Insights

Earning Analysis: Singapore Unicorn Company Sea Limited

11 March 2019  |  TRADING IDEAS

Sea Limited (NYSE: SE) , is Southeast Asia’s biggest gaming service company and operates three platforms across digital entertainment, e-commerce, and digital financial services, known as Garena, Shopee, and AirPay. The company’s key market regions include Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore.

The company announced its strong growth financial results for the fourth quarter and full year ended December on Feb 27th.

Fourth Quarter adjusted revenue achieved 137% growth year-on-year from $164.5 million to $389.3million, while full year revenues were also up 89% year-on-year to $1,048.7 million.

Although the business is growing rapidly, losses widened. The company’s adjusted EBITDA losses for FY18 jumped 109% to $694 million from $332 million in the previous year.

Garena: Digital Entertainment

The company’s self-developed game, Free Fire becomes popular world-wide. The game boasts more than 100 million monthly active users with more than 350 million registered users from Brazil to Indonesia, and is the fourth most downloaded game across Apple app Store and Google Play Store. Free Fire was the top ranked game in Brazil in 2018 by average monthly active users, downloads and consumer spend. More than 40 million players log on the platform each day to find weapons and battle with each other.

The company also continues to build on partnership with Tencent (HK:0700). Sea launched Speed Drifters, a localised version of Tencent’s hit game QQ Speed.

Adjusted revenue of their digital entertainment stream for the full year of 2018 reached $661.0 million, up 33.3% year-on-year from $495.9 million for the full year of 2017, and is expected to show further robust growth in the first quarter of 2019.

Shopee: E-commerce

Just three years since the launch of the platform, Shopee’s annual GMV (gross merchandise value) has reached to $10.3 billion for FY 2018. Gross orders totaled 604.5 million, an increase of 146.9% year-on-year from 244.8 million for the full year of 2017.Annual active buyers for 2018 totaled 49.9 million, up 130.0% year-on-year from 21.7 million for 2017. But Shopee is far away from profit which dragged down the whole business. Shopee posted an $893 million net loss in 2018.

According to App Annie, Shopee was the most downloaded app in the Shopping category in Southeast Asia and Taiwan in 2018. In Indonesia, Shopee’s largest market, Shopee recorded 83.8 million orders in the fourth quarter of 2018.Shopee continues to scale with increasing efficiency by deepening relationships and engagement with sellers and buyers, and enhancing their e-commerce ecosystem.

The Southeast Asian e-commerce market is growing rapidly and as a result has plenty of players competing. China's Alibaba Group acquired Southeast Asian e-commerce company Lazada last year. Alibaba is also expanding the network of retailers. Besides, Alipay, its mobile payment service is widely supported in Southeast Asian region.

AirPay: Digital Financial Services

AirPay was initially launched in 2014 as an e-wallet to facilitate online transactions for users of Garena’s gaming service and since then it been downloaded 3.2 million times. Now it can provide a wider range of payment services for both physical and digital goods including utility bills, phone credit, movie tickets, and ecommerce.

Looking to the future

The 41-year-old Forrest Li, Sea's founder, chairman and group CEO, owns 13.8% of Singapore-based Sea, a stake now worth roughly $1 billion.

Even though the company’s loss widened, investors are betting that Sea’s costly expansion into e-commerce will complement its gaming arm and create a regional internet-services heavyweight in the mold of backer Tencent Holdings Ltd. Sea forecasts 2019 annual adjusted revenue at gaming to grow its revenue by 90 per cent to $1.2-1.3 billion this year. It also expects Shopee to grow its revenue by 120 per cent to $630-660 million this year.

Sea announced the pricing of 60,000,000 American Depositary Shares (ADS), each representing one Class A ordinary share of the Company, at US$22.50 per ADS in an underwritten public offering on March 5th. This could raise $1.35 billion but this could increase by a further $202 million if underwriters take up the full allotment of 9 million additional shares that are open to them. If that were to happen, the company totally will raise over $1.5 billion.

Sea said they are raising fund for “business expansion and other general corporate purposes”.

Investors are getting crazy for this rapidly growing company and we also think Sea should be watched carefully.

Singapore Unicorn Company Sea Limited


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Sea Limited,

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