Amazon (NASDAQ: AMZN) started in 1994 to sell products online. Over the years, it has become a giant in the e-commerce world and expanded into other areas like cloud computing, streaming, and digital advertising. Since 2016, Amazon’s shares have increased more than fivefold. While e-commerce remains its biggest revenue source, its other ventures have also contributed significantly to its value.
Sea Limited (NYSE: SE), a company from Singapore, is on a similar path as Amazon but is at an earlier stage. E-commerce is its main segment, but it also excels in other digital economy areas like gaming and financial services. Currently trading at about $74 per share, Sea is valued at $42.4 billion. I believe it has the potential to increase fivefold in the coming years, offering a great opportunity for investors who missed out on Amazon.
A Triple Threat in the Digital Economy
Amazon was a pioneer in e-commerce in the U.S. and Europe. Similarly, Sea focuses on the Southeast Asian markets, which are still early in their digital transition. Sea owns Shopee, a marketplace that mixes consumer-to-consumer and business-to-consumer models, and is the main source of its e-commerce revenue.
Like Amazon, Sea is working on improving Shopee’s logistics network, SPX Express, through automation to deliver products faster and at lower costs. In the first quarter of 2024, 70% of Shopee orders were delivered within three days, and the cost per order dropped by 15% across Asia. Faster delivery times lead to more frequent orders as consumers trust timely deliveries.
Sea’s digital financial services segment, SeaMoney, is another key to Shopee’s success. It offers digital bank accounts, consumer loans, and loans to Shopee merchants to help them grow. By the end of Q1, SeaMoney had $3.3 billion in total loans, a 28.7% increase year over year, indicating strong demand.
Sea also owns Garena, a game development studio known for hits like Free Fire and Call of Duty: Mobile. Although it faced a decline in users post-pandemic, Garena stabilized in 2023. In Q1 2024, Garena reported 594.7 million quarterly active users, a 21% increase year over year, driven by Free Fire, the most downloaded mobile game last quarter.
Sea’s Accelerating Growth
After struggling for a couple of years due to rising global interest rates, Sea cut costs aggressively in 2023, impacting its revenue growth, which slowed to 4.9% for the year. However, Sea started 2024 strong. Its e-commerce business grew by 32.9%, and its digital financial services segment grew by 21%. Overall, Sea’s total revenue increased by 22.8% to $3.7 billion in Q1.
This growth was partly due to a 92.3% increase in Q1 marketing spending. Despite trimming other costs, this raised total operating expenses by 14.8%, resulting in a small loss of $23 million. However, with $8.6 billion in cash and investments, Sea can handle this loss. Investors should monitor this, aiming for continued revenue growth with profitability.
Why Sea Stock Could Soar
Sea is valued at $42.4 billion, trading at a price-to-sales (P/S) ratio of 3.1 based on its trailing-12-month revenue of $13.7 billion. This is near its lowest P/S ratio since going public in 2017 and well below its peak of 22.9.
If Sea can grow its annual revenue by 17.5% over the next decade, it could reach $68.7 billion by 2034. At its current P/S ratio, this would value the company at $199.2 billion, implying a fivefold return. Sea’s recent 22.8% revenue growth in Q1 suggests it’s on track to exceed this target. If its P/S ratio increases with continued growth, the stock could offer even more upside, similar to Amazon’s performance in recent years.
For investors who missed out on Amazon’s meteoric rise, Sea Limited might present a comparable opportunity right now.
Should You Invest in Sea Limited?
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Q&A
Q: What is Sea Limited?
A: Sea Limited is a Singapore-based company that operates in the digital economy. Its main business segments include e-commerce (Shopee), digital financial services (SeaMoney), and gaming (Garena).
Q: How does Sea Limited compare to Amazon?
A: Sea Limited is often compared to Amazon due to its dominant position in e-commerce and its expansion into other digital services. However, Sea is at an earlier stage of growth, primarily serving the Southeast Asian markets, while Amazon is a more mature company with a global reach.
Q: Why is Sea Limited considered a promising investment?
A: Sea Limited has shown strong revenue growth, particularly in its e-commerce and digital financial services segments. Its current valuation, combined with potential future growth, makes it a promising investment. The company’s ability to deliver products quickly and its successful digital financial services indicate a robust business model.
Q: What are the risks associated with investing in Sea Limited?
A: Investing in Sea Limited comes with risks, including economic fluctuations in Southeast Asia, competition in the e-commerce and digital services markets, and the company’s ability to maintain profitability while scaling operations. Additionally, changes in global interest rates and economic conditions can impact its growth.
Q: How has Sea Limited’s gaming segment performed recently?
A: Sea’s gaming segment, Garena, faced a decline in users after the pandemic, but it stabilized in 2023. In Q1 2024, Garena reported 594.7 million quarterly active users, a 21% increase year over year, driven by the success of Free Fire, the most downloaded mobile game last quarter.
Q: What makes Sea Limited’s e-commerce platform, Shopee, successful?
A: Shopee’s success is driven by its user-friendly platform, efficient logistics network (SPX Express), and the integration of digital financial services through SeaMoney. The company’s focus on delivering products quickly and reducing costs has enhanced consumer trust and increased order frequency.
Q: How is SeaMoney contributing to Sea Limited’s growth?
A: SeaMoney offers a range of digital financial services, including digital bank accounts, consumer loans, and loans to Shopee merchants. This segment supports Shopee’s growth by providing financial products that help both consumers and merchants, leading to higher transaction volumes and revenue.
Q: What is the current valuation of Sea Limited and its potential for future growth?
A: As of now, Sea Limited is valued at $42.4 billion, with a price-to-sales (P/S) ratio of 3.1. If the company can grow its annual revenue at a compound annual rate of 17.5% over the next 10 years, it could reach about $68.7 billion in revenue by 2034, potentially valuing the company at $199.2 billion, implying a fivefold return from its current valuation.
Q: How did Sea Limited perform financially in Q1 2024?
A: In Q1 2024, Sea Limited’s total revenue increased by 22.8% to $3.7 billion. This growth was driven by a 32.9% increase in its e-commerce segment and a 21.0% increase in its digital financial services segment. Despite this revenue growth, the company reported a small net loss of $23 million due to increased marketing expenses.
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Q: Should investors consider Sea Limited as part of their portfolio?
A: Investors should consider Sea Limited if they are looking for a high-growth potential stock in the digital economy sector. However, they should also be aware of the risks and monitor the company’s ability to maintain profitability while scaling its operations. Consulting financial advisors and comparing with other top stock recommendations, such as those from The Motley Fool Stock Advisor, can provide additional insights for a well-rounded investment strategy.
