Sea Limited: This Monster Growth Stock Is Just Getting Started

seekingalpha2021-04-22

Summary SE is growing incredibly fast in all its segments, some of which are very profitable. The company is now ready to begin investing in the South East Asian economy and expanding its operations....

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Comments

sexymint
2021-05-04
sexymint
Shopee!!
SureWinTun
2021-04-24
SureWinTun
Anyone know how well is Shopee doing in Brazil and Mexico?
Gnin
2021-04-23
Gnin
Yay
Engengcheng
2021-04-23
Engengcheng
Buy
Shin33
2021-04-22
Shin33
Held its 21 sma. Looks to be trending back up.
Ichua
2021-04-22
Ichua
Still going up??

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The continued excellence in operating performance and how well the stock has held up over the coming “tech/growth” are both indicators of the great returns this stock could give investors. SE has a large addressable market and has the size and efficacy to grow its core businesses and even expand into many other verticals. Given this, I would like to see the stock double in the next year.\n3 Reasons I Really Like SE\nSE has, for the moment, three main verticals: Digital entertainment, eCommerce, and Finance.\nGarena, which corresponds to their digital entertainment, grew EBITDA by 94% YoY, reaching $2 billion. Most of this success can be attributed to Free Fire, which was the most downloaded mobile game in 2020. Shopee is SE’s eCommerce platform. In 2020, Shopee grossed $11.9 billion in GMV and grew revenues by 160% YoY. Shopee is a leader in South East Asia and is also gaining a lot of ground in Latin America. Lastly, we have SeaMoney, which serves as a mobile wallet and also powers Shopee Pay. Their mobile wallet achieved $7.8 billion in payments in 2020.\nOverall, the company produced negative $2.78 EPS in 2020. The only profitable segment so far is digital entertainment, which brought in around $1.9 billion in EBITDA. eCommerce, on the other hand, lost around $1.3 billion in EBITDA, while SeaMoney lost around half a billion.\nIn a sense though, SE has the best of both worlds. On the one hand, it has an incredibly profitable and fast-growing segment. On the other, while eCommerce and Finance are profitable yet, we have plenty of evidence from other companies with similar operations to suggest that they can easily turn a profit once the point of exponential growth is past.\nFor now, Shopee is doing a great job at using its free cash flow to expand as fast as it can. Specifically, there are three things that I like about SE and make me very bullish on this stock.\nTarget Addressable Market\nSea is based and operates mainly in South East Asia, with Indonesia being its largest market for commerce. While the ASEAN (Association of Southeast Asian Nations) has been hard hit by COVID, they are forecast to grow real GDP by 6% in the next year.\nMost of this growth, as is to be expected, is coming from the increased digitalization of the economy. Indonesia is nowpoised to surpass Indiain terms of eCommerce growth.\nBut SE doesn’t only have access to the SEA market, as proven by its most recent inroads in Latin America.\nSource:Twitter (James Ho)\nSE’s Shopee has overtaken MercadoLibre (MELI) as the most used app in the region. SE has a local market that is growing and is also tackling foreign markets incredibly well. Even where markets are already mature and more saturated, SE is making strategic agreements to capture more markets, one way or another.\nLastly, it is worth mentioning that, in terms of TAM, Garena pretty much has no limits. Free Fire is a worldwide phenomenon, with many players coming from Brazil, United States, and Russia.According to Research and Markets, the gaming industry which alreadyoutperformed movies and sportslast year, is set to reach $287.1 billion in 2026, which is a 9.6% CAGR.\nExploiting size and first-mover advantage\nHere’s where it gets interesting. SE already has a lot of markets to service in its three key verticals, but the point I am making here is that SE can leverage its size and power to enter many more areas in the economy. This might have been a speculative statement before, but we got concrete evidence that SE is pursuing just this plan of attack in the latest earnings report:\n\n I'm also pleased to share that Sea has completed the acquisition of Composite Capital, a leading investment management firm founded and led by David Ma...Along with this acquisition, I'm proud to announce the formation of Sea Capital, a new platform to manage Sea's investment efforts...By investing in the growth of our broader ecosystem, we believe Sea Capital can help accelerate the growth of the overall digital economy and create real and lasting value for our users, business partners and communities. In line with this commitment, we are allocating an initial $1 billion for Sea Capital to deploy in the coming years.\n\nSource:Earnings Call Transcript\nThis is certainly something worth mentioning. SE is incorporating a whole new branch, Sea Capital, to invest in digitalization and empower its clients. While it is hard to know where this $1 billion will be allocated, there are many places where the money could go which would not only bring in more revenues but also provide synergies with Sea’s existing segments; Cloud computing, eCommerce logistics, systems software, and cryptocurrencies are just a few that come to mind.\nA Sea of Cash Flow\nLast, but not least, is the fact that, unlike many other growth companies, SE has been increasing its cash flows consistently. Levered FCF has grown by over 100% in the last year. Operating cash flow over 600% and this triple-digit growth is expected to continue into next year.\nAt this point, it might be safe to say that, if SE wanted, it could turn a profit on its eCommerce and Financial segments. There is nothing hard to predict here like with other growth stocks, which makes SE a lot less risky and speculative. Sure, eCommerce margins can be thin, as is the case with Amazon(NASDAQ:AMZN), but we know that it can be done. Furthermore, payment processing can be a very lucrative business, and SE is paving the way in South East Asia.\nRisks\nDespite everything SE has going for it, there are some potential risks we should take into account. From a business standpoint, it is still questionable just how competitive SE’s services will be once it stops running them at a loss. More significantly though, SE has to deal with a very worthy competitor, Alibaba Group Holding (BABA), which is also fighting for dominance of the South East Asian market.\nBy far though, I’d say the biggest risk to SE is becoming a one-trick pony. SE’s success can be attributed in great part to the success of Free Fire. But gaming franchises come and go, and SE could one day find itself struggling to replicate this success. Personally, though, I think given Sea’s track record, the company can keep excelling in gaming, and as mentioned above, in new and untapped segments.\nValuation\nWith all this said, what can we expect of SE’s stock price in the next year? A simple valuation could be reached using Earnings per Share and P/S. Accordingto estimates, SE could achieve close to $7.86 billion in revenues in the next year. Currently, they're at 511.9 million shares outstanding. Let’s assume 10% dilution although this would be rare given SE’s current balance sheet position, that would leave us with around $7.86 billion in revenues and 560 million shares, or around 14$ of revenue per share.\nCurrently, SE trades at a P/S multiple of 27. Given the growth and forecast increased in profitability, I think P/S of 30 in a year is more than justifiable. Therefore, the target price for SE could be around $378, which I would consider a conservative estimate.\nHaving said this, we can also try to value SE using Elliott Wave Theory.\nSource: Author’s work\nFollowing the January 2019 low, we can count at least three waves up and could argue the fourth wave ended at $205 a few weeks ago. Having said this, it would be more likely to use a strict EWT analysis to see further lows. We could even point to an A-B-C structure developing. In either case, though, the target for the fifth wave should be close to $334-$450, which corresponds quite nicely to the price target reached using P/S. I’d be very surprised to see SE trading at under $200, and if/when it does, I’ll be adding more shares.\nTakeaway\nThere are few investments out there, in my opinion, that offer the kind of risk/reward that SE does. At this point, we aren’t talking about some random company that could fall into nothingness in a couple of years. SE is here to stay, and if it stays on this path, it could become one of the largest companies in the world one day.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":106007211,"gmtCreate":1620061412733,"gmtModify":1704338099284,"author":{"id":"3561164848573536","authorId":"3561164848573536","name":"sexymint","avatar":"https://community-static.tradeup.com/news/a54ee2b9637460582a780737f4e76f73","vip":1,"hat":"https://static.tigerbbs.com/3b7820dfed76481d8dc4de6ac5a7a136","crmLevel":9,"crmLevelSwitch":1,"idStr":"3561164848573536","authorIdStr":"3561164848573536"},"htmlText":"Shopee!!","listText":"Shopee!!","text":"Shopee!!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/106007211","repostId":1181300700,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":372249346,"gmtCreate":1619223759885,"gmtModify":1704721421135,"author":{"id":"3581889013623128","authorId":"3581889013623128","name":"SureWinTun","avatar":"https://static.tigerbbs.com/b887e690361d66167214f283496d05a5","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581889013623128","authorIdStr":"3581889013623128"},"htmlText":"Anyone know how well is Shopee doing in Brazil and Mexico?","listText":"Anyone know how well is Shopee doing in Brazil and Mexico?","text":"Anyone know how well is Shopee doing in Brazil and Mexico?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/372249346","repostId":1181300700,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":372857277,"gmtCreate":1619193432799,"gmtModify":1704721148404,"author":{"id":"3572347995213492","authorId":"3572347995213492","name":"Gnin","avatar":"https://static.tigerbbs.com/d11be8ab64daf9f8f4d1ebb064243ebb","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3572347995213492","authorIdStr":"3572347995213492"},"htmlText":"Yay","listText":"Yay","text":"Yay","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/372857277","repostId":1181300700,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":376212263,"gmtCreate":1619131530352,"gmtModify":1704719987420,"author":{"id":"3575113804369903","authorId":"3575113804369903","name":"Engengcheng","avatar":"https://static.tigerbbs.com/3c9e037cc53f8f88c9d725d9dd6843fd","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":5,"crmLevelSwitch":0,"idStr":"3575113804369903","authorIdStr":"3575113804369903"},"htmlText":"Buy","listText":"Buy","text":"Buy","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/376212263","repostId":1181300700,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":376057944,"gmtCreate":1619073594788,"gmtModify":1704719231274,"author":{"id":"3555306947034569","authorId":"3555306947034569","name":"Shin33","avatar":"https://static.tigerbbs.com/284aaff943abf94855baca0b6a933ecd","vip":1,"hat":"https://static.tigerbbs.com/f84d87792f02cf78e80ee34979fd31e5","crmLevel":2,"crmLevelSwitch":1,"idStr":"3555306947034569","authorIdStr":"3555306947034569"},"htmlText":"Held its 21 sma. Looks to be trending back up.&nbsp;","listText":"Held its 21 sma. Looks to be trending back up.&nbsp;","text":"Held its 21 sma. Looks to be trending back up.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/376057944","repostId":1181300700,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":376066832,"gmtCreate":1619071410326,"gmtModify":1704719198924,"author":{"id":"3554848762875033","authorId":"3554848762875033","name":"Ichua","avatar":"https://static.tigerbbs.com/175ebc8e659de3f491645e9236066d54","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3554848762875033","authorIdStr":"3554848762875033"},"htmlText":"Still going up??","listText":"Still going up??","text":"Still going up??","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/376066832","repostId":1181300700,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":36,"commentSize":19,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1181300700"}