Sea Limited is mainly present in South East Asia, Latin America, India and is only slowly starting to establish itself in Eastern Europe. But make no mistake, this is not one of those new small caps that explode overnight. Sea Limited is worth over 197 billion euros and has been growing exponentially for many years - IPO completed on 10/20/2017. Sometimes referred to as the Alibaba of Southeast Asia, the group's operations and geographic presence are far more extensive than this brief comparison would lead us to believe.

Source : Sea Ltd Investors

 

Sea Limited is a holding company, which means that several subsidiaries with radically different activities coexist under the management of the same group. There are 3 main subsidiaries:
Garena (DE):
- Development and publishing company for video games
Shopee (EC)
- Mobile e-commerce application
SeaMoney (DFS)
- Digital payment services

If these names do not ring a bell, you probably don't live in Latin America or South West Asia. But don't get me wrong, the Asian holding company reported a year-on-year revenue of over $2.3 billion in Q2 2021. Just over 50% of Sea Ltd's revenue comes from eCommerce (Shopee). Nevertheless, only the "Digital Entertainment" business (Garena) is profitable at the moment.

Founded in 2009, Garena develops and publishes video games for mobile and PC. The Asian firm can rely on a large catalog, however almost all of its revenues come from the game "Free Fire". This ultra-popular Battle Royal in India, Latin America and Southeast Asia has gathered more than 725M players in the last six months (Q2 2021). In 2020, Free Fire was the most downloaded mobile game in the world and could even boast the highest cumulative YouTube Game views. It is also the highest earning mobile game in Latin America, South East Asia and India. 

Although Free Fire is Garena's flagship, it is not a single-product company as the video game publisher also owns other popular licenses such as League of Legends, Arena of Valor and Call of Duty: Mobile.

With mobile games being a booming theme, Garena has maintained a impressive growth rate that hasn't slowed down for several half-years. As evidenced by the Quarterly Active Users that continue to grow.

 

Free Fire makes Garena an extremely profitable company (net margin = 58%) and the only one to have a positive EBITDA. However, the Singaporean publisher also organizes eSport tournaments. An activity that is probably not profitable, on the contrary, but which is nowadays necessary for the development of many video games. Last May, the Free Fire World Series 2021 reached a peak audience of 5.4 million instant viewers.

Garena's strong regional leadership positions the company to capitalize on the rapid growth of mobile gaming in these dynamic geographies. If Garena can maintain the popularity of its games, it could become the "Milk Cow" of Sea Ltd. in the years to come.

Launched in 2015, Shopee is the leading e-commerce platform in Singapore and Indonesia, Malaysia, Thailand, Taiwan, Vietnam and the Philippines. The company relies 100% on mobile, which is why it puts the app at the center of its strategy. Like many Asian e-commerce platforms, Shopee aims to become a "Super App". 

The e-commerce platform already gathers equivalents of Uber Eats, Amazon, Paypal etc. on its app. Soon, it will even be possible to have a mechanic come to your home.

One of the strong points of Shopee is the fact that it relies heavily on hyper-localization. The goal is to give access to all the stores and services around the users, directly from the app.

Shopee doesn't replace merchants, it offers them the possibility to launch an online store.

Like Garena, Shopee's e-commerce business is growing at a rapid pace. After conquering the Southeast Asian market, Shopee has recently expanded its activities in Latin America, mainly in Brazil. Nevertheless, the Singaporean e-commerce company suffers from an image problem regarding the quality of its products and services. On Reclameaqui.com, the most important review site in Brazil, it is rated well below Amazon or Magalu in terms of reputation.



Source : @BuyandHold

Nevertheless, the brand does not completely deny this image and even plays with it in its marketing. The prices are very attractive, the marketing is aggressive and the advertising sports are offbeat. With the help of superstars (Jackie Chan, CR7...) Shopee perfectly adapts its marketing to the communities and countries it targets.

Although still heavily in deficit, hypergrowth is on the cards (+160% GAAP Revenue YoY). Sales are exploding as are order volumes (+160% GAAP Revenue YoY). So everything leads us to believe that this success story is not about to end. As a major player and in pole position on a huge and developing market, growth should remain in double digits for some time to come. My only concern is the arrival of Alibaba on their historical market.



Shopee's business model is still fragile and the huge marketing expenses ($649M in Q2 2021) have brought the net result down to -$580M for the 2nd quarter 2021 alone. Like any e-commerce marketplace, the question is whether they will ever reach the break-even point. If it's impossible to know for the moment, let's focus on the growth which is quite tangible (GMV = +88% YoY).

SeaMoney:

Founded in 2014, SeaMoney is divided into two main businesses:
ShopeePay and AirPay allow users and merchants to make payments/cashouts via smartphones (QR Code).
SPayLater is a service that allows users to buy immediately, but pay later "Shop Now Pay Later".

These two activities are growing exponentially, like all of Sea Ltd's activities. The volume of payments is up +130% over one year (>$4.1B)
But due to high marketing expenses ($166M Q2 2021), the business is still loss-making (-$160M Q2 2021). Nevertheless, these types of services, like Apple Pay, can quickly turn into real cash machines.

Source : Sea Ltd Investors

 

The group's activities are developing very rapidly. So much so that the management has recently raised the targets for the end of the year:

For online games, the bookings target (~revenues) is set at $4.5-4.7B (+44.4% YoY) for the end of the year. Similarly for e-commerce, the turnover targets have been revised upwards and are now set for $4.7-4.9B (+121.5% YoY) for the end of the year.

Financial ratios:
Market Cap: $190B
EV/EBITDA: 496x
P/E: -112x
ROE: -39.8
Net cash: $7,458M
*Estimated 2021

But the most important thing with this type of company is to watch the growth and for the moment there is no sign of a slowdown on the horizon.

Q3 2021 earnings release on 11/16/02