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Three Major Takeaways from Sea Ltd's Latest Earnings

By Lawrence Nga - May 23, 2021 at 7:30AM

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Sea delivered yet another solid quarter.

Southeast Asian tech giant Sea Limited (SE -2.32%) has just reported earnings for the first quarter of 2021. Revenue soared 147% from a year ago while gross profit surged 212%, propelled by growth across Sea's gaming, e-commerce, and fintech businesses.

But there are more to these top-line numbers that investors should know. Here are the three biggest takeaways from Sea's earnings report.

Women with shopping bags looking at phone

Image source: Getty Images.

Another blowout quarter for Sea's gaming division

Garena, Sea's gaming division, has always been a cash cow and the company's crown jewel. It more than lived up to expectations in the first quarter of 2020, delivering mind-blowing growth. Revenue more than doubled to $781 million, driven by a 117% surge in bookings. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in even stronger, growing 140% year over year to reach $717 million.

The strong performance was driven by a surge in Garena's active users and paying users. Quarterly active users grew 62% to 649 million, while quarterly paying users jumped 124% to hit 80 million in the first quarter of 2021, thanks to the ever-popular Free Fire, Sea's self-developed game.

In the first quarter of 2021, Free Fire was the highest-grossing mobile game in Latin America, Southeast Asia, and India. It has held this leading position in Latin America and Southeast Asia for seven consecutive quarters, and two consecutive quarters in India. This underscores the incredible staying power of Free Fire nearly four years after its release. In other words, Free Fire will likely continue to mint money for Garena, at least for the next few quarters.

Shopee and Sea Money continued to scale rapidly

Shopee, Sea's e-commerce arm, grew even faster than Garena in the quarter. Revenue rose 250% to $922 million, on the back of a 153% rise in orders and 103% surge in gross merchandise volume. As the No. 1 shopping app in Southeast Asia and Taiwan (as ranked by App Annie), Shopee is well-positioned to sustain its high growth rate for years to come, and it is doing just that. 

Unlike Garena, however, Shopee remains unprofitable as it is investing heavily to grow its marketplace. Unsurprisingly, it reported a negative adjusted EBITDA of $413 million for the quarter, up 56% from a negative adjusted EBITDA of $264 million a year ago. On the bright side, Shopee posted a gross profit, which is a turnaround from a loss in the same period last year. In the long run, Shopee's financial performance should continue to improve as its marketplace expands and the company further monetizes its e-commerce platform.

Meanwhile, Sea Money -- Sea's fintech division -- saw adoption accelerate throughout the quarter. Mobile wallet payments volume more than tripled year over year to $3.4 billion, while quarterly paying users grew 145% to 26 million. Like Shopee, Sea Money is still in the red due to heavy investment spending -- and will likely remain so as it expands at a breakneck pace.

Sea has a fortress balance sheet

Of Sea's three operating segments, two are loss-making -- Shopee and Sea Money. The company is plowing cash into Shopee and Sea Money as it fights to cement its leadership in Southeast Asian e-commerce and catch up with rival Grab in digital finance. With competition still as tense as ever, investors can expect both segments to remain loss-making for some time.

That being said, Sea is more than well-equipped for this battle. Its solid cash balance -- totaling $5.8 billion as of March 31, 2021 -- gives the company plenty of firepower to invest and grow its newer businesses. Moreover, Sea has Garena -- a cash cow that generates a steady flow of cash -- which Sea can reinvest into its e-commerce and fintech divisions. Thanks to Garena, Sea delivered a positive operating cash flow of $318 million in the first quarter of 2021, despite spending heavily on growth.

What's next for Sea

While Sea's latest result is impressive, it is just getting started. Backed by its fortress balance sheet and cash cow gaming division, Sea is in a great position to keep investing and expanding its business. Hence, it's likely that Sea will sustain its high growth trajectory over the next few years.

Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sea Limited. The Motley Fool has a disclosure policy.

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