Is Sea Limited A Good Buy?

As a leader in e-commerce and gaming as well as branching out into financial services, Sea Limited is a hot stock to watch as it conquers Southeast Asia.

Oct. 16, 2020

Sea Limited (NYSE: SE) is a multi-faceted gaming platform that has grabbed headlines over the past year. Being lauded as the next Mercado Libre as well as being our Stock of the Month for October, there is a lot to say about this high growth stock right now. 

Although we might think this is a great stock, here are some of the reasons for and against investing in Sea Limited. 

The bull case for Sea Limited

Sea Limited is having an outstanding year, as its share price has soared over 300% from $40 in January to sitting around $170 as of October 13. Founded in 2009, Sea Limited has benefited immensely from the pandemic as it operates in e-commerce, financial services, and gaming, while the general lockdown saw people in Southeast Asia increase their internet presence through online shopping, gaming, and money management.

Its most recent earnings report saw a 93% increase year-over-year (YoY) in adjusted revenue to $1.29 billion. This is due to a combination of factors, including strong business savvy as illustrated by the results given for its e-commerce platform Shopee. As increasing numbers of people are now using the platform, the adjusted EBITDA losses per order for this sector have declined from $1.01 to $0.50 YoY. 

Its gaming business ‘Garena’  is the publisher of the hugely popular ‘Free Fire’ game — which in August hit over 100 million daily active users (DAUs), making it the most popular Battle-Royale title in the world. This sector continues to offset any losses made from Shopee demonstrating strong and stable growth, bringing in $716 million in revenue for the quarter. 

For its third sector, SeaMoney, Sea Limited provides a range of financial solutions including e-wallet services and digital financial offerings. Having applied for a full retail digital bank license in Singapore, the company has been shortlisted along with TikTok owner Bytedance and five other companies as a potential winner of the two licenses to be awarded this year. If it wins, SeaMoney can expand further into this sector, boosting profits and bolstering its e-commerce platform. 

The bear case for Sea Limited

So, whilst the bear case is far outweighed by the bull, there are some things that make an investment in this stock rather risky.

First of all, whilst Sea Limited reported over $1.2 billion in revenue for Q2 2020, the company has not yet reported a profitable quarter since its IPO in 2017 when it raised $884 million. The only segment to turn a profit so far has been Garena. 

Sea’s GAAP losses increased YoY from $280.1 million to $393.5 million. This would be rather concerning if the company had not also reported large individual sector growth as well as increased cash and equivalents — which did rise 10% YoY. 

Another risk is that e-commerce giant Alibaba could easily become the top dog in the region through its subsidiary Lazada, which is already a well-known competitor to Shopee. With Alibaba on the prowl, Sea Limited will need to continue growing at similar rates to what we have seen over the past year to see off any competition. 

So, should I buy Sea Limited? 

There is a reason this multi-faceted company is being called ‘the next Mercado Libre‘; it has become a market leader in e-commerce and digital finance in Southeast Asia whilst also having an impressive global gaming and entertainment business. Its profitability could cause concern if it wasn’t already growing at a fast enough pace to demonstrate that it will be profitable in the future. 

In particular, this company is positioned perfectly to benefit from the Southeast Asian internet economy which reached $100 billion last year and is expected to triple by 2025. Investing in this company could present a high risk, but with a high growth reward. 

Quickfire round

  • Is Sea Limited a Chinese company? 

No, it is a Singaporean company that operates mainly in Southeast Asia and Taiwan. 

  • What does Sea Limited do? 

Sea Limited is an internet company that currently focuses on gaming and entertainment with Garena, e-commerce with Shopee, and finance with SeaMoney. The former company president stated that they wished to ‘solve the food groups of life’. 

  • Does Tencent own Sea Limited? 

No, or at least not fully. Tencent owns about 20% of the Sea group and often acts as its mentor.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.