Sea Limited Is Ready To Fire On All Cylinders

seekingalpha2021-05-24

SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...

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chuahweihuan
·2021-06-04
High performance
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2
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Ancy
·2021-06-03
Go sea!
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2
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calbee_lwh
·2021-05-31
Awesome
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BrendonGoh
·2021-05-30
Will it continue to grow alot?
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1
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Meshaarias72
·2021-05-27
Ya?
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1
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Engengcheng
·2021-05-27
Good
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Dwnt
·2021-05-26
Support
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1
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Kel9670ong
·2021-05-26
Positive newa
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1
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The_scalper
·2021-05-26
Well done!
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Oldie
·2021-05-26
Like and comment ???
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JustZ
·2021-05-26
Like
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1
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- JustZ:
  Good
  2021-05-26
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wallence82
·2021-05-26
Rise to the moon
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ArchieM
·2021-05-26
SEA dominates…
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LuluDog
·2021-05-26
Looks interesting
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Wgey
·2021-05-26
Sea is a good company due to the ability to increase revenue. The growth of shopee is still in the early stage for south east Asia. Shopee payment is just starting.
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- ming22:
  [强] [强]
  2021-05-26
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Targarean
·2021-05-26
I must be the only one not fully buying into the SEA story
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- LuluDog:
  Why?
  2021-05-26
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- Boo2bear:
  I am in the same camp... Good stock
  2021-05-26
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120PL
·2021-05-25
Way to go SEA! Lots of opportunities for SEA to grow in South East Asia
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Wallstrtbets
·2021-05-25
Fired.
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Mozu
·2021-05-25
Fire em up!
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JaneJ
·2021-05-25
Oh. Not only Shopee!
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The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","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":1},"commentList":[{"id":116779843,"gmtCreate":1622821343082,"gmtModify":1704191975726,"author":{"id":"3582542839042354","authorId":"3582542839042354","name":"chuahweihuan","avatar":"https://static.tigerbbs.com/f63803cf3640e27f1b3ebea9fa1593cf","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"3582542839042354","idStr":"3582542839042354"},"htmlText":"High performance&nbsp;","listText":"High performance&nbsp;","text":"High performance","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/116779843","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":111848987,"gmtCreate":1622676773649,"gmtModify":1704188574032,"author":{"id":"3580700092461875","authorId":"3580700092461875","name":"Ancy","avatar":"https://static.tigerbbs.com/fd3d8e2c475902e88a6751402e59a513","vip":1,"crmLevel":3,"crmLevelSwitch":0,"authorIdStr":"3580700092461875","idStr":"3580700092461875"},"htmlText":"Go sea!","listText":"Go sea!","text":"Go sea!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/111848987","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":110560437,"gmtCreate":1622469452329,"gmtModify":1704184857954,"author":{"id":"3579950492873390","authorId":"3579950492873390","name":"calbee_lwh","avatar":"https://static.tigerbbs.com/2c71feed0eaf38825c4f2fc86cd7a84d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3579950492873390","idStr":"3579950492873390"},"htmlText":"Awesome&nbsp;","listText":"Awesome&nbsp;","text":"Awesome","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/110560437","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":137246951,"gmtCreate":1622355069873,"gmtModify":1704183412056,"author":{"id":"3584177469453913","authorId":"3584177469453913","name":"BrendonGoh","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3584177469453913","idStr":"3584177469453913"},"htmlText":"Will it continue to grow alot?","listText":"Will it continue to grow alot?","text":"Will it continue to grow alot?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/137246951","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":135032040,"gmtCreate":1622121730580,"gmtModify":1704179834623,"author":{"id":"3577781617271173","authorId":"3577781617271173","name":"Meshaarias72","avatar":"https://static.tigerbbs.com/c5282cda6a9d3948fc067b21adcb578c","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3577781617271173","idStr":"3577781617271173"},"htmlText":"Ya?","listText":"Ya?","text":"Ya?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/135032040","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":132923618,"gmtCreate":1622067560834,"gmtModify":1704178652926,"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,"authorIdStr":"3575113804369903","idStr":"3575113804369903"},"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/132923618","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136739541,"gmtCreate":1622038897983,"gmtModify":1704178338680,"author":{"id":"3558619043136260","authorId":"3558619043136260","name":"Dwnt","avatar":"https://community-static.tradeup.com/news/2a672ea18c859cc1c0ed86036370f94a","vip":1,"crmLevel":6,"crmLevelSwitch":0,"authorIdStr":"3558619043136260","idStr":"3558619043136260"},"htmlText":"Support","listText":"Support","text":"Support","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/136739541","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136271551,"gmtCreate":1622024404673,"gmtModify":1704366279984,"author":{"id":"3578468158955348","authorId":"3578468158955348","name":"Kel9670ong","avatar":"https://static.tigerbbs.com/bd86c42e207fbd94e7f8877a29457d71","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3578468158955348","idStr":"3578468158955348"},"htmlText":"Positive newa","listText":"Positive newa","text":"Positive newa","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/136271551","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136621762,"gmtCreate":1622015650156,"gmtModify":1704366102033,"author":{"id":"3579590433924918","authorId":"3579590433924918","name":"The_scalper","avatar":"https://static.tigerbbs.com/b3fede485fa71d42dc4ea08960ab3e00","vip":1,"crmLevel":2,"crmLevelSwitch":1,"authorIdStr":"3579590433924918","idStr":"3579590433924918"},"htmlText":"Well done!","listText":"Well done!","text":"Well done!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/136621762","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136869855,"gmtCreate":1622006245277,"gmtModify":1704365949211,"author":{"id":"3584415246670106","authorId":"3584415246670106","name":"Oldie","avatar":"https://static.tigerbbs.com/09a7a0c9fe9b5b416d6f049746ddfa29","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"3584415246670106","idStr":"3584415246670106"},"htmlText":"Like and comment ???","listText":"Like and comment ???","text":"Like and comment ???","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/136869855","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136142879,"gmtCreate":1622001934091,"gmtModify":1704365856953,"author":{"id":"3583807407830971","authorId":"3583807407830971","name":"JustZ","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/4c5ceab71416b120bab4604c0754b52a","crmLevel":5,"crmLevelSwitch":0,"authorIdStr":"3583807407830971","idStr":"3583807407830971"},"htmlText":"Like","listText":"Like","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/136142879","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4452810,"gmtCreate":1622002041760,"gmtModify":1680791027239,"authorId":3583807407830971,"author":{"id":3583807407830971,"idStr":"3583807407830971","authorId":3583807407830971,"name":"JustZ","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":136142879,"type":1,"supId":0,"prevId":0,"content":"Good","text":"Good","html":"Good"}],"langContent":"EN"},{"id":136334213,"gmtCreate":1621993882732,"gmtModify":1704365643496,"author":{"id":"3564307944903490","authorId":"3564307944903490","name":"wallence82","avatar":"https://static.tigerbbs.com/dea005ab03386f13fa25c505b9a3221a","vip":1,"crmLevel":7,"crmLevelSwitch":0,"authorIdStr":"3564307944903490","idStr":"3564307944903490"},"htmlText":"Rise to the moon","listText":"Rise to the moon","text":"Rise to the moon","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/136334213","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136925511,"gmtCreate":1621991216833,"gmtModify":1704365559735,"author":{"id":"3582862528335475","authorId":"3582862528335475","name":"ArchieM","avatar":"https://community-static.tradeup.com/news/20440dec5aacb90832e2d721933b5e62","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3582862528335475","idStr":"3582862528335475"},"htmlText":"SEA dominates…","listText":"SEA dominates…","text":"SEA dominates…","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/136925511","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136906092,"gmtCreate":1621988484316,"gmtModify":1704365469830,"author":{"id":"3581546699205694","authorId":"3581546699205694","name":"LuluDog","avatar":"https://static.tigerbbs.com/3907b71bbdbc645cd47ba9a5e5798afe","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3581546699205694","idStr":"3581546699205694"},"htmlText":"Looks interesting","listText":"Looks interesting","text":"Looks interesting","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/136906092","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":136900373,"gmtCreate":1621988359292,"gmtModify":1704365463204,"author":{"id":"3576146339605303","authorId":"3576146339605303","name":"Wgey","avatar":"https://static.tigerbbs.com/520bb071b232d578956138674699a761","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3576146339605303","idStr":"3576146339605303"},"htmlText":"Sea is a good company due to the ability to increase revenue. The growth of shopee is still in the early stage for south east Asia. Shopee payment is just starting.","listText":"Sea is a good company due to the ability to increase revenue. The growth of shopee is still in the early stage for south east Asia. Shopee payment is just starting.","text":"Sea is a good company due to the ability to increase revenue. The growth of shopee is still in the early stage for south east Asia. Shopee payment is just starting.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/136900373","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4452449,"gmtCreate":1622000178307,"gmtModify":1680791017423,"authorId":3571044771112848,"author":{"id":3571044771112848,"idStr":"3571044771112848","authorId":3571044771112848,"name":"ming22","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":136900373,"type":1,"supId":0,"prevId":0,"content":"[强] [强]","text":"[强] [强]","html":"[强] [强]"}],"langContent":"EN"},{"id":136019194,"gmtCreate":1621984910818,"gmtModify":1704365369578,"author":{"id":"3573540190522229","authorId":"3573540190522229","name":"Targarean","avatar":"https://community-static.tradeup.com/news/59de1c73df3e7e460bd84cc786850fa6","vip":1,"hat":"https://static.tigerbbs.com/ae1f49570794979e009a5efdeb6f4789","crmLevel":7,"crmLevelSwitch":1,"authorIdStr":"3573540190522229","idStr":"3573540190522229"},"htmlText":"I must be the only one not fully buying into the SEA story","listText":"I must be the only one not fully buying into the SEA story","text":"I must be the only one not fully buying into the SEA story","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/136019194","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4449263,"gmtCreate":1621988437845,"gmtModify":1680790963885,"authorId":3581546699205694,"author":{"id":3581546699205694,"idStr":"3581546699205694","authorId":3581546699205694,"name":"LuluDog","avatar":"https://static.tigerbbs.com/3907b71bbdbc645cd47ba9a5e5798afe","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":136019194,"type":1,"supId":0,"prevId":0,"content":"Why?","text":"Why?","html":"Why?"},{"id":4449551,"gmtCreate":1621989303685,"gmtModify":1680790963742,"authorId":3578969648963961,"author":{"id":3578969648963961,"idStr":"3578969648963961","authorId":3578969648963961,"name":"Boo2bear","avatar":"https://static.tigerbbs.com/209ae746c8124fe2d5f79aee784d2fcc","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":136019194,"type":1,"supId":0,"prevId":0,"content":"I am in the same camp... Good stock","text":"I am in the same camp... Good stock","html":"I am in the same camp... Good stock"}],"langContent":"EN"},{"id":138456495,"gmtCreate":1621955951017,"gmtModify":1704365165330,"author":{"id":"3577829273313897","authorId":"3577829273313897","name":"120PL","avatar":"https://community-static.tradeup.com/news/c97607b34c75eab2d8d4b0216817b700","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":6,"crmLevelSwitch":1,"authorIdStr":"3577829273313897","idStr":"3577829273313897"},"htmlText":"Way to go SEA! Lots of opportunities for SEA&nbsp;to grow in South East Asia","listText":"Way to go SEA! Lots of opportunities for SEA&nbsp;to grow in South East Asia","text":"Way to go SEA! Lots of opportunities for SEA to grow in South East Asia","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/138456495","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":138284713,"gmtCreate":1621943583932,"gmtModify":1704364848748,"author":{"id":"3566244878628904","authorId":"3566244878628904","name":"Wallstrtbets","avatar":"https://static.tigerbbs.com/6c38bbee1121ea92508ad9508fa15c5e","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":1,"authorIdStr":"3566244878628904","idStr":"3566244878628904"},"htmlText":"Fired.","listText":"Fired.","text":"Fired.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/138284713","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":138206120,"gmtCreate":1621940074460,"gmtModify":1704364783843,"author":{"id":"3570666495099072","authorId":"3570666495099072","name":"Mozu","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3570666495099072","idStr":"3570666495099072"},"htmlText":"Fire em up!","listText":"Fire em up!","text":"Fire em up!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/138206120","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":138822469,"gmtCreate":1621928987351,"gmtModify":1704364592418,"author":{"id":"3573597158008019","authorId":"3573597158008019","name":"JaneJ","avatar":"https://static.tigerbbs.com/35feebaa559f51f47e204634b51aaeb0","vip":1,"crmLevel":3,"crmLevelSwitch":0,"authorIdStr":"3573597158008019","idStr":"3573597158008019"},"htmlText":"Oh. Not only Shopee!&nbsp;","listText":"Oh. Not only Shopee!&nbsp;","text":"Oh. Not only Shopee!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/138822469","repostId":1154364832,"repostType":2,"repost":{"id":"1154364832","pubTimestamp":1621824866,"share":"https://ttm.financial/m/news/1154364832?lang=&edition=fundamental","pubTime":"2021-05-24 10:54","market":"us","language":"en","title":"Sea Limited Is Ready To Fire On All Cylinders","url":"https://stock-news.laohu8.com/highlight/detail?id=1154364832","media":"seekingalpha","summary":"SummarySea Limited continues to extend its leadership across all its business segments with a blockb","content":"Summary<ul><li>Sea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.</li><li>Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.</li><li>At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.</li></ul><img src=\"https://static.tigerbbs.com/04fbbc1a372c45d5d8e903015e5b0dfe\" tg-width=\"768\" tg-height=\"512\" referrerpolicy=\"no-referrer\">Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:<blockquote>We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.</blockquote>As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.<img src=\"https://static.tigerbbs.com/932ec3694e935afbfa643e9c904ce964\" tg-width=\"1280\" tg-height=\"636\" referrerpolicy=\"no-referrer\">SE’s Quarterly Results. Data Source: S&amp;P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of &gt;100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.<img src=\"https://static.tigerbbs.com/6d9651b44ee4d09b2dcf3d8c49e72213\" tg-width=\"1280\" tg-height=\"629\" referrerpolicy=\"no-referrer\">SE’s LTM results. Data Source: S&amp;P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.<img src=\"https://static.tigerbbs.com/695523a022549fe176d5ac4f89f3c4cb\" tg-width=\"1004\" tg-height=\"558\" referrerpolicy=\"no-referrer\">SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&amp;P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:<blockquote>Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.</blockquote>I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.<img src=\"https://static.tigerbbs.com/ae1db2d81fcf921eaba649f93cbbf9e0\" tg-width=\"1280\" tg-height=\"601\" referrerpolicy=\"no-referrer\">SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&amp;P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.<img src=\"https://static.tigerbbs.com/2c3f20175798dec1212a5aac70feb8cc\" tg-width=\"1280\" tg-height=\"826\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin &amp; EBIT Margin. Data Source: S&amp;P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.<img src=\"https://static.tigerbbs.com/5b82c3c4bf6f1a5698e05c68eaddbe2e\" tg-width=\"1280\" tg-height=\"819\" referrerpolicy=\"no-referrer\">SE’s CapEx Margin &amp; CFO Margin. Data Source: S&amp;P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.<img src=\"https://static.tigerbbs.com/88fb528aaddb4c6a12d219ac9c2e9f64\" tg-width=\"1280\" tg-height=\"730\" referrerpolicy=\"no-referrer\">SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.<img src=\"https://static.tigerbbs.com/46dd783ffd94d877ef749555e8869764\" tg-width=\"1280\" tg-height=\"735\" referrerpolicy=\"no-referrer\">AMZN’s &amp; SE’s EBITDA Margin Forecast &amp; CapEx Margin Forecast. Data Source: S&amp;P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.<img src=\"https://static.tigerbbs.com/37f1f59f3a8d0e8ef6e74b521330d9f7\" tg-width=\"1280\" tg-height=\"714\" referrerpolicy=\"no-referrer\">SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.<img src=\"https://static.tigerbbs.com/3291643e2334f5cf171810ba13d16ca2\" tg-width=\"1100\" tg-height=\"604\" referrerpolicy=\"no-referrer\">Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireis<blockquote>still at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”</blockquote>The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&amp;D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:<blockquote>For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.</blockquote>With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.Valuations<img src=\"https://static.tigerbbs.com/9af1f1703d974dcc9562883dc04d1f13\" tg-width=\"1134\" tg-height=\"518\" referrerpolicy=\"no-referrer\">Peers EV / Fwd Rev. Data Source: S&amp;P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.<img src=\"https://static.tigerbbs.com/3607c4899ac3e4b1beccce944f68a638\" tg-width=\"1280\" tg-height=\"728\" referrerpolicy=\"no-referrer\">Peers’ EBITDA Margin Forecast &amp; CapEx Forecast. Data Source: S&amp;P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.<img src=\"https://static.tigerbbs.com/0e8d8cce67ca4c035e6314b345d5f05a\" tg-width=\"1280\" tg-height=\"277\" referrerpolicy=\"no-referrer\">Range of Fair Values. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/84cb6fe959ae96e28a8f3a60146ec35f\" tg-width=\"1154\" tg-height=\"726\" referrerpolicy=\"no-referrer\">WACC computation. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/8982fb5ac9e8bb059635b287f81fe221\" tg-width=\"1280\" tg-height=\"206\" referrerpolicy=\"no-referrer\">Fwd Rev &amp; Fwd EBITDA. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/4e1e7da44b94ab543e888920747044ca\" tg-width=\"1172\" tg-height=\"934\" referrerpolicy=\"no-referrer\">Unlevered FCF &amp; Enterprise Value. Data Source: S&amp;P Global Market Intelligence<img src=\"https://static.tigerbbs.com/75f2f24a8f6afecdf6bf0644d9bf8423\" tg-width=\"1014\" tg-height=\"696\" referrerpolicy=\"no-referrer\">Equity Value Bridge. Data Source: S&amp;P Global Market IntelligencePrice Action and Technical Analysis<img src=\"https://static.tigerbbs.com/bab4482ce4bebbe89bc6636f5d39f10d\" tg-width=\"1280\" tg-height=\"798\" referrerpolicy=\"no-referrer\">Source: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sea Limited Is Ready To Fire On All Cylinders</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSea Limited Is Ready To Fire On All Cylinders\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-24 10:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that ...\n\n<a href=\"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SE":"Sea Ltd"},"source_url":"https://seekingalpha.com/article/4430755-sea-limited-stock-se-ready-to-fire-on-all-cylinders","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154364832","content_text":"SummarySea Limited continues to extend its leadership across all its business segments with a blockbuster Q1’21 performance.Investors need to pay attention to its potential cash flow margins that could far exceed even AMZN and MELI.At the current price, investors are getting a bargain even at the bear case of its fair value range with a DCF framework.Photo by Wachiwit/iStock Editorial via Getty ImagesInvestment ThesisSea Limited (SE) has fallen about 13% from its all-time high. The company has continued to dominate its markets and looks certain to further extend its leadership position and expand its verticals to take even more market share away from its competitors. Investors should take advantage of the consolidation to initiate or add positions to this potential massive cash flow generator.Earnings Review and What To Look Out For?Sea Limited is the largest integrated Internet company in South East Asia, with operations spanning across gaming, e-commerce, and fintech.The company’s recent Q1’21 results were another blockbuster across all business segments, demonstrating the company’s strong leadership and well-executed growth strategies towards itsvision:We think we stand in the best position to capitalize on the opportunity to build the largest consumer Internet ecosystem in the region. And we'll continue to focus on executing on our core businesses as well as building those ecosystems.As a reminder, for its e-commerce segment Shopee, Sea considers its region to comprise the following markets: Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, of which Indonesia is the company’s largest market.For its gaming segmentGarena, the company’s largest and growing markets comprise Southeast Asia, Taiwan, Brazil, Mexico, India, North America, Russia, and the Middle East.SE’s Quarterly Results. Data Source: S&P Global Market IntelligenceQ1’21 YoY revenue growth accelerated to 146.7%. In fact, Q1’21 is the 11th consecutive quarter of >100% YoY revenue growth. The company’s main revenue driverGarena recorded a 111.4% YoY rise, while Shopee and other services recorded a 189.8% YoY increase.Gross margin also improved significantly compared to the prior year. Q1’21 gross margin came in at 36.6% as compared to 28.9% a year ago. In its respective segments, Garena’s gross margin also improved to 68.2% from 38.6% a year ago, while Shopee’s gross margin went up to 13.7% from 7.1% a year ago.SE’s LTM results. Data Source: S&P Global Market IntelligenceLooking across the longer-term trend using the LTM basis, we could also see similar fantastic top line performance. LTM YoY revenue growth came in at 113.7%, and gross margin also improved to 33% compared to 30.4% a year ago. Therefore, investors should be encouraged to know that Sea’s top line performance has been consistently getting better and better even as it scaled up fast, improving its cost of revenue ratio, showing just how capable the company is in being able to execute its growth strategies across multiple countries within its region.Investors may want to continue paying attention to the company’s sales and marketing spend as it still accounted for the majority of the operating expenses in both the Q and LTM results, respectively. More importantly, sales and marketing spend as a percentage of revenue has continued to fall as the company scaled up, reflecting improving cost efficiencies over time.SE’s OPEX as a % of Revenue (LTM Trend). Data Source: S&P Global Market IntelligenceThis has certainly helped to improve the company’s overall cost efficiencies over time, showing clearly the benefits of economies of scale of the company’s business model. LTM sales and marketing spend improved to 40.6% of revenue from 43.3% a year ago, while LTM overall operating expenses improved to 59.9% of revenue from 67.4% a year ago.This has helped to narrow the company’s LTM negative operating margin to -27% from -37%. Investors should be reminded not to focus on SE’s near-term operating margins as a gauge of the company’s core operating performance. This is because the company is still in the early stages (despite growing so rapidly) of penetrating Southeast Asia’s massive e-commerce market, of which it is the clear leader currently. The company is expected to continue investing heavily in sales and marketing, in order to drive the massive potential for growth in the region and to establish itself as the future undisputed e-commerce leader in the region taking the large majority of the pie, leaving the rest of its competitors to only be able to compete in their much smaller respective niche market segments, just like what Amazon (AMZN) had done in its established markets.In fact, Sea’s CEOForrest Li, who was named “Singapore Businessman of the Year at the 35th Singapore Business Awards in Nov 20” added:Let me put it this way, it (Shopee) can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development. We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to be profitable as well. In certain markets, like Taiwan, it's already profitable. And then we will have more resources; two cash flow generators: Garena and Shopee. This allows us to continually invest in future opportunities.I have previously discussed (articles listedhereandhere) how important it is for investors to focus on cash flows for companies with massive scalability potential like Coupang (CPNG) and Opendoor Technologies (OPEN) which are still in their early days of penetrating their respective markets.It is the same focus for Sea as we attempt to delve deeper into its cash flow generating ability. Sea uses Adjusted EBITDA to report its cash flow performance. I will present the discussion from FCF and EBITDA point of view first as a matter of consistency, before going over to the Adjusted EBITDA metrics.SE’s LTM CFO Margin and LTM FCF Margin. Data Source: S&P Global Market IntelligenceA quick glance over to its cash flow statement unveiled just how well-performing SE has been with its cash flow management. In fact, SE’s CFO and FCF performance has been improving remarkably over time as it scaled up quickly, and the company is just getting started. Its LTM CFO margins have been steadily improving over the previous year from -5.36% to 17.28% for the Q1’21 quarter. In addition, its LTM FCF margins also improved steadily over the previous year from -13.4% to 11.08%.SE’s EBITDA Margin & EBIT Margin. Data Source: S&P Global Market IntelligenceWhen we move over to its EBITDA margins, the improvement in trend of its core operating performance is also clearly discernible. Although it has yet to turn EBITDA positive, it was due mainly to necessary investments in sales and marketing.SE’s CapEx Margin & CFO Margin. Data Source: S&P Global Market IntelligenceSE has also benefited from the huge improvement in its core operating performance as seen in its CFO margin trend, while its heavy earlier CapEx investments have started to bear fruit as it scaled, as the CapEx margin is trending lower, and its CFO will now be able to sustain its CapEx moving forward.It’s very clear that SE’s business has well cleared its inflection point of heavy investments to scale up, and the company is well on its way to generate huge cash flows in the future as it continues to power ahead in its market penetration.SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceMoving ahead, we can also see that SE’s forward EBITDA margin trend is expected to significantly expand, while CapEx margin is expected to continue to fall. The company is on track to be a massive cash flow generator, with EBITDA margin expected to be about 43.8% by FY 30. Therefore, investors must be aligned with Sea’s long-term vision of focusing on growing its cash flows as it continues to penetrate the region’s markets. Based on its current growth trajectory, SE’s cash flow generating potential looks massive.AMZN’s & SE’s EBITDA Margin Forecast & CapEx Margin Forecast. Data Source: S&P Global Market IntelligenceWhen we bring in AMZN’s forecasts, I believe investors can clearly see what I mean. AMZN is already quite profitable based on its EBITDA margin, while SE’s EBITDA margin profitability is probably just getting started and SE is expected to grow its EBITDA margins much faster than AMZN, and this only goes to show the tremendous potential of the markets that SE is operating in. Investors are clearly reminded to give Shopee time to scale up to deliver the kind of cash flow profitability that will drive future returns.SE’s Adjusted EBITDA. Source: SE 6-KAs we move on to the segmented Adjusted EBITDA presented by the company, we can then infer what SE CEO Forrest Li meant by “Garena providing the resources for the company to invest in Shopee and SeaMoney.”The company is continuing to build on Garena’s success to deliver the resources needed to invest in Shopee and SeaMoney. Investors should consider Shopee and SeaMoney as an entity because they have tremendous synergies and are each other’s flywheel. Garena offers clear cash flow visibility for Shopee and SeaMoney to grow.Garena’s bookings reached $1.1B in Q1’21, which represents a 117.4% YoY increase. The bookings consist of current revenue and change in deferred revenue, the part which provides visibility into future revenue recognition.As can be seen, based on Adjusted EBITDA, which also included change in deferred revenue, SE has turned profitable. Unlike many other e-commerce companies or internet companies, SE already has a cash flow profitable Garena segment to provide the resources to drive its e-commerce and fintech segment growth. This combination is extremely powerful and, coupled with the company’s remarkable execution, has already brought FCF profitability to its operations, and soon EBITDA profitable. This will certainly allow SE to push even harder to drive more sustainable investments into more verticals and products to expand its ecosystem and further reduce the share of the pie available and pull itself further away from its closest competitors.Therefore, investors must continue to pay attention to the key growth drivers in Garena, and how the company intends to stretch its leadership further to protect its key cash flow generator until Shopee and SeaMoney become self-sustainable.Shopee’s Adjusted EBITDA per order. Source:TechinasiaAs Shopee continues to drive its fast expansion across the region, its unit economics have continued to improve remarkably, as it achieved operating efficiencies over time, leading to further reductions in Adjusted EBITDA loss per order. For Q1’21, the Adjusted EBITDA loss per order improved to $0.38, which represents a 38% YoY decline. As the company has guided earlier, it would not be long before Shopee achieves self-sustaining EBITDA profitability.What’s Next for Garena?At the Pocket Gamer Awards 2021, Garena received the Best Mobile Publisher Award, and Free Fire was also named the Best Battle Royale Game.Yet, according to the company, Garena’s most popular self-developedFree Fireisstill at an early stage of driving growth on the user base as well as pay user base for this game and developing it into a social platform where people not only come to play the core gameplay, but also enjoy other modes hangout, listen to music, social lives.”The company’s focus on Free Fire is notable as it is Garena’s most important revenue driver. Therefore the ability to scale Free Fire beyond just a game but into a social platform would bring Free Fire into its next phase of growth while continuing to grow its active user base and paying users. Sea also emphasized that the company continues to see “stickiness” in its active user metrics as the average active user spends about 2 to 3 hours daily on its platform. Not only has Garena grown its quarterly paying users 123.5% YoY, its quarterly paying users also represented 12.3% of quarterly active users (QAU) for Q1’21 as compared to 8.9% a year ago. Therefore driving the stickiness of the platform and encouraging more time spent among its active users would help to drive its paying user ratio up.Sea believes that one of the key factors that could help to drive Garena towards its vision of a social platform is dramatically increasing its modes of engagement with its users. This is not just restricted to online activities, but also offline community engagement programs. The whole intent is to develop a “broad-based platform stickiness” beyond its top active users, by building and growing the platform into a much larger community and provide the users ample opportunities to socialize and engage through its ongoing content development, and its promotion of community engagement.A key aspect of its community engagement strategies is focused on eSports. Sea believes that it operates the “largest mobile-game professional league in Southeast Asia, Taiwan and Brazil” and Free Fire was also named the “eSports Mobile Game of the Year at the eSports Awards 2020”. (Source: SE 20-F). The company continues to hold very large-scale eSports tournaments and events to strengthen its community engagement strategies such as Free Fire League Latinoamerica 2021, and its flagship Garena World event in April. On the 28th May, theFree Fire World Series 2021 Singapore(FFWS 2021 SG), which is Free Fire’s most prestigious eSports tournament, will take place in Singapore with a massive prize pool of US2M. Sea is showing no signs of ever letting the company’s most important revenue driver and most profitable segment to slip through its grip. Instead, it continues to build on its success as the leading eSports organizer in its markets.Garena is also looking way beyond the success of Free Fire and is constantly developing its games portfolio pipeline through constant R&D and product development with its “significant number of our more than 1,000 in-house game developers globally are constantly working on new ideas, while we continue to engage with third-party game studios for collaboration on promising and complementary game development and publishing opportunities.” (Source: SE Q1’21 earnings transcript)Expanding Shopee’s Global Footprint and VerticalsSea is actively expanding its presence in LatAm’s largest e-commerce market:Brazil, taking on MercadoLibre (MELI) in its most important market and with eyes on the whole LatAm. Although Sea is a relatively new player in e-commerce, having set up Shopee only in2015, the company is no stranger to taking on big incumbents. Shopee has already unseated the incumbent Alibaba-backed (BABA)Lazadaas the number one e-commerce platform in Southeast Asia. In addition, in its most important market, Indonesia, the company has also unseated incumbent Tokopedia as the leader, and Shopee was also recently reported to be themost visited e-commerce websiteamong Indonesian consumers in 2020.Sea further highlighted that the company continued to rank first in MAU and total time spent on apps in the shopping category across its markets in Southeast Asia, and in Indonesia it also recorded its fastest quarterly YoY growth rates on record. (Source: SE Q1’21 earnings transcript)Therefore, Sea is an extremely well-managed company, capable of pulling off challenging growth strategies against other large incumbents. Don’t bet against Sea.In addition, the company has also ventured into other verticals such as food delivery to expand its ecosystem. Sea sees food delivery as a complementary offering in Shopee. In Vietnam, Sea-owned food delivery service Now which it acquired in 2017 is already themarket leader, having unseated the incumbent Grab. The company also recently launched its food delivery service in Jakarta, Indonesia, with plans to launch into other cities in the future.The SeaMoney SynergiesSea’s fintech platform SeaMoney continues to see continued success and growth as mobile wallet services TPV recorded a YoY growth of almost 209% to $3.4B, as ShopeePay continues to ride on the coattails of Shopee’s rapid growth. The company also highlighted that according to Snapcart Indonesia’s survey in March, “ShopeePay was the most used, the most remembered and most liked mobile wallet by Indonesian consumers during the first quarter.” (Source: SE Q1’21 earnings transcript)The company is also aggressively expanding its off-platform use cases by establishing “partnerships with major consumer brands in Indonesia, one of which is their partnership with Indomaret, a leading Indonesian convenience store chain, as well as with Wendy’s(NASDAQ:WEN)and Domino’s Pizza(NYSE:DPZ).”The company has also continued to improve the utility within ShopeePay adding new features such as “Deals Near Me”, which was said to have driven “significant footfall to its onboarded offline merchants.”The strategy of incorporating the higher-margin digital financial services products such as wealth management products is also within the pipeline and is a natural extension of its fintech strategy. Although I believe this may be the most challenging aspect among its growth strategies within SeaMoney as financial services is a highly regulated market and the Southeast Asia region’s regulatory landscape largely differs between countries. Yet, it is still a key area of growth within the company’s overall fintech blueprint.GoTo: What Should Investors Look Out For In The Tokopedia And Gojek Merger?Much has been said recently regarding the SoftBank(OTCPK:SFTBY)and Alibaba-backedmergerbetween Tokopedia and Gojek and the risks it may pose to Sea’s leadership.What’s important for investors to note is that in my opinion, the move seems born out of a measure of “desperation” to save their own businesses from the growing prowess of Grab (AGC) and SE in Gojek’s case and SE in Tokopedia’s case who have been aggressively taking away their respective market share, eventually culminating in them losing their respective market leadership. Therefore, it’s a marriage of two “losing” incumbents who have failed to stem the charge of their strong and well-managed new market entrants in Sea and Grab. Sea and Grab are themselves no strangers to dislodging market-leading incumbents, with Grab having sentUber Technologies(UBER) packing home from Southeast Asia and BABA-backed Lazada getting overtaken by Sea in the Southeast Asian market.Grab’s food delivery business was reported to account for 53% of Indonesia’s food delivery market, while its ride-hailing business was reported to account for 64% of the Indonesian ride-hailing market in2019. Grab sees Indonesia as the crown jewel in its Southeast Asian portfolio, with Grab CEOAnthony Tanreportedly having spent a lot of time in Indonesia to oversee its growth strategies. With Grab projected to turnEBITDA profitable by 2023, I feel Gojek may have already crucially lost the initiative to Grab.Tokopedia, which was founded in 2009 had a head start of close to 6 years over Shopee, a huge amount of time in Tech before Shopee commenced operations in 2015. In just a short span of 6 years, not only has Tokopedia lost its leadership position to Shopee, ShopeePay has also overtaken all the other e-payment players in Indonesia in a mere two years, as ShopeePay now holds a38% share, well ahead of Grab-backed OVO and Gojek’s GoPay, both holding 19% share each. Remember the Shopee and ShopeePay’s synergies, it’s like a flywheel, each driving increased usage of the other, and leading further to increased GMV and TPV respectively. Shopee also reportedly understands Indonesian consumers’ needs better, especially among the female consumers as compared to Tokopedia according to a report byMomentum Works:For Shopee, fashion and beauty are the most popular product categories. On the other hand, Tokopedia is more established in mobile and electronics. This explains why many of the female Indonesians are going to Shopee instead. For mobile and electronics, you probably only buy them once or twice a year. For fashion and beauty, it’s a different story. You can buy it every other month and even if you do not buy, you browse a lot – sending traffic to the platform. Impulse buying is also common for these categories, which is just nice for an ecosystem of shoppers, products as well as influencers.With Sea having already turned Adjusted EBITDA profitable in Q1’21, the company is well ready to take on the challenges of this merger between the two incumbents, who may have already crucially lost their opportunities to “turn back time”, even with a merger that is perhaps too little too late.ValuationsPeers EV / Fwd Rev. Data Source: S&P Global Market IntelligenceWith such huge potential growth coming from Sea’s markets, Sea obviously trades at a premium when compared to its e-commerce peers, if we simply base off their respective expected revenue growth.Peers’ EBITDA Margin Forecast & CapEx Forecast. Data Source: S&P Global Market IntelligenceHowever, when we peek into Sea’s superior future cash flow generating capability using its projected EBITDA margins, we can see that Sea is only just getting started.Since the company is expected to produce predictable cash flows moving forward, I find it meaningful to conduct a DCF valuation framework to determine a range of fair values with the results presented below.Based on the DCF framework, I find SE undervalued by about 26% at the midpoint of its fair value range, with respect to the stock price of $246.33 as at 21 May 21. Therefore, I find the price level highly attractive.Range of Fair Values. Data Source: S&P Global Market IntelligenceWACC computation. Data Source: S&P Global Market IntelligenceFwd Rev & Fwd EBITDA. Data Source: S&P Global Market IntelligenceUnlevered FCF & Enterprise Value. Data Source: S&P Global Market IntelligenceEquity Value Bridge. Data Source: S&P Global Market IntelligencePrice Action and Technical AnalysisSource: TradingViewSE has been on a meteoric rise since Mar 20, and as at the date of writing (21 May 21), the stock was down by about 13% from its all-time high in Feb 21. The price level between $275 and $285 looks to be an area of key resistance and bull traps previously set to lure in late buyers.Key support is at $200, with the 50-period MA also serving as a key dynamic support area. I may continue to add more positions into this stock if the price level retraces nearer to $200 at the next retracement.Otherwise, investors who wish to initiate or add more positions may find the current price attractive.Further key support levels are currently at $179 and $155, areas that I would likely add very aggressively if the price was to retrace to those areas.ConclusionSea is a very well-managed and ambitious integrated Internet company that looks to be at the next phase of its rapid growth and profitability. Investors may wish to take advantage of the current consolidation phase to gain entry or add positions to this potentially massive cash flow machine.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":252,"commentSize":88,"repostSize":0,"favoriteSize":21,"likeStatus":false,"favoriteStatus":false}}