4 reasons why Sea Limited is a great investment


Mobile entertainment and e-commerce candidate Limited sea (NYSE: SE) quickly emerged from a regional player in Southeast Asia to a major global entity. Business still looks as strong, but Sea shares have fallen about 50% in the past two months. Despite investors’ short-term concerns, Sea looks poised to be a great long-term investment for four main reasons.

1. A significant and growing market opportunity

Southeast Asia, Sea’s primary market, is one of the fastest growing regions in the world, with a population growing more than 50% faster than that of the United States and a GDP that increases more than twice as fast.

A growing middle class, rising average household incomes, and growing cell phone and internet use are creating more gamers and online shoppers in the seven countries where Sea operates. Sea has artfully established the key pillars of its business – Garena, Shopee and Sea Money – to capitalize on all of these trends.

Image source: Getty Images.

2. Garena’s endurance is a huge plus for Sea

Sea has built its business on Garena, the video game and digital entertainment division whose bountiful fundraising fuels innovation and business growth.

Free fire, the game developed by Garena, has been the top-grossing mobile application for nine consecutive quarters in Southeast Asia and Latin America, and for four consecutive quarters in India, according to App Annie. Garena designed the game to work flawlessly even on low-end smartphones, ensuring that most people in its markets can enjoy it, and it tailors the game to the local audience in each of those countries. This constant innovation helps Free fire stay popular and relevant – and lucrative for Garena and Sea – longer than most games.

For the first nine months of 2021, compared to the previous year, Garena increased revenue 119% year-over-year to $ 2.9 billion. Operating revenue grew even faster, up 164% to $ 1.64 billion, showing just how well Garena can reach new audiences without having to spend significantly more. The division is also making more users come back to play more often, with its Quarterly Active User Count (QAU) in the recently reported quarter rising 27% year-over-year to 729 million.

3. Shopee is well positioned for growth

Sea’s e-commerce division, Shopee, has grown from a small mobile app in 2015 to Southeast Asia’s most visited shopping website by 2020. Garena’s profits help fund the business. expansion of Shopee and the data it collects from Free fire gives Sea crucial information to help Shopee get started and grow effectively in various countries. Like Garena, Shopee’s has succeeded with a mobile-centric approach, driving exceptional user engagement with creative strategies like in-app games, social networking features, and aggressive sales campaigns.

For the first nine months of 2021, Shopee’s revenue increased 174% to $ 3.1 billion, supported by triple-digit growth in the number of orders and gross merchandise volume. Shopee also continues to rank as the best shopping app in Southeast Asia by average monthly active users and total time spent in the app, according to data from App Annie.

4. Sea Money is a promising emerging opportunity

Sea Money, the company’s relatively new digital financial services arm, offers mobile wallet, payment processing, and “buy now, pay later” services for buyers and financing solutions for sellers. Sea lures Garena and Shopee users into Sea Money with smart cross promotions – for example, by offering incentives to use Sea Money’s ShopeePay to purchase products in Sea Money. Free fire or on Shopee.

As Sea Money strives to provide a wide range of financial services, the company acquired the license to operate a fully digital bank in Singapore in December 2020 and purchased an Indonesian bank in January 2021. It is also developing smart technology for providing customers with cheaper, easier insurance – another potentially huge and profitable market.

Some points to keep in mind

Sea faces strong competition from global giants such as Amazon and powerful regional actors such as Free Mercado, and it will need to perform flawlessly to continue expanding. Garena’s dominance allows Shopee to invest in her future growth. But although Garena and Free fire build a lasting franchise, any setbacks in popular play will likely slow Sea’s growth.

Like many high-tech stocks, Sea’s shares have taken a hit in the past two months, amid investor concerns over the highly contagious variant of COVID-19 omicron and the Federal Reserve’s recent plans to slow it down. bond purchases and raise interest rates. Additionally, Chinese entertainment giant Tencent, a longtime investor in Sea, recently sold a large chunk of its shares in the company. That’s not a big deal in the context, since Tencent still owns over 19% of Sea, but it hasn’t eased the nerves of investors. Sea shares can remain volatile as long as the market remains skeptical of high growth tech stocks.

Finally, Sea is not yet profitable on a GAAP basis, as the company invests heavily in innovation and expansion. However, in 2020 the company posted free cash flow of $ 219 million – how much money the company has left after paying its crucial bills. Sea has now improved that number for three straight years, and in 2020 the cash flow she generated grew much faster than the capital outlays she had to pay. If Sea can continue this trend, it will show that the business can make more and more money with roughly the same level of base spending.

Financial measure




Operating cash flow (in millions)

($ 495.2)

$ 69.9

$ 555.9

Year-over-year growth

N / A



Capital expenditure (in millions)

$ 177.3

$ 239.8

$ 336.3

Year-over-year growth

N / A



Free cash flow (in millions)



$ 219.6

Year-over-year growth

N / A



Data source: S&P Capital Intelligence.

A great long-term company

With a thoughtful playbook for international expansion and three intelligently designed companies to promote and strengthen each other, Sea Limited is expanding its presence beyond South East Asia. Players are now enjoying Free fire in over 130 countries, while Shopee has launched in four Latin American countries, three countries in Europe, India and China, all in the past two and a half years. Sea’s ability to replicate its success in such socio-economically and culturally diverse regions bodes well for its future.

SE PS Ratio Graph

SE PS report data by YCharts

With the recent pullback, stocks are trading at a much more reasonable price-to-sell valuation in early January 2022. This could be a great opportunity for long-term investors interested in fast-growing tech stocks to take a small position in that sector. promising business.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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