Sea Limited showed tremendous performance in each of their three business segments in their Q1 earnings report. The dominant position Sea Limited has in three separate and growing businesses is what makes the company so strong. The biggest risk is that one or more of their three businesses will fall off its current pace and lag growing competition. In the company’s Q1 report, Sea Limited demonstrated that they are a company executing better than ever in each of their three business segments.
Shopee
In Q1, Sea Limited announced e-commerce revenue of $922.3M, representing 250% YoY GAAP revenue growth. Gross orders totaled 1.1 billion, a 153% increase YoY. Gross Merchandise Value (GMV) was $12.6B in the quarter, representing 103% YoY growth. Adjusted EBITDA declined to -$413M from -$264M in Q1 ’20 due to increased investments in S&M and R&D. However, Adjusted EBITDA loss per order decreased by 38% YoY to $0.38 compared to $0.61 in Q1 ’20. This indicates that Sea Limited continues to outgrow its costs in terms of gross order volume.
In Southeast Asia, Taiwan, and Indonesia, Shopee ranked #1 in the Shopping category by average MAUs and total time spent in app on Android for Q1, according to App Annie. These rankings are further indication that the strategy management has taken is to prioritize growth in favor of short-term profits – and this is paying off as the company continues to extend its leadership position in various regions.
Sea Limited has expanded its platform into parts of Latin America, but management did not separate out financials in the region. With that said, the company has previously discussed its plans to invest aggressively to building out the infrastructure necessary to compete with MercadoLibre.
Garena
Sea Limited announced digital entertainment (Garena) revenue of $781M, representing 111% YoY GAAP revenue growth. Bookings of $1.1B grew 117% YoY, while Quarterly Active Users increased 61% YoY to 649M. Quarterly paying users grew by 124% YoY to 80M and represented 12% of QAUs for the Q1 compared to 9% for Q1 2020.
The company’s blockbuster game, Free Fire, was the highest grossing mobile game in Latin America, Southeast Asia, and India for Q1. Moreover, Free Fire overtook PUBG Mobile and Call of Duty Mobile as the top grossing battle royale style game in the United States. App data from Sensor Tower shows that Free Fire has continued its momentum into Q2, as it was the 3rd most downloaded mobile app game in the world in April.
Source: Sensor Tower
SeaMoney
Sea Limited’s digital financial services segment saw $51.3M of revenue in Q1, representing 396% YoY growth. This segment is still just 3% of the company’s total revenue as we are in the very early innings of the shift to FinTech in Southeast Asia. Nevertheless, we are seeing promising growth metrics from SeaMoney, showing that they are primed to be a top FinTech player in the region.
Mobile wallet services recorded a total payment volume of $3.4B, which more than tripled compared to the $1.1B a year ago. Quarterly paying users surpassed 26.1M in the quarter.
In December 2020, Sea Limited was awarded a digital banking license in Singapore. A report by Financial Times shows that almost 50% of Southeast Asian adults are unbanked an additional 25% are underbanked.
This underscores the tremendous long-term opportunity Sea Limited is trying to capture in FinTech. There is a long runway for growth in digital banking as well as digital payments in Southeast Asia, and we are seeing Sea Limited begin to position themselves for future growth. Over the long-term, SeaMoney has the potential to be a legitimate source of revenue and capture a bigger piece of the revenue pie in addition to Shopee and Garena.
Q1 Earnings Results
Sea Limited announced Q1 results last month, growing GAAP revenue 147% YoY to $1.8B (US $). Total gross profit increased 212% YoY to $645M, while total adjusted EBITDA advanced to positive $88.1M compared to -$70M in the Q1 2020.
The Q1 adjusted EBITDA number missed the consensus estimate of $173M, but the company has been very transparent about its strategy to aggressively reinvest profits back into the business to focus on top line growth. In total, sales & marketing expenses increased 120% in the quarter while research & development expenses increased 118%. Management appears to be taking the right approach to stimulating growth and engagement in each segment of the business, as evidenced by some of the growth metrics discussed below.
Sea Limited has three distinct business segments in e-commerce, digital entertainment, and digital financial services. All three business segments executed tremendously in Q1, with each segment exceeding a triple digit growth rate. Below is the revenue breakdown in Q1 2021 versus the breakdown in Q1 2020.
Valuation
Sea Limited currently trades at a 12.4x EV/NTM revenue multiple, down from its peak valuation of around 27x last February. Below, we compare this valuation to other international e-commerce stocks MercadoLibre and Jumia. Notably, Sea Limited has higher forward growth projections for 2021 than MercadoLibre or Jumia. The table below shows a more detailed comparison of Sea Limited to MercadoLibre and Jumia. We also included Ozon Group and Coupang, two less expensive e-commerce leaders, for comparison.
Conclusion
Sea Limited did not give guidance for Q2 or FY21, but consensus estimates are calling for 89% YoY revenue growth for the full year. All three of Sea Limited’s business segments are performing better than ever, and the company has a long runway for growth as Southeast Asia continues to become more digitalized. Sea Limited has positioned itself as the dominant e-commerce company in the region with the success of Shopee, the top shopping platform in SE Asia. With Garena, Sea Limited has the most dominant gaming company in the region with no signs of slowing growth. SeaMoney, the company’s third segment, is ideally positioned to be one of the leading FinTech players in the region and will continue to benefit from increased digitalization.