Sea Limited's (SE 0.67%) stock recently hit an all-time high after the Singapore-based gaming and e-commerce company posted its second-quarter earnings.

Sea's adjusted revenue rose 93% annually to $1.29 billion, beating estimates by $230 million. It posted a positive adjusted EBITDA of $7.7 million, compared to a loss of $11 million a year ago and analysts' expectations for a loss of $41.9 million.

That earnings beat extended Sea's rally of more than 300% over the past 12 months. I personally missed out on that rally due to my bearish concerns about Sea's e-commerce business, so it's time to reevaluate the four things I got wrong about Sea -- and whether or not it's too late to buy this high-growth stock.

A woman checks her smartphone while holding shopping bags.

Image source: Getty Images.

1. Worrying too much about its e-commerce losses

Sea owns Shopee, one of the largest e-commerce marketplaces in Southeast Asia. Its main competitor is Alibaba's (BABA 1.64%) Lazada. Shopee remains unprofitable due to its aggressive promotions and subsidies (including free shipping and financial support for sellers), and I believed its losses would widen in a prolonged war with Lazada.

That certainly happened: Sea's adjusted e-commerce and other services (including digital payments) revenue rose 188% annually to $510.6 million during the second quarter, but its adjusted EBITDA loss widened from $248.3 milion to $305.5 million.

However, its adjusted EBITDA loss per order declined annually from $1.01 to $0.50, indicating it's dialing back its promotions and subsidies as it locks more shoppers into its platform. As a result, its adjusted revenue as a percentage of its total gross merchandise volume (GMV) rose from 4.6% to 6.4%. In short, I underestimated Shopee's ability to hold the line against Alibaba and Lazada.

2. Underestimating the growth of its gaming business

Sea's bulls claimed the company could subsidize the growth of Shopee with its profitable gaming business, Garena, which offers licensed games from Tencent, as well as first-party games.

A woman plays a smartphone game.

Image source: Getty Images.

However, I didn't think Garena could grow fast enough to offset those Shopee losses. But during the second quarter, the digital entertainment group (which houses Garena) grew its adjusted revenue 62% annually to $716.2 million, as its adjusted EBITDA rose 65% to $436.2 million.

That growth was fueled by the popularity of its first-party battle royale game Free Fire, which surpassed Tencent's PUBG Mobile as the most downloaded mobile game in the world last year, according to App Annie. The growth of that segment easily offset Shopee's losses and lifted its adjusted EBITDA into positive territory.

3. Ignoring its strength throughout the COVID-19 crisis

Sea's e-commerce and gaming businesses both gained momentum throughout the COVID-19 crisis. Social distancing measures and shutdowns boosted Shopee's online sales, and people played more games as they stayed at home.

Sea offered direct exposure to those two markets, and it wasn't hampered by a big online advertising division and other macro-sensitive businesses. Other larger Asian tech companies, like Alibaba and Tencent, operate more diverse businesses that are exposed to macro headwinds. Sea also isn't directly exposed to the escalating tensions between the U.S. and China.

4. Worrying too much about Sea's "adjusted" numbers

I generally don't like companies that emphasize non-GAAP metrics like "adjusted" revenue and adjusted EBITDA, since they often mask fundamental problems. Sea's "adjusted" revenue includes deferred revenue at its gaming business and excludes some sales incentives at its e-commerce and digital payment businesses.

Those adjustments are messy and distort Sea's top-line growth. But in its second-quarter report, Sea stated it would drop its "adjusted" revenue metric in future quarters and only report its GAAP revenue to satisfy the SEC's new reporting requirements.

I'm still concerned about Sea's GAAP losses, which widened year-over-year from $280.1 million to $393.5 million during the quarter, but its cash and equivalents rose 10% annually to $3.43 billion -- mainly due to a $1 billion debt offering earlier this year -- so it won't run out of cash anytime soon. In other words, my bias toward "adjusted" metrics prevented me from fully appreciating the company's underlying strengths.

Is it too late to buy Sea Limited's stock?

Sea's stock can be difficult to value because it isn't profitable. But in terms of revenue, it's a bit pricey at 15 times this year's sales.

Sea didn't provide any guidance, but analysts expect its revenue to rise 57% this year and 39% next year. That growth rate could justify Sea's premium valuation, as long as the growth of its gaming business continues offsetting the narrowing losses at its e-commerce business. I think Sea could pull that balancing act off, and its stock could head higher -- so it's not too late to accumulate some shares of this Southeast Asian underdog.