Sea Limited: Beast Unleashed After Q4 Earnings

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Sea Limited: Beast Unleashed After Q4 Earnings

Seeking Alpha03-05

SummarySea Limited reported strong Q4 earnings, with revenue increasing 4.8% YoY and achieving a full year of profit.The company's e-commerce business gains market share and its digital financial ...

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Lawrence.Sun
·03-05
Honestly, if it is just the results , looks good. But the explanation by management during Q&A seemed very forceful , and did not offer alot of substantiated information on how they intend to sustain the growth amidst a quarter where TikTok is not active.
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BenjiFuji
·03-05
Great share
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However, I highlighted this as a buying opportunity, as the company’s long-term fundamentals were still strong.These latest earnings prove that SE is on the right track. The company has managed to defend its market share, and even increase it, while also achieving a full year of profitability.The road ahead will be challenging, but I still rate SE a strong buy at these prices.SE beat on both revenue and EPS estimates, and the stock is up on the day. Here’s a quick overlook:GAAP revenue increased 4.8% YoYGross profit was $1.5 billion.Adjusted EBITDA was $126-7 million.Cash and investments amounted to $8.5 billion.Now, let’s go ahead and look at how Sea did in each of its segments and how this compares to its previous performance.Looking at e-commerce, we can see that marketplace revenue expanded 23% YoY.E-commerce revenues (Investor slides)With that said, adj EBITDA was lower sequentially due to heavy investment in sales and marketing.According to the CEO, Shopee managed to gain market share in 2023.Despite an environment of intensified competition in Southeast Asia, we believe Shopee had a meaningful gain in market share between the start and the end of 2023,Source: SE Press ReleaseCompetition has been fierce in this market, with ByteDance’s (BDNCE) TikTok threatening to take a large chunk of market share in recent months.However, we’ve seen the company execute an aggressive plan to retain market share, and it seems to be paying off.DFS growth (Investor slides)Digital Financial Services (SeaMoney) are also growing at a fast pace. 24% YoY in terms of revenue. Plus, this was the first year of positive revenue:2023 was the first year of positive profit for SeaMoney, with full year adjusted EBITDA of 550 million dollars. As of December 31, 2023, our consumer and SME loans principal outstanding was 3.1 billion dollars, a 27% increase year-on-year. 2.5 billion dollars of that was in the book. Consumer and SME loans active users for the fourth quarter, defined as credit users with loans outstanding by the end of the quarter, was over 16 million, a 28% increase year-on-year.Source: Earnings CallAnd lastly, Digital Entertainment:DE metrics (Investor slides)Sea is still bringing in significant revenue thanks to its hit release Free Fire, though this has slowed down. However, it is very encouraging to now see two consecutive quarters with growing Bookings.Overall, the company grew revenues by 5% YoY, and EPS came in at $0.27 for the full year.OI and EBITDA (Investor slides)Most of the operating income still comes from DE, while E-Commerce is now operating at a loss following aggressive investments to expand and defend market share. DFS has shown a nice increase in profitability in the last yearSea Limited used to be a high-growth company, but now it has to carefully balance both growth and profitability.In the last quarter, the company has managed to thread the needle, achieving its first full year of profit and also maintaining solid growth in e-Commerce.But can the company keep this up?Growth and ProfitabilityThough we don’t have any concrete guidance, management expects profitability to continue in 2024.In 2023, we achieved profitability, strengthened our market leadership for our e-commerce business, grew our digital financial services business, and stabilized the performance of our digital entertainment business. We have emerged with a much stronger balance sheet with our cash position increasing to 8.5 billion dollars as of the end of 2023, demonstrating the discipline and prudence we have applied in our investments over the past year. Looking ahead, we expect 2024 to be another profitable year.Source: Earnings CallWith that said, Shopee is going to have to execute to perfection to maintain its position.Market share (KrAsia)According to the most recent data, Shopee commanded close to 50% of market share in the SE Asian market.Alibaba’s (BABA) Lazada, comes second, and TikTok, which offers its products through TikTok Shops has taken the market by storm, but has also faced regulatory challenges.In order to retain this position, management has outlined a three-pronged approach:Improve service qualityPrice competitivenessStrengthening content ecosystemWhile these ideas all sound great, in practice, this is going to require significant investment.But will it be worth it? The example set by Amazon (AMZN) would have us believe that it is.Shopee can establish itself as a dominant market player and then leverage its user base to increase profits in the future.In fact, the company is already doing this to an extent with SeaMoney:SeaMoney has delivered a strong year in 2023, primarily attributed to our consumer and SME credit business. Our journey to build the credit business dates back to 2019. We initially started by introducing SPayLater consumption loans in response to Shopee buyers’ strong need for such services. Subsequently, we extended our offerings to cash loan services to both buyers and sellers on Shopee. This underscores our user-centric approach, and the unique advantage offered by the Shopee ecosystem for SeaMoney to quickly achieve critical scale and profitability.Source: Earnings CallIn a way, DFS and EC should be analyzed as a single segment, since they are so closely linked. While EC lost over $200 million this year, SeaMoney made over $500 million.Future OutlookMoving forward, it will be this careful balance of growth and profitability that will determine SE’s future. The company has plenty of growth opportunities both in Southeast Asia and abroad, namely Brazil.My hope is that eventually, we will see an acceleration in growth while earnings will remain positive from here on out:EPS and revenue estimates (SA)This seems to be in line with analyst consensus, which would have Shopee growing 12% in 2024 and earnings starting to pick up after that.This all hinges on SE being able to increase its e-Commerce platform and being able to monetize it more heavily though SeaMoney.ValuationIn terms of valuation, SE is not cheap by any metric except perhaps one.SE valuation (SA)The company trades at a Price/Cash Flow of a little over 13, which is still above the market average, but fairly reasonable. On the other hand, the EV/sales is pretty good at a little over 2.SE is still a young company, so it is hard to value it on earnings. The PS stands at a little over 2, which is a bit rich, but there’s room for appreciation if the company can pick up its growth and retain positive earnings.Technical AnalysisSE TA (Author's work)SE has gapped up over the 50-week MA, which is very encouraging. As we can see, the stock has posted 7 consecutive green weeks, and momentum is building.During the last few months, we saw a big divergence form in the RSI, which led to this reversal.With that said, the $60 area is one of major resistance, so we might expect some form of a slowdown or pull-back there.A healthy retracement from here would give us an ideal entry point to go long, but momentum would shift bearish again if we fall under $40.RisksWith that said, there are still plenty of risks with SE.The company is still facing a lot of competition, and TikTok and Lazada could still take market share.There’s a possibility that this costly war will not pay off, and that SE’s earnings capacity will be hampered in the long-term.Furthermore, this will all be in vain if SE can’t find a better way of monetizing its user base. For now, SeaMoney is doing okay, but when this slows, it will be a problem.TakeawayI still find SE to be a great company, but there’s a tough road ahead. However, the latest earnings were encouraging, and they justify the current rally. I still think the stock is undervalued, so I retain my strong buy rating.","kind":null,"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":0},"commentList":[{"id":280995709804816,"gmtCreate":1709627043135,"gmtModify":1709628956554,"author":{"id":"4094613861217650","authorId":"4094613861217650","authorIdStr":"4094613861217650","name":"Lawrence.Sun","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/646756f1284a5a6480ed02cc4fa7d1d2","crmLevel":6,"crmLevelSwitch":0,"idStr":"4094613861217650"},"htmlText":"Honestly, if it is just the results , looks good. But the explanation by management during Q&amp;A seemed very forceful , and did not offer alot of substantiated information on how they intend to sustain the growth amidst a quarter where TikTok is not active.","listText":"Honestly, if it is just the results , looks good. But the explanation by management during Q&amp;A seemed very forceful , and did not offer alot of substantiated information on how they intend to sustain the growth amidst a quarter where TikTok is not active.","text":"Honestly, if it is just the results , looks good. But the explanation by management during Q&A seemed very forceful , and did not offer alot of substantiated information on how they intend to sustain the growth amidst a quarter where TikTok is not active.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/280995709804816","repostId":1136519905,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":280970840899760,"gmtCreate":1709622701445,"gmtModify":1709622704907,"author":{"id":"4110175785559852","authorId":"4110175785559852","authorIdStr":"4110175785559852","name":"BenjiFuji","avatar":"https://community-static.tradeup.com/news/330f59d829009a2c318784ab2b5e6098","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":5,"crmLevelSwitch":0,"idStr":"4110175785559852"},"htmlText":"Great share","listText":"Great share","text":"Great share","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/280970840899760","repostId":1136519905,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":21,"commentSize":2,"repostSize":2,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}