Sea Ltd (NYSE:SE) Analysis: A Three-Pronged Powerhouse In The Making

Sea Ltd Analysis

Sea Limited (NYSE:SE) was started in Singapore in 2009 by CEO Forrest Li, as Garena, a digital entertainment company. Sea Limited as of today is a group made up of 3 main companies: Garena, Shopee and SeaMoney.

Sea Limited began as a gaming company, Garena. This is a name I’m sure many gamers are familiar with, with notable releases such as Black Shot, League of Legends and most recently, Free Fire and Call of Duty: Mobile.

In 2015, the company started their E-commerce segment, Shopee, in order to compete with other e-commerce platforms in the region such as Lazada, AliExpress and Tokopedia.

The last lesser known aspect of Sea Limited, is SeaMoney. SeaMoney, started in 2014, as Sea’s attempt to break into the digital payments and financial services sector in SouthEast Asia.

Garena (as the group name) was eventually rebranded in 2017 to Sea Limited when they IPO’ed on the NYSE to represent their group holdings while Garena was retained as the brand for their gaming arm.

Now, let us take a deeper look at each of these segments to understand their potential and where Sea Limited currently stands.

Sea Ltd: Garena

Garena: Sea Ltd's Gaming Arm

Garena represents the digital entertainment segment of Sea Limited. They focus on the development and offering of games, both for PC and mobile devices. Their games are a mix of in-house produced content and licensed games from third-party developers. In fact, Tencent, who is a major shareholder in Sea Limited, licenses some of its own games through Garena as well.

As of 3Q 2020, Garena boasts a total of 572.4 million quarterly active users, a 78.3% increase year-on-year.  Of these active users, paying users make up about 11.4% of the figure at 65.2 million users, representing a 123.6% increase from the same quarter in the last year.

Garena’s games generally run on a ‘freemium’ business model, meaning that the game itself is free to download and to play, but the users may spend money in order to receive certain perks. This can include customisation items such as skins for equipment and characters, or season passes which entitle them to exclusive items or allow them to speed up their progress in the game.

Beyond game development and offering, Garena also engages in the organising of Esports events and tournaments. Garena currently hosts hundreds of Esports events annually in addition to the largest mobile game professional league in SouthEast Asia. More than just that, Esports events and tournaments attract large numbers of spectators, allowing Garena to publicise their own games and retain existing users.

All of these have come together to bring a 72.9% increase year-on-year in GAAP revenue for Garena, bringing their GAAP revenue up to US$569.0 million for the quarter.

Sea Ltd: Shopee

Shopee: Sea Ltd's E-Commerce Arm

Now, if you thought Garena was impressive in growth, we’re just getting started. Shopee is Sea Limited’s E-commerce segment. It originally began as a Consumer to Consumer (C2C) model, but now includes Business to Consumer (B2C) transactions as well. Its main operating regions are in SouthEast Asia, focusing in Singapore, Malaysia, Indonesia, Philippines and Vietnam. It also has its reach in Taiwan and Brazil.

Looking financially, Shopee boasts a GAAP revenue of US$618.7 million for 3Q 2020 (9), a 173.3% increase year-on-year. This is made up of:

  • Marketplace Revenue: Consists of transaction-based fees, advertising and other value-added services
  • Product Revenue: Consists of revenue generated from direct sales

Marketplace makes up the majority of the revenue, forming 75.4% of the GAAP revenue.

Moreover, Gross Merchandise Value (GMV), which refers to the value of products sold through Shopee, for the quarter, totals to US$9.3 billion, a 102.7% increase from the previous year.

Shopee generally forms the loss making part of Sea Limited, as it is still in the phase of customer acquisition to gain market share against its competitors. As such, a significant portion of Shopee’s revenue is used in advertising as well as aggressive promotions to buyers and sellers on Shopee’s platform.

Sea Ltd: Seamoney

SeaMoney: Sea Ltd's Finance Arm

SeaMoney represents the digital payments and financial services segment of Sea Limited.

In the third quarter for 2020, mobile wallet total payments exceeded US$2.1 billion, with quarterly paying users exceeding 17.8 million.

SeaMoney’s rise is largely enabled by their integration with the other two segments, Garena and Shopee. Garena enables payments through SeaMoney for their games while Shopee enables SeaMoney to be used for payments for products. In fact, in October 2020, more than 30% of Shopee’s total gross orders were paid through SeaMoney’s mobile wallets.

Recently, SeaMoney also rolled out ShopeePayLater (SPayLater), in which customers are allowed to purchase their items first, before paying for them later. This would be similar to making purchases on a credit card. Currently, it is only available in Indonesia.

Sea Ltd's Growth Potential


If you know me well, you will know that E-Commerce is one of the overarching ‘themes’ that I am particularly bullish on. If you look around you and your social circles, I’m sure you’ll know at least one or two who are always crazy about online sales or just always scrolling through online shops in their idle time. Thinking about this already puts that Shopee song in my head.

The number of internet users in the region has grown considerably in the last 5 years, from 260 million users to 400 million in 2020. E-Commerce has risen rapidly together on this trend and this was accelerated further by the onset of the COVID-19 pandemic and the subsequent lockdowns.

The Southeast Asian E-Commerce market is expected to grow by a compound annual growth rate of 23%, to grow to a whooping US$172 billion by 2025. This push was a result of the acceleration towards increased adoption for E-Commerce solutions to daily needs such as groceries shopping or household necessities.

This is supported by the expected development and growth of the Indonesian economy which is predicted to spearhead this rise. The Indonesian digital economy is expected to triple by 2025 from 2020 to be over US$100 billion by itself.

With all of these tailwinds, how will Shopee fare?

Sea Ltd's Shopee is the number 1 E-commerce site in SouthEast Asia

Source: TMO Group

According to TMO Group, 2019’s most visited E-Commerce website for Southeast Asia was Shopee. This is interesting because Shopee’s next two largest competitors, Tokopedia and Lazada, both started earlier than Shopee, in 2009 and 2012 respectively. This means that even without the first mover advantage, Shopee was able to capture market share effectively against these formidable competitors. And I am certain that with the strong growth of digital economies and E-Commerce in general, Shopee will receive a tremendous boost in the years to come.

Beyond SouthEast Asia, Sea Ltd has also begun its expansion into Latin America, which has been long regarded as the turf of competitor: Mercado Libre. This will be an exciting battle to watch between the two well-regarded e-commerce heavyweights.

Gaming and Esports

Esports is a significant tailwind as well, strengthening the gaming arm of Sea Limited. The Esports industry is predicted to grow to US$1.5 billion by 2023. Similarly, Esports viewership is expected to grow at a compound annual growth rate of 9% from 2019 to 2023, expecting viewership to 646 million viewers by 2023.

Moreover, mobile gaming has begun to take up a significant portion of the gaming industry’s revenue, forming 60% of global video game revenue in 2019. This is good news for Sea Limited as Garena’s focus is now shifting to mobile gaming, with recent popular releases Free Fire and Call of Duty Mobile. Free Fire still stands as the most downloaded mobile game of 2020, beating even names like Among Us.

With the expected growth of the Esports and mobile games market, it should be no surprise that Garena will continue to dominate in this regard.

Digital Banking

Last but not least, looking to SeaMoney. In 2020, Sea Limited was granted a digital banking license by the Monetary Authority of Singapore. They were selected among 4 others, out of 14 applicants.

Sea Limited was granted the Digital Full Bank License, which essentially allows Sea Limited to cater to retail clients like you and I and they are allowed to conduct banking services as per banks that we are familiar with, except digitalised. They will also be allowed to serve non-retail clients such as SMEs.

Moreover, in just January 2021, they’ve also acquired an Indonesian bank in a move to push their finance operations further into the region.

It will be interesting to see how the digital payments and financial services segment of Sea Limited will develop after the acquisition of the Digital Banking License, but this is certainly a step in the right direction for Sea Limited.

Considerations & Main Risks

With all that said and done, Sea Limited however, does come with risks as an investment. Sea Limited is not profit making and it’s net loss has in fact been increasing over the last 5 years.

However, I am not worried about these losses. These losses were incurred to claim market share against their competitors under the Shopee segment. However, despite losses widening, EBITDA loss per order has decreased from $1.01 to $0.50. This shows an increasing profitability per order, likely due to rolling back some of Shopee’s aggressive promotions for the platform.

Moreover, Sea Limited’s Garena, which serves as Sea’s ‘cash cow’ is growing stronger than ever to continue to support Sea Limited’s operations in Shopee. In fact, Sea Limited is finally expected to breakeven and turn a profit in 2022.


Sea Ltd Summary

Sea Limited is truly a monster in terms of its current growth. But I think Sea Limited still has its best days ahead of it and the runway ahead is long with tremendous potential to grow. On all three segments, Sea Limited is powering through and powering up to dominate in the Southeast Asian region as a powerhouse.

Despite the potential risks of Sea Limited’s widening losses, I do believe that the odds are in their favour to stand up to their competitors to emerge victorious in the Southeast Asian region and beyond.

Disclosure: I have been vested in Sea Limited shares since early 2020. This article is neither a recommendation to buy or sell Sea Limited shares and does not constitute financial advice.

Photo by Florian Olivo on Unsplash

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