Sea Limited (SE 2.85%) stock has become cheaper lately, meaning investors might see better returns from here.
In this video from "The Virtual Opportunities Show," recorded on Jan. 25, Fool contributor Jose Najarro discusses some reasons why the digital platform giant might deliver market-beating returns for shareholders.
Jose Najarro: This company I'm going to talk about is Sea Limited, traded on the New York Stock Exchange that ticker SE. Very popular I'm pretty sure most people here are familiar with it. Many call it the three-headed monster right. Has the e-commerce Shopee, it has the gaming Garena, and it has the fintech SeaMoney. Market cap right now is about $80.4 billion. For me, its all-time highs, I believe it has dropped over 50%, but past 12 months it has returned negative 36.86% to investors.
Even though it looks scary, I think the company still has a lot of power to keep going. One of my favorite things is their Tencent partnership ownership. I think it depends on how you see it. Tencent's a big player in the video game industry, so because of this partnership, Tencent does give the ability to license certain games to Garena. For example, Call of Duty since Tencent owns a few percentage of Activision. They also have a partnership with Activision. Sea Limited is able to put that game into their gaming platforms. There's numerous games I can put down the list. I know Activision's very popular, so I mentioned that one. They do have an annual general meeting coming up on Feb. 14, 2022. They haven't really announced their upcoming earnings just yet but I do believe it's going to be in the end of February.
Recent earnings which they reported Nov. 2, they showed that, hey, they have about $3.5 billion in long-term debt. That might be a little bit scary right now, but they do have a strong balance sheet in my opinion with $11.7 billion in cash and short-term investments. Revenue most recent quarter $2.7 billion up 122%. Gross profits of $1 billion. To me, I feel like a lot of people like Sea Limited for the e-commerce side. It's crazy, I enjoy gaming stocks, even though I barely play any games. I do enjoy investing in gaming companies. I think Sea Limited, even though it's seen as e-commerce, for me, I like it more for its digital entertainment, which is its gaming side.
Digital entertainment revenue was $1.2 billion up 29%. What is super impressive is its Free Fire game, which is the No. 1 game it has, was the highest-grossing mobile game in Southeast Asia and Latin America for nine consecutive quarters. I believe in India, it's been the No. 1 highest-grossing for four consecutive quarters. Then, I'm not sure what the United States I think it's been the No. 2 for numerous quarters.
E-commerce is very important, $1.5 billion and it grew 134% compared to same time last year. Unfortunately the e-commerce business is the business that burns most of their cash. It's actually positive in cash in the digital entertainment side. But it's using that digital entertainment money to expand into its e-commerce solutions. For future growth, I believe this company in the past few months has expanded dramatically in Europe and Latin America. Poland, for example, was one. I think France and Spain have been some other ones that they expanded in the past three months. Free Fire can continue to be one of the top games.
Many people believe that one game might be too bad, but Activision's Call of Duty, for example has been running the show in the console industry for numerous years. World of Warcraft for Blizzard, has also been running the show for numerous years. It's not impossible for Free Fire to run the show in the mobile market for numerous years. Some of the biggest risk, obviously, there's risk expanding too quickly. Like I mentioned, it's expanding to a lot of regions too fast. I just don't understand how management does it. You have to make sure, hey, you have plenty of management running this country, this expansion, and if management doesn't do it properly, that can create numerous risks.
Right now, obviously, I'm a huge fan of Free Fire, but to some extent, they're dependent on a single game traction. If something happens, if some new game comes out, that can unfortunately be a risk. Competitions in all markets, e-commerce, there's big players. Latin America, you have [MercadoLibre] MELI, for example. You have Amazon, Alibaba. You have a huge amount of competitors in the e-commerce markets and also in the gaming market. But I think the mobile market right now with with Free Fire is still pretty strong.
Finally, at the end of the day, valuation to some extent. The stock price has taken a quick downturn. For me Sea Limited is one of those stocks where I don't mind doing more of a dollar-cost averaging over time. But that's just my investment style. I'm more of like a weekly investor. Sometimes, dollar-cost averaging can help me eliminate that risk of valuation. That's the stock I wanted to talk about.
