When Sea Limited (SE 0.19%) went public in Oct. 2017, most American investors didn't pay much attention to the stock. The Singapore-based e-commerce and gaming company priced its shares at $15, but the stock remained below its IPO price over most of the following year.

However, investors who took a chance on Sea and invested just $1,000 in its IPO would now be sitting on over $20,000. Let's see why investors weren't initially interested in Sea, why that sentiment shifted, and whether or not the stock will generate even more multibagger gains in the future.

Why weren't investors impressed by Sea's IPO?

When Sea filed its IPO in 2017, its numbers were messy. Its revenue rose 18% to $345.6 million in 2016, but its net loss more than doubled from $103.4 million to $222.9 million.

Sea's office in Singapore.

Image source: Sea Limited.

Sea's flaws were easy to spot. Its e-commerce platform Shopee faced fierce competition from Alibaba's (BABA -2.44%) Lazada across Southeast Asia. Its gaming business Garena primarily licensed games from Sea's top investor, Tencent (TCEHY -2.19%), instead of publishing original games. Therefore, a large portion of Sea's gaming revenue was flowing back to Tencent as licensing fees.

Neither Shopee nor Garena was profitable at the time of its IPO. After Sea went public, it liberally used non-GAAP metrics -- including "adjusted" revenue and adjusted EBITDA -- to gauge its growth.

Sea's use of "adjusted" revenue for both its e-commerce and gaming divisions was confusing, since it excluded sales incentives from its e-commerce division and deferred revenue from its gaming division. Many other gaming companies disclose "bookings" as a separate metric that accounts for deferred revenue from in-game purchases.

How did Sea finally impress the market?

Sea's business looked wobbly in 2017, but it quickly addressed its biggest weaknesses. It expanded Shopee's reach with big promotions, marketing blitzes, and free shipping subsidies. It hired one of Lazada's former executives to helm that expansion, and it gained more distribution partners in China.

At the same time, Alibaba, which bought a controlling stake in Lazada in 2016, clashed with Lazada's Singapore-based management. Many of Lazada's leaders left after Alibaba's takeover, and Alibaba's abrupt technological upgrades for Lazada's platform alienated its longtime sellers and buyers. Alibaba also tried to rein in Lazada's spending as Shopee expanded its market share with loss-leading strategies.

As a result, Shopee surpassed Lazada as Southeast Asia's top e-commerce app in 2019, and it maintained its lead throughout the pandemic last year. Shopee also gradually narrowed its adjusted EBITDA loss per Shopee customer by dialing back its subsidies.

Garena's Free Fire.

Image source: Garena.

Garena launched its first self-developed mobile game, Free Fire, in the summer of 2017. The battle royale game -- which was optimized for lower-end devices to maximize its reach -- caught fire across Southeast Asia and Latin America, and became the world's most downloaded mobile game in 2020, according to App Annie.

Free Fire's growth reduced Sea's dependence on licensed games and boosted Garena's adjusted EBITDA from $175 million in 2017 to $2 billion in 2020. That growth offset Shopee's adjusted EBITDA losses, and Sea's combined adjusted EBITDA turned positive for the first time in 2020 as it squeezed out an adjusted EBITDA of $107 million from $4.4 billion in revenue.

Lastly, Sea stopped reporting its "adjusted" revenue last year. It now only reports GAAP revenue for both segments, and uses bookings as another way to gauge Garena's growth.

What's next for Sea?

As the following chart illustrates, Sea's aggressive expansion, along with the pandemic-related tailwinds for its gaming and e-commerce businesses in 2020, caused its sales to soar over the past five years.

Revenue Growth (GAAP)






Digital Entertainment







-- --










Data source: Sea Limited. *Shopee didn't generate meaningful e-commerce revenue until Q4 2017.

Sea's stock chart reflects the market's initial indifference to the company, and its bullish response to its accelerating growth rates:

SE Chart

Source: YCharts

Analysts expect Sea's revenue to rise 91% this year and 50% next year, but it will likely remain unprofitable on a GAAP basis for the foreseeable future. Shopee should remain comfortably ahead of Lazada in the Southeast Asian market, especially as Chinese regulators scrutinize Alibaba's long list of investments, but Garena desperately needs a new hit game to succeed Free Fire.

If Garena launches another hit self-developed game, it could continue to support Shopee as it gradually narrows its losses. But if it doesn't, Sea's losses could widen significantly as its revenue growth decelerates in a post-pandemic market. That shift could cause many investors to sell the stock, which is already priced for perfection right now at nearly 20 times this year's sales.

Sea might generate even bigger gains in the future as e-commerce penetration rates rise across Southeast Asia, it enters new markets like Latin America, and it launches more self-developed games. But for now, it remains a volatile and speculative stock -- so investors should gradually accumulate shares of Sea instead of aggressively chasing it at its all-time highs.