flow, the company incurred a net loss of $ 1.8 billion during this period.

But investors hardly need to worry about it. E-commerce and digital payments are fast growing markets, and it makes sense for Sea Limited to grab as much market share as possible right now, which is exactly what it does. And as the business continues to expand, I think this company will be pretty profitable in the end.

Output

Sea Limited has a strong competitive position in several fast growing industries and the company should continue to gain traction in the coming years. Although it is already a significant business now, Sea Limited looks like a long-term winner, and I expect its stock to continue to rise (at least for the next decade).

Review of 06/04/2021 prepared based on materials The motley fool

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