Sea Limited: Still A Buyer Here, Despite A Few Concerns

$Sea Ltd(SE)$

Summary

• Sea Limited has been a major casualty of the pullback in growth stocks, with the share price falling nearly 70% from recent highs.
• Problems in its Garena business and troubles with international expansion have not helped market sentiment.
• Still, the Shopee and Sea Money divisions have seen excellent execution.
• Sea's stated intent to achieve operating profitability in most SE Asian markets in '22, and positive cash flow in Sea Money in '23, may eventually help turn sentiment.
• This idea was discussed in more depth with members of my private investing community, Sustainable Growth.

In the high-growth selloff that has accelerated over the last six months, there have been few businesses that have been ravaged quite as severely as Sea Limited (NYSE:SE).

Sea declined from a high of over $370in October last year to a current price of $110, losing 70% of its value from all-time highs, and was down nearly 80% at recent lows.

This decline is far more than other emerging market e-commerce and fintech peers such as MercadoLibre, Inc. (MELI), which is only down 50% from recent highs. While there are concerns around the Sea investment case, there is still quite a lot going well for the business.

Leadership in Southeast Asian Markets Continues

Sea Limited continues to post impressive top-line numbers, and market leadership remains strong in key markets across Southeast Asia. The business recently announced revenue growth of 106% year over year, with the businesses e-commerce and fintech segments, in particular, doing very well.

While Garena revenues from Sea's Free Fire franchise continue to prop up the business, Sea's e-commerce platform Shopee is driving much of the recent growth that Sea has seen. Shopee is seeing a solid expansion of order volume and gross merchandise volume expansion. Order volume grew 90% year over year, with gross merchandise increasing 50% yearly.

Concluding Thoughts

While MercadoLibre is my preferred emerging market e-commerce and fintech platform, Sea represents a still worthy yet slightly higher risk option for Southeast Asian commerce and digital financial services. The risk of the investment case has undoubtedly risen over the last couple of months.

Yet, core engagement and market leadership suggest that Sea continues to execute well and is on a path to market dominance in SE Asia. Valuation also remains more compelling than any time over the last 18 months.

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