Sea Limited's World Conquest 🌏
Your Easy Briefing On Under-Hyped Stocks 👀
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Sea Limited 🌏
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Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.
Sea Limited (NYSE:SE)
🔦 THE INTRO 🔦
Sea Limited was founded in 2009 in Singapore by Forrest Xiaodong Li, a Chinese-born Singaporean businessman. The company was previously known as Garena and started as an online gaming and social platform. Tencent is a major shareholder and has a 35% stake in the company.
It went public in March 2017 at a $ 5.4B valuation. The company is now worth over $ 100B
Besides its gaming operations, Sea Limited has successfully expanded into e-commerce and digital payments
🚀 EXPLOSIVE GROWTH 🚀
Sea Limited has made headlines for its capacity to quickly enter a market and take a leading position.
The gaming segment, known as Garena, counted 572m Quarterly Active Users (QAU) in Q3 2020, up 728% from the 69m QAUs in Q3 2017
The e-commerce segment, known as Shopee, generated a Gross Merchandise Value (GMV) of $ 9.3B in Q3 2020, up 745% from the $ 1.1B it did in Q3 2017
The financial segment, known as SeaMoney, counted 17.8m Quarterly Paying Users (QPU) in Q3 2020, up 493% from 3m registered users in Q3 2017
Garena was the first Sea Limited business. It grew massively in the last years, driven by the success of its Free Fire games. These generate considerable recurring revenues with high margins, enabling Sea Limited to reinvest this cash into its new ventures.
🎮 GARENA, THE CASH GENERATOR 🎮
Garena has published several high-profile games such as League Of Legends (developed by Riot Games, Tencent owned) and Fifa Online. Its most successful game is Free Fire and the group is now expanding into game streaming.
Free Fire, a so-called “battle royal game” was the most downloaded mobile game in 2019 and in 2020 across iOS and Android according to App Annie
“Last year [2019] proved to be hugely successful for Free Fire, as the game hit over 100 million daily active users at its peak.” Kayleigh Partleton for Pocket Gamer Biz
“Free Fire continued to be the highest grossing mobile game in Latin America and in Southeast Asia in Q3 2020” App Annie
The gaming giant joined the collaboration between Tencent and Activision to launch the Call Of Duty Mobile sequel in Southeast Asia
“With 50,000,000+ downloads in Play Store and App Store, Call of Duty is ruling the gaming community” Diwas for Seasia
Garena is making a foray into streaming with Booyah, an app that enables users to live stream mobile games, a feature that helps retain its Free Fire user base
“The app was also designed with Garena’s mobile game Free Fire in mind. Players can connect their Free Fire accounts to Booyah, and the app will automatically generate highlight reels when a match is played.” Stefanie Yeo for Tech In Asia
🛍 SHOPEE, THE E-COMMERCE EXPANSION 🛍
Shopee started as a small social e-commerce platform. It quickly gained traction and was present in 6 countries only 3 months into its launch. It has now become a the leading e-commerce platform of Southeast Asia.
The e-commerce venture started in 2015 in Singapore and was a consumer to consumer e-commerce platform that integrated payment solutions and logistical support right from the start
Through the Shopee Guarantee, it held the escrow payments to sellers in order to reduce fraud
This represented a departure from the classifieds-model were payments, fraud prevention and delivery options were scarce
The app rapidly gained traction by being present in 6 countries 3 months into its launch and expanding in Indonesia 2 months later
By 2017, the app counted 50m users installs and 100m listings. It also relaxed its consumers-to-consumers model and opened up the platform to business sellers
“Sellers need to have an online presence to survive. But instead of building their own mall, they can just place their products on our shelves with millions of ready potential customers and service logistics” Ian Ho by Izwan Ismail for New Strait Times
By that time, Shopee launched its Shopee Mall, a dedicated portal featuring a set of verified and authentic products from leading consumer brands
In 2018, it launched its China Marketplace, another dedicated portal that offers easy access to products from Chinese merchants
🥇 FIGHTING FOR NUMBER ONE 🥇
Today, Shopee is the leading e-commerce platform is Southeast Asia as it gained the upper hand on Lazada, an Alibaba-backed company, and Tokopedia
“Tokopedia’s position is under threat from Shopee, part of the […] Sea Group”
“[…] Shopee leads Tokopedia in all key public metrics in Indonesia, including website visits, app ranks, and social media engagement. It also employs 60 per cent more people in the country.” Jianggan Li for South China Morning Post
Here is how it compares versus the second-best alternative:
Leads in Indonesia (population 270m) by 13m visits (10%)
Shopee scored 137m visits in December up 21% from July 2020
Tokopedia scored 124m visits, up 17% from July 2020
Leads in Malaysia (pop. 33m) by 35m visits (238%)
Shopee scored 49.4m visits in December up 35% from July
Lazada scored14.7m visits, up 6% from July
Leads in Vietnam (pop. 97m) by 30m visits (133%)
Shopee scored 70.9m visits in December up 18% from July
The Gioi Di Dong scored 30.4m visits, up 13% from July
Leads in The Philippines (pop. 107m) by 14.6m visits (33%)
Shopee scored 58.3m visits in December up 28% from July
Lazada scored 43.7m visits, down 4% from July
Leads in Singapore (pop. 5.8m) by 14.6m visits (64%)
Shopee scored 14.7m visits in December up 42% from July
Lazada scored 8.9m visits, up 21% from July
💳 SEAMONEY, THE FINTECH PLAY 💳
Sea Limited most recently branched out into solutions for mobile and offline payments. It also expanded into financing solutions for sellers and buyers.
Mobile Wallets (Shopee Pay and AirPay)
These allow users to make online payments, top up their wallet, transfer and withdraw funds, and make payments offline at thousands of their merchant partner locations
Offline Payment Services (MitraShopee and AirPay Counter)
Enable users to quickly and conveniently top up their mobile wallets, purchase digital goods, and enjoy other digital payment services at their local stores
Financing Solutions (SPayLater, SPinjam, DanaCepat)
Offers its in-house Buy Now Pay Later solution to Shopee customers in select markets, provides cash loans to customers in Indonesia and offers loans to micro- and small-sized businesses
🏦 BANKING ASPIRATIONS 🏦
Recent developments point to Sea’s growing banking aspirations. It started in December 2020 by earning a banking license in Singapore:
Sea Limited was awarded a Digital Full Bank License
It will be able to operate as a - fully digital - traditional bank, enabling users to open accounts and handle deposits
It will also have the ability to issue debit and credit cards and serve corporate accounts
"We expect them to thrive alongside the incumbent banks and raise the industry's bar in delivering quality financial services, particularly for currently underserved businesses and individuals.” Ravi Menon, MAS Head by Prisca Ang for The Strait Times
And Sea Limited raised around $ 3B in late 2020 through an additional stock offering to take over an Indonesian Bank, the Bank BKE.
🌐 THE MARKET 🌐
Sea Limited is ideally exposed to the mobile gaming, e-commerce and digital payments markets. These markets are projected to grow by over 10% each year over the 2020 - 2025 period, supported by increasing smartphone penetration and rising disposable income.
According to Mordor Intelligence, the mobile gaming market is set to grow by 14% each year over the 2020 - 2025 period
Driven by growing smartphone penetration, the continued rise of the free-to-play model and technological advancements
According to Statista, the mobile gaming market is set to grow by 10% each year over the 2021 - 2025 period
Driven by higher user penetration, going from 23.9% in 2021 to 28.5% in 2025
According to Newzoo, mobiles games spending grew 13.3% in 2020 and reached $ 77.2B
Driven by higher smartphone penetration and the free-to-play model which enables gamers to quickly pick-up new games
“Mobile will enjoy more growth than both PC and console gaming for a few reasons. Mobile gaming has the lowest barrier to entry: more than two-fifths of the global population owns a smartphone — and many mobile titles are free to play.“ Dean Takahashi for Venture Beat
According to Statista, the e-commerce market in Southeast Asia is set to reach $ 94B by 2024, up from $ 54B in 2020
Driven by increasing user penetration which is set to climb to 60% by 2024, up from 43% in 2020
Further supported by the rise in Average Revenue Per User (ARPU) which is set to rise to $ 224 in 2024 from $ 187 in 2020
According to Bain & Company, digital payments are set to grow by 10% each year over the 2019 - 2025 period in Southeast Asia as Gross Transaction Value (GTV) grows from $ 600B to $ 1.1T
Driven by increasing smartphone penetration across the region and rising wealth levels, leading to a decreasing share of unbanked individuals and an increase in digital payments
“More than 7 out of 10 adults in Southeast Asia are either “underbanked”—they have no access to credit cards or have no long-term savings product” Florian Hoppe et Al.
✋ TAKE A BREATH ✋
So… This is a lot of information. Let’s summarise:
Sea Limited is a Tencent-backed gaming company that earned the rights to publish the League Of Legends and Free Fire games in the Southeast Asian region
These games have a loyal user base and continue to generate considerable revenues in 2020 as Garena is launching new hits such as Call of Duty Mobile and expanding into growing gaming segments such as video game streaming
Instead of distributing its profits back to shareholders, Sea Limited it taking advantage of generational shift in retail and payments by setting up its own e-commerce platform and payments solutions
Starting from nothing, Shopee became the leading e-commerce player in every major market in Southeast Asia, it is rapidly expanding in Brazil where its website visits now total 34m, up 482% in the July - December 2020 period
Sea Limited is turning itself into a bank and was awarded a digital banking license in Singapore. It also acquired an Indonesian Bank
The group has shown it can fight for number one in every market it enters and is ideally placed in rapidly growing segments such as mobile gaming, e-commerce and digital payments
The mobile gaming segment is set to rise by 14% per year, over the next 5 years
E-commerce sales are set to double in the next 5 years in Southeast Asia
Digital payments are set to grow by 10% each year over the next 5 years in Southeast Asia
💸 FINANCIAL CHECK 💸
Total revenue was $1.2 billion for Q3 2020, up 98.7% year on year
Gaming sales
Bookings were $944.7 million, up 109.5% year on year.
Adj. EBITDA was $584.5 million, up 119.8% year on year
Adj. EBITDA represented 61.9% of bookings versus 59% a year earlier
E-Commerce sales
Revenue was $618.7 million, up 173.3% year-on-year
Gross orders totalled 741.6 million, an increase of 130.7% year on year
Gross merchandise value (GMV) was $9.3 billion, an increase of 102.7% year on year
Adj. EBITDA was $(301.6) million compared to $(253.7) million for the third quarter of 2019
Digital Payments
Mobile wallet total payment volume exceeded $ 2.1B
Quarterly Paying Users surpassed 17.8m
Total gross profit was $407.6 million, up 100.6% year on year
Operating expenses as a percentage of sales decrease to 59% from 64% a year earlier
Total adjusted EBITDA was $120.4 million compared to $(30.8) million for the third quarter of 2019
The company had $5.6B in current assets versus $ 3.7B in current liabilities
⚡️ THE BOTTOM LINE ⚡️
The Good
Sea Limited is generating the cash it requires to fund its e-commerce and fintech expansion
It is exposing itself to fast growing markets, driven by strong underlying fundamentals as the rising smartphone penetration, increase in wealth levels and the advent of e-commerce on a global scale
The company has managed to gain the leading position in the e-commerce segment in Southeast Asia and is now looking to replicate this in LATAM with a recent entry into the Brazilian market
Using its large gaming and retail customer base, it is expanding into digital services and providing financing and payments solutions
The Bad
Sea Limited’s strategy rests on the success of its Free Fire sequel, which might fall out of favor with gamers over time
Sea Limited is strongly exposed to cyclical sectors, which might come under considerable pressure during a downturn
Sources and credits
Investor presentation
Company website
App Annie
Seasia
Tech In Asia
New Strait Times
The Strait Times
Business Times
Newzoo
Bain & Company
Statista
Mordor Intelligence
Venture Beat
SimilarWeb
Reuters
Crunchbase
Disclaimer
Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.
Disclosures
The author has no business relationship with any company mentioned in this article and the author is not receiving any form of compensation for this article other than contributions from paying subscribers.