Sea Limited (NYSE: SE) set sail on a turbulent sea, creating millionaires in its wake during the first four years post its IPO in October 2017. The company’s shares, launched at a meager $15, soared to a zenith of nearly $367 on Oct. 19, 2021. A $50,000 investment during the IPO would have burgeoned into a staggering $1.2 million.
Alas, Sea’s stock now languishes around $58, diminishing that investment to a modest $193,000. Nonetheless, a near-fourfold gain in less than seven years shouldn’t be dismissed. However, as its sales growth decelerated, losses mounted, and escalating interest rates pricked its frothy valuations, Sea lost its shimmer.
Image source: Getty Images.
Sea’s enterprise value shriveled to $29 billion, merely 2 times its projected sales and 21 times its 2024 adjusted EBITDA. Could this diminished valuation buoy its stock price, signaling a resurgence towards more millionaire-making gains in the future?
The Ebb in Sea’s Growth
Sea predominantly derives revenue from Shopee, the premier e-commerce platform in Southeast Asia and Taiwan, with Garena—its gaming arm—as its second-largest business, mainly fueled by the popular mobile game, Free Fire. Its fintech wing, encompassing SeaMoney digital payments and other financial services, contributes a smaller share of its revenue.
Subsidizing the growth of its lower-margin businesses with Garena’s higher-margin revenue, Sea’s strategy grew precarious due to Garena’s reliance on a single hit game. Garena’s bookings witnessed a nosedive over recent years as Shopee’s revenue growth decelerated.
|
Metric |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|
|
Shopee revenue growth |
160% |
136% |
42% |
23% |
|
Garena bookings growth |
80% |
44% |
(39%) |
(36%) |
|
Total revenue growth |
101% |
128% |
25% |
5% |
Data source: Sea Limited.
Shopee’s growth waned post the pandemic-induced boom, contending with fierce competition from Alibaba’s Lazada and ByteDance’s TikTok Shop in Southeast Asia. An austere cost-cutting measure saw Sea retract from several overseas markets, diminishing its initial robust shopper traffic.
Sea’s ambition to expand Shopee globally fizzled, with efforts in markets like India, South America, and Europe yielding little success. Concurrently, Free Fire’s fortune dwindled as gameplay shifted among mobile gaming enthusiasts. The game’s ban in India compounded its woes, culminating in a reduced user base at the end of 2023.
Sea, resorting to pruning expenses and halting loss-inducing practices amidst stagnating growth, witnessed the semblance of profitability. With an uptick in the adjusted EBITDA margin and the company’s first GAAP annual profit in 2023, Sea demonstrated signs of fiscal prudence.
The Post-Growth Horizon of Sea
While Sea’s newfound profitability provides optimism, its days of hypergrowth seem to be tapering off. Analysts project a modest 13% CAGR in revenue from 2023 to 2025. However, a brighter outlook emerges with an anticipated 38% CAGR in adjusted EBITDA and a striking 138% CAGR in GAAP net income.
Should Sea adhere to these projections, stabilizing Shopee’s growth alongside business optimizations could bolster its prospects, particularly with tailwinds such as the recent ban on TikTok Shop in Indonesia. Garena’s resurgence, led by the relaunch of Free Fire in India and portfolio expansion, could complement this growth trajectory.
A Peek into Sea’s Future Millionaire-Making Potential
If Sea endorses analysts’ forecasts and perpetuates a 25% CAGR in adjusted EBITDA from 2025 to 2035, envision an adjusted EBITDA of $9 billion by 2035. At 21 times its forward adjusted EBITDA, Sea could amass an enterprise value of $189 billion by the cusp of 2035.
This 550% leap stands to materialize a $50,000 investment into over $325,000—a commendable return. While Sea may not replicate its earlier meteoric growth, nor independently engineer exorbitant millionaire-making prospects, it remains a viable candidate within a diversified investment portfolio.
Before Investing in Sea Limited
Before jumping into Sea Limited shares, deliberate upon this:
Though the Motley Fool Stock Advisor team excludes Sea Limited from its roster, identifying 10 other promising stocks for potential monstrous returns, prudence dictates exploring avenues beyond Sea Limited for optimal gains.
Stock Advisor sharess a blueprint for investment triumph, offering guidance on portfolio construction, analyst insights, and bimonthly stock picks that have conspicuously outperformed the S&P 500 since 2002*.
*Stock Advisor returns as of March 11, 2024
Leo Sun maintains investments in Sea Limited. The Motley Fool holds investments in and recommends Sea Limited. It also advocates for Alibaba Group. The Motley Fool abides by a strict disclosure policy.
