To The Moon

$Sea Ltd(SE)$ released its Q2 2024 earnings before the bell on November 12, 2024 and jumped 10% on the day

Overall it was an excellent quarter of performance, with financial and operational metrics above expectations across the board, especially in the e-commerce and financial businesses.

Shopee is at a critical point in its turnaround, Seamoney is making rapid progress in its BNPL business, and Garena's gaming business, while still going through a cycle, has been anticipated by the market for some time.

Based on the current trend of margins (5% operating profit), the company is expected to achieve to reach a stable level of profitability sooner than expected, and with the PE expected to be under 30x in 2026, it has to be said that investor optimism is justified.

Segment business

E-commerce/Shopee

Shopee shined in the second quarter of 2024, with overall GMV reaching $25.1 billion, up 25.2% year-on-year, with order bookings growing at 24% year-on-year, and revenues growing 43% to $3.2 billion, thanks to continued growth in the Southeast Asian e-commerce market.The realization rate of the platform business increased to 11.6%, which also brought about a significant revenue growth rate.

Meanwhile, Shopee made promising progress in terms of the number of users and active sellers.The number of active buyers grew 15.1% year-over-year to 159 million.The number of active sellers grew 24.1% year-over-year to 11 million.

Meanwhile, commissions charged to merchants were raised by about a third - Q3 e-commerce revenues of $3.18 billion beat estimates of $2.99 billion. shopee achieved positive adjusted EBITDA in Asia and Brazil, reflecting a gradual increase in its profitability.

Gaming/Garena

Garena continued to perform relatively weakly in Q3, with adjusted game revenue down 34% year-over-year and up 12% sequentially, with about 630 million active users and 50 million paying subscribers, slightly lower sequentially than last quarter.Game streams stopped falling year-over-year, with key streams up 24% year-over-year, instead coming in slightly ahead of market expectations.

Average revenue per user improved to $0.89 from $0.82, and profit was $260 million for the quarter, up nearly 25% YoY, with margins in the games business rising further to 53%.

Finance/SeaMoney

SeaMoney was a key piece of highlights in Q3 2024, with uncollected loan balances reaching $4.6 billion, a 73% year-on-year jump.The number of paid subscribers grew 26.7% YoY to 11 million, with the rapid growth of the digital payments market in Southeast Asia.The promotion of the buy-now-pay-later business should make a notable contribution.

Revenue grew 38% year-over-year to $620 million, and gross margins improved to 51.7% from 48.2% a year ago, as profitability continues to improve.Uncollected loan balances under the new caliber were $3.5 billion in the quarter, up $200 million sequentially from the previous quarter, while the 90+ day bad debt ratio declined further to 1.2% from 1.6% a year ago and 1.3% in the previous quarter.

Meanwhile, SeaMoney's margins continued to remain stable at 28.3%, with operating profit of $170 million.

Investment Highlights

1. Overall, what stood out in the quarter relative to investor expectations was profitability.The company as a whole realized gross profit of $1.86 billion, with gross margins improving from less than 42% to 43% sequentially, while the operating expense ratio declined from 40.6% to 39.3%, and overall operating profit reached $200 million, far exceeding expectations of $160 there was not, with operating margins reaching 5%.Meanwhile, adjusted EBITDA came in at $200 million, beating expectations by about 8%.

   

   Guidance and valuation.Sea has performed positively so far this year, largely due to the market's confidence in its improving performance.The company did also increase its earnings estimates for 2025 and 2026 following cost reductions and efficiencies, further boosting the valuation base.At current prices, it is expected that the forward PE can reach within 80 times of the profit growth rate in 2025, while it can reach within 30 times in 2026, so the overall growth is not bad.