This digital entertainment and e-commerce company is expected to grow at double-digit rates this quarter, boosting its shares’ momentum.
Sea Limited (SE)
From Cabot Emerging Markets Investor
Sea Limited (SE) was founded in 2009 under the name Garena and went public in October 2017. It’s a Singapore company that provides digital entertainment, e-commerce and financial services in Southeast Asia.
Specifically, it provides a digital entertainment platform for users that allows them to access mobile and PC online games, eSports operations and other entertainment content, such as live streaming of online game play and social features. Sea Limited also operates the Shopee e-commerce platform, a third-party marketplace that connects buyers and sellers through the Shopee mobile app and Websites.
And the company also offers digital financial services to individuals and businesses, including e-wallet and payment services through the AirPay mobile app and AirPay counter applications on mobile phones or desktops; payment processing services for Shopee; and a payment-processing platform for prepaid cards.
Importantly, Sea is backed by China’s Tencent Holdings through both an equity investment and a distribution agreement under which Tencent grants Sea right of first refusal to publish Tencent’s mobile and PC games in Indonesia, Taiwan, Thailand, the Philippines, Malaysia and Singapore.
While it’s still unprofitable and should remain so for another couple of years, Sea has been growing its top line rapidly and its stock is in a strong uptrend as investors look for ways to access the youthful, tech-savvy markets in Southeast Asia. Forrester estimates that the e-commerce market of young shoppers in the region will grow by more than 400% in the next seven years! So, there’s plenty of growth potential for Sea.
In the third quarter, revenue grew 118% from the prior year, thanks mainly to booming e-commerce growth. Gross merchandise volume lifted 153%, orders were up 141%, and adjusted revenues exploded. In Indonesia, Shopee’s largest market, total orders for the last reported quarter reached 63.7 million, or a daily average of 0.7 million orders, which makes Shopee the largest e-commerce platform in Indonesia.
For the full year 2018, management sees total revenues up more than 70%, with gross merchandise volume up 130%. The next quarterly report is likely out within two or three weeks, though there’s no set release date yet.
The company reports that its self-developed game, Free Fire, is now one of the world’s most popular online games, recently achieving its record high peak daily active user count of over 27 million and surpassing 200 million registered users globally.
SE started trading back in October 2017 and promptly plunged from 17 to 10 by May of last year, before rallying back to 17. Then came another prolonged dip to 10.5 in December! But the action since then is excellent, with a quick ramp as high as 15 on four straight weeks of heavy volume, before the recent dip. We’re adding it to our portfolio tomorrow. BUY.
Carl Delfeld, Cabot Emerging Markets Investor, www.cabotwealth.com, 978-745-5532, February 7, 2019