3 Important Things Investors Should Know About Sea Limited By Now

Limited sea (SE 0.38% ), a leading Singapore-based tech conglomerate, announced its third quarter 2021 tax results on November 16, 2021. Revenue more than doubled to $ 2.7 billion while gross profit jumped by 148% to $ 1 billion. As revenue increased sharply, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) turned red as Sea invested heavily to grow its business.

But there’s more to these headlines. Here are three takeaways that investors should know.

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Garena’s growth slows down

Garena, Sea’s gaming segment, delivered a stable performance in the last quarter. Bookings increased 29% year-over-year to $ 1.2 billion thanks to higher quarterly paying users (up 43% to 93 million). As a result, Adjusted EBITDA increased 22% year-over-year to $ 715 million.

While Garena delivered a commendable performance, investors were rather disappointed with the weaker figures compared to previous quarters. For example, Sea’s game bookings jumped 65% to $ 1.2 billion while Adjusted EBITDA jumped 70% to $ 741 million in the second quarter of 2021. By comparison, the latest quarterly figures are slightly weaker.

It’s not unreasonable to see slower growth for Garena thanks to its already gigantic size – it already has 729 million Quarterly Active Users (QAUs) in the last quarter. The huge user base makes it much more difficult for Garena to grow its user base at historical rates. Slower growth in the user base, in turn, slows the growth of Garena’s bookings.

Still, Garena has room to increase her reservations. For starters, he can increase his average bookings per user (currently at $ 1.7 per quarter). It can also convert non-paying users to paying users since paying users only make up 12.8% of its QAU. And even though Garena has exhausted all of its growth opportunities, Sea can still maintain its growth momentum through other businesses (more details below).

Shopee has continued to evolve

Garena’s growth may be slowing, but Sea has other cards in her deck to support her growth. And that’s Shopee, the e-commerce branch of Sea.

In the last quarter, Shopee continued to expand into its existing markets (such as Indonesia and Taiwan) and also entered new regions such as Brazil, Europe and India. As a result, the e-commerce branch released strong growth statistics – revenue rose 134% to $ 1.5 billion, gross orders rose 123% to $ 1.7 billion, and gross merchandise revenue. (GMV) jumped 81% to $ 17 billion. Shopee’s aggressive expansion plan also more than doubled its loss, from negative Adjusted EBITDA of $ 302 million last year to $ 684 million this period.

To support its growth dynamic, Shopee is actively investing in its offers to improve its value proposition. For example, Shopee launched an incentive program, Seller Missions, to reward sellers. Under this program, sellers will gain special privileges after completing their assigned tasks. To improve user engagement, Shopee offers incentives, such as subsidies for shipping costs, and also adds new product categories – such as Shopee Premium, a dedicated area on Shopee featuring luxury brands – to incentivize buyers to come back to its platform. While not all efforts are successful, Shopee is doing its best to remain the preferred ecommerce platform for its stakeholders.

Management also expressed confidence in Shopee’s growth story by increasing its full-year revenue forecast to $ 5 billion to $ 5.2 billion, under generally accepted accounting principles (GAAP), against 4.7 and 4.9 billion dollars.

What to expect from Sea in the coming quarters

As a first step, Garena will most likely focus on monetizing its user base in the coming months. And while Garena’s revenue growth is likely to slow, it will continue to progress as long as Sea can improve user monetization over time.

E-commerce, on the other hand, is expected to continue growing at a high double- or even triple-digit rate, with Sea riding the tailwind of e-commerce in under-penetrated regions such as Southeast Asia and the United States. Latin America. In addition, Shopee is actively testing new markets in India and Europe. Therefore, there is a good chance that Shopee will succeed in some of these new frontiers.

In addition to this, Sea is always experimenting with new business models, which can lead to new opportunities. To that end, one of the most promising companies is SeaMoney (the fintech arm of Sea) which has already seen solid traction. SeaMoney has already reached 39 million paid users quarterly for its mobile wallet services and processed nearly $ 5 billion in payment volume for the third quarter of 2021, up 111% year-over-year . These numbers will likely increase over time as SeaMoney reaches more users and expands its use cases.

Together, Sea is well positioned to maintain its high growth rates over the next few quarters.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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