Could Sea Limited Be a Millionaire-Maker Stock?

Sea Limited's (SE 2.03%) business capitalizes on three different opportunities in Southeast Asia: e-commerce, digital payments, and video games. These industries have grown rapidly in recent years, and Sea Limited stock is up 250% since the beginning of 2018.

However, this tech company now has a market cap of $133 billion. Given its massive size, does Sea Limited still have what it takes to be a millionaire-maker? Let's look more closely.

Southeast Asia

Sea Limited primarily operates in seven markets in Southeast Asia: Vietnam, Malaysia, Singapore, Thailand, Indonesia, the Philippines and Taiwan.

Image source: Getty Images

As of April 2021, these countries had a combined population of 614 million and a GDP of $4.0 trillion, according to the IMF World Economic Outlook. For context, the U.S. population and GDP currently sit at 332 million and $22.7 trillion, respectively.

However, Southeast Asia is undergoing rapid economic expansion. Prior to the pandemic, the GDP in Sea Limited's seven core markets was growing faster than U.S. GDP. And as the effects of the pandemic moderate, that trend is expected to continue.

A big market opportunity

Sea Limited breaks its business into three segments: Garena, Shopee, and SeaMoney.

Through Garena, the company develops, licenses, and publishes mobile and PC video games. It's best known for Free Fire, the most downloaded mobile game worldwide in 2020. Free Fire was also the highest-grossing mobile game in Latin America, Southeast Asia, and India, and the company has maintained that lead through the first quarter of 2021.

Shopee is an e-commerce platform. Similar to Amazon, it generates revenue by providing services to third-party sellers and by selling items directly to consumers. According to Frost and Sullivan, Shopee is the region's largest e-commerce marketplace.

Finally, SeaMoney is the company's digital payments platform, providing consumers with digital wallet services, and merchants with access to financing and payment processing. According to the International Data Corp. (IDC), SeaMoney is the leader in this market as well.

Image source: Sea Limited

So just how big is Sea Limited's opportunity? When the company filed its F-1 with the SEC, it valued the market at $116 billion by 2021. But that didn't account for the pandemic. While management hasn't updated the figure, the real number likely exceeds the original forecast.

Moreover, these markets are still growing rapidly. According to research from Google, Temasek, and Bain, digital commerce GMV is expected to grow at 23% per year through 2025, and digital payments volume is expected to grow at 15% per year over the same period. Put another way, the digital commerce market will nearly triple and the digital payments market will double over the next five years.

As a final thought, Sea Limited is slowly expanding beyond Southeast Asia. Garena's Free Fire is now available in 130 markets including North America, and Shopee recently launched in Brazil and Mexico. With these moves, Sea Limited is further expanding its market opportunity, though it faces formidable competition from MercadoLibre in Latin America.

Financial performance

Last year, COVID-19 drove the adoption of digital services like commerce and payments in Southeast Asia. In fact, the region saw 40 million new users join the internet during 2020. More significantly, 36% of all consumers in the region started using new digital services during the pandemic.

That helped Sea Limited deliver an impressive financial performance: Garena's number of paying users jumped 120%, driving an 80% increase in bookings. Shopee's GMV popped 101%, driving revenue growth of 160%. And SeaMoney ended the year with 23.2 million mobile wallet users, more than double the 10.5 million users it had at the beginning of the year.

While COVID-19 certainly played a role in the company's recent performance, Sea Limited has been growing at an impressive clip for many years.

Data source: Sea Limited SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.

Investors should note that Sea Limited is prioritizing growth over profitability. To that end, the company spent $2.2 billion on sales and marketing over the trailing 12 months, representing 41% of revenue. Despite generating positive free cash flow, the company posted a net loss of -$1.8 billion during that time period.

Even so, I'm not worried. E-commerce and digital payments are rapidly growing markets, and it makes sense for Sea Limited to grab as much market share as possible right now. As the business continues to scale, I think this company will be quite profitable.

The verdict

Sea Limited has a strong competitive position in several high-growth industries, and the company should continue to gain momentum in the years ahead. However, it has already grown into a sizable business. More to the point, whether or not this stock is still a millionaire-maker depends on how much you invest.

That being said, Sea Limited looks like a long-term winner, and I expect the stock to continue rewarding shareholders in the coming decade.