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This Company Could Be the Next Big Thing in E-Commerce

By Danny Vena - Jan 26, 2021 at 7:00AM

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Expanding beyond the obvious choices can yield big winners.

There's little doubt that the pandemic has given online retail a huge boost. While the rate of adoption may slow, e-commerce is clearly a part of everyday life. It's also apparent that a company with a sticky ecosystem that offers more than just online purchasing is increasing its chances of long-term success.

On this episode of Fool Live that aired on Nov. 24, 2020, "The Wrap" host Jason Hall and contributor Danny Vena discuss disruptive upstart Sea Limited (SE 1.53%), what the company has to offer, and why it's just getting started.

Jason Hall: I know we teased a lot of folks who are very interested in Always Learning Fool's question about Danny Vena's thoughts on Sea Limited, ticker, SE, and whether or not Danny thinks that can be another Mercadolibre. Danny, what do you say?

Danny Vena: I'm going to do a throwback to yesterday. In my interview with Frederico Sandler, who is the investor relations officer at MercadoLibre (MELI -3.76%). I asked him a question in preparation for that interview last week and I said one of the things that we prize here at The Motley Fool is a management team, one that is engaged and one that's looking long term. If you had a management team that you admire, can you tell me who that is and why? He didn't even blink and he said Sea Limited.

That kind of made my ears perk up. It turns out that the management team from Sea Limited had actually gone out and visited MercadoLibre's headquarters and had talked to them. This is a team that has met with Pedro [Arnt, CFO] and Federico and talked to some of the folks over there at MercadoLibre. I will say that I am a shareholder of Sea Limited and I want to talk a little bit about what the company does because it's not really a household name in the US, but that's a very different story in Southeast Asia.

Sea Limited is tapping three of the hottest growth trends, e-commerce, digital payments and gaming, and the Sea, S-E-A, in Sea Limited stands for Southeast Asia. That's the region where they operate.

Now, they started out with some mobile gaming platform and they gain some acclaim for their hit game Free Fire. Now this game not only was it historically a very good game, but even in the most recent quarter, it continued to trend as the as highest crossing mobile game in both Latin America and in Southeast Asia during the third quarter.

The company has Shopee, which is its e-commerce platform, and it is the dominant e-commerce platform in Southeast Asia in terms of gross merchandise volume. Now this is a region that serves 585 million consumers and 350 million internet users and it crosses the boarders of Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, Singapore. This is a big area.

Now, this e-commerce platform ranks No. 1 in both Taiwan and Southeast Asia in terms of app downloads, monthly active users, the amount of time spent on the app using Android. There are a lot of metrics that say this is clearly the leader.

Now, there's good news and there's bad news when it comes to the company's financials. Still early days, in the third quarter, revenue grew by 99 percent year-over-year and you think that's fabulous. Well, guess what? Its net loss more than doubled as well. You have a company that is, again, high-growth, high-risk, high-reward. Now the stock has doubled over the last six months, and it's up more than 300 per cent so far this year.

But also ... to fill out the hat-trick. The company is now doing its own payment system, Sea Money. It's also expanding that, not only from with the system into an entire full-fledged digital wallet.

Three hot trends there, e-commerce, digital payments, and gaming. The company is at the crossroads of all three and I think if the company can grow to scale and get to profitability before it gets mired in debt and heavy net losses, I think this could be the next MercadoLibre and that's something that Frederico Sandler said yesterday from MercadoLibre. He said, "If you look back at what MercadoLibre was doing 10 years ago, that's what Sea Limited looks like today."

Jason Hall: Danny, you are still alive over there. Didn't catch anything on fire, did you?

Danny Vena: That was my fancy light that just dropped off of its suction cup and landed on my lap.

Jason Hall: I saw the light change I'm like, that wasn't a candle falling over, I hope. Well, I hope so, Danny. Well, thanks for that on Sea Limited, I'm a huge fan as well. I think the reality too is that, even as the company continues to spend money and burn through cash, because of the investor interest I think they could easily do a secondary offering to raise cash with the stock near an all-time high. I don't think they're going to have any liquidity problems. I'm a huge, huge fan.

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Stocks Mentioned

Sea Limited Stock Quote
Sea Limited
$78.07 (1.53%) $1.18
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
$771.41 (-3.76%) $-30.16

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