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Sea is Devouring Southeast Asia’s E-Commerce & Gaming Markets

January 19, 2021 / By /
Stock (Symbol)

Sea (SE)
Stock Price

$151
Sector
Technology
Data is as of
September 24, 2020
Expected to Report
December 4
Company Description
Sea Limited, formerly Garena Interactive Holding Limited, is an Internet company. The Company operates through three segments: digital entertainment, e-commerce and digital financial services. The Company has developed an integrated platform consisting of digital entertainment focused on online games, e-commerce, and digital financial services focused on e-wallet services. Its platforms include Garena, Shopee, and AirPay. Garena provides access to engaging mobile and personal computer (PC) online games, live streaming game play, as well as social features such as user chat and online forums. Shopee is an e-commerce marketplace where users come together to browse, shop and sell on-the-go, anytime, anywhere. AirPay App is the Company’s digital financial services business that provides e-wallet services to consumers through the AirPay App and to small businesses through the AirPay counter application. Source: Thomson Financial
Sharek’s Take
David SharekSea (SE) is devouring Southeast Asia’s e-Commerce and Video Game markets as the company is on its way to being a new-economy heavyweight with the likes of Tencent, Alibaba and Amazon. Sea is an Internet company based out of Singapore that is composed of a video game platform, an e-commerce store, and an e-wallet service. The company’s an affiliate of Tencent. Tencent is China’s largest and most used internet service portal as well as the leading video game company in China. Sea is basically like Tencent outside of China. Sea’s market is Greater Southeast Asia, which includes Vietnam, Thailand, Malaysia, Singapore, Taiwan, the Philippines, and Indonesia. Here’s a quick video of Sea.

Sea has three brands: Digital Entertainment (gaming) has positive EBITA, while E-commerce and Digital Financial Services lose money:

Digital Entertainment

  • Garena, a platform for users to play mobile and PC online games, has 500 million active users.
  • Last qtr, Digital Entertainment was 56% of Sea revenue with 62% year-over-year growth (vs 30% growth 2QtrsAgo).
  • In 2016, 2017, 2018 and 2019, the Digital Entertainment business contributed 95%, 88%, 56% and 52%, of Sea’s total revenue, respectively.
  • Last qtr, Qtrly active users increased 61% vs. 48% growth a qtr earlier.
  • Last qtr, Qtrly paying users jumped 91% and that was up from 73% just three months ago.
  • Garena’s Free Fire — a battle royale shooter game — became the most popular downloaded mobile game globally in 2019. It was also  the most downloaded app in the world on Google Play and IOS (source: App Annie). Free Fire recently hit a new record of more than 100 million peak daily active users.

E-commerce

  • Shopee is the leading e-commerce platform in Southeast Asia and Taiwan.
  • Shopee promotions include subsides for shipping that pushed Sales & Marketing expense to 54%, 102% and 85% of total revenue in 2016, 2017 and 2018 respectively
  • Last qtr, e-commerce was 40% of total company sales, vs 34% two qtrs ago,
  • Last qtr, e-commerce revenue growth was 188% vs 110% yoy a qtr earlier.
  • Last qtr, Gross Orders increased 150% yoy, vs 111% a qtr ago.
  • Last qtr the Gross Market Value of goods sold was up 110% vs 74% a qtr ago.

Digital Financial Services

  • AirPay is an e-wallet for consumers via the AirPay app and to small businesses with AirPay counters.
  • Last qtr, digital financial services revenue was just 1% of company sales, but had revenue growth of 328%.
  • More than $1.6 billion in mobile payment volume was done on the platform last qtr, and that’s up from $1.0 billion a qtr ago.
  • Users jumped from greater than 10 million users 2 qtrs ago to more than 15 million users last qtr.
  • Sea currently monetizes its digital financial services business primarily by charging commissions to merchants for transactions.
  • Management stated the World Bank estimates just 5% if adults in Southeast Asia have access to credit cards vs 66% in the U.S. and 21% in China.

As you saw in the data above, Sea’s growth accelerated last qtr. In addition, the company is blowing past its e-commerce competitors in Indonesia, Vietnam, Thailand, Singapore, Malaysia and the Philippines.   Growth has been great, and the company is in the hot areas to compound its business rapidly. Management is determined to grow rapidly, and doesn’t mind sacrificing profits to do so. Losses are expected to continue for years to come, so an investment in this company would fall under the category of “dominant franchise that’s spending to grow”. Sea is part of the Growth Portfolio and Aggressive Growth Portfolio. I think this company is similar to Amazon in its infancy.
One Year Chart
SE broke out on November 12, 2019 when it jumped from $31 to $37. I bought in on December 23, 2019 at ~$39 and increased my position January 22, 2020 at ~$45. The stock has moved up into being a top-three holding for me, and I have since sold some shares.

There’s not much in this one-year chart. The stock is basing here, and my guess is it will break out and go to new highs in the near future.
Earnings Table
Last qtr Sea lost $0.68 and that missed estimates by 20 cents. But revenue surged 94%. Fr comparisons, sales grew 58%. That’s HUGE acceleration.

Annual Profit Estimates declined, but investors don’t seem to mind.

Qtrly profit Estimates are for losses to continue.
Fair Value
No profits, so I value this stock on a price to sales basis. Revenue has gone from around $500 million in 2017 to $1 billion in 2018 , ~$3 billion in 2019 and perhaps $5 billion this year with estimates of $7 billion next year.

My Fair Value is 15x 2020’s revenue estimate of $5.1 billion, or $77 billion. The market cap right now is $75 billion, so there’s not much upside to 2020’s Fair Value.

2021’s sales estimates are $7.1 billion, and 15x that would be $107 billion. $107 billion marker cap / 488 million shares outstanding is a $219 stock price (my 2021 Fair Value). 
Bottom Line
Sea (SE) is basing after a parabolic run higher. The company is executing so well that it’s quickly becoming a juggernaut in Southeast Asia. This stock is similar to Amazon, Alibaba and Tencent. 

Seeing that growth accelerated in every category last qtr, I imagine the next move for this stock will be up.

Sea moves up from 2nd to 1st in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings. 
 Power Rankings
Growth Stock Portfolio

1 of 49

Aggressive Growth Portfolio

1 of 22

Conservative Stock Portfolio

N/A

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