Sea Limited's Case as a Top-Line Growth Pick

Despite some recent concerning metrics, Sea Limited (SE -2.08%) still has growth potential ahead and is worth watching. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on May 25, Motley Fool contributor Brian Feroldi reviews Sea Limited's performance and financials, and why its expense growth could be cause for concern.

Brian Feroldi: We're going to go onto Sea Limited, ticker symbol SE. For the quarter, revenue was up 64% to $2.9 billion, beating Wall Street's estimate. Bottom line was a worst figure on an adjusted basis, negative $0.80. That beat Wall Street's estimate. This company has three main divisions that are worth knowing. The first is Shopee, which is their e-commerce platform. Sales here rose sharply to $1.5 billion for the quarter. The second is Garena. This is their gaming division, which has been the profit engine that has funded Shopee and Sea Money, which operated at a loss. Garena revenue up sharply too to $1.1 billion and Sea Money, their payment option, really strong growth in this quarter up 363% doing gangbusters on the top-line. Top-line story still intact. However, digging into the details of Garena, the company's gaming division paints a couple of ugly pictures, or at least worrisome picture. A quarter active users were down 5% year-over-year. Paying users down 23% year-over-year. Bookings down 26% year-over-year. Hang on a second. How can active users, paying users and bookings be down, yet this company's division was up with revenue? All due to revenue recognition from deferred revenue being recognized in this quarter. That's it. It's more of an accounting thing than the numbers showing that this business is doing gangbusters. Management is aware of this and they're focused on stabilizing it. Shopee had a pretty good quarter, though revenue here was up 64%. Orders were up 71%. Gross merchandising volume only up 39%. Orders going faster than gross merchandise volume, suggest that average ticket volume going down. Maybe that's getting into more everyday purchases. Take rate here increased to 7.2%. Sea Money, the company's payment division, really great quarter. Quarterly active users up 78%. Mobile payment up 49% and total up 363%. Top-line, the company's doing a good job. However, the rest of the company's metrics didn't look as great. Gross margin up, hooray, all of the company's costs were rising. Sales and marketing, up huge. Research and development, up huge. General administrative, up huge. The company has invested heavily in its corporate headquarters and marketing and are to continue to build itself out. Looking forward to this quarter, management tweaked its full-year guidance. Here's what they said back in February and they tweaked the e-commerce guidance to a slightly worse top-line, the midpoint range to reflect the ongoing uncertainties. Sorry, I did that backwards. But yes, the guidance here was tweaked ever so slightly to the downside. The gaming division is worth watching, everything else on the business. I'm not thrilled with the expense growth, but this is still a top-line growth story on that front. So far, so good.

Brian Withers: I like Sea Limited's optionality, and that payments business has just come out of nowhere to be a contributor to the top and bottom line.