Inflation is running hot around the world. Pandemic-driven supply chain chaos and Russia's war on Ukraine have both contributed to the problem, though some countries have absorbed the shocks better than others. For instance, while U.S. inflation hit 8.6% in May, many countries in Europe and Southeast Asia have seen prices rise to a lesser extent.
That illustrates the importance of geographic diversification. If every stock in your portfolio is primarily focused on the U.S., your financial well-being is heavily tied to the politics and economy of just one country. With that in mind, Adyen (ADYE.Y -0.40%) and Sea Limited (SE 1.20%) offer heavy exposure to Europe and Southeast Asia, respectively, and both stocks are worth buying now and holding for the long term.
Here's what you should know.
1. Adyen
Amsterdam-based Adyen specializes in digital payments. Typically, merchants work with multiple players in the value chain, including acquirers, gateways, processors, and risk management providers. But Adyen does away with that complexity by integrating all of those services on a single platform. To that end, the company simplifies digital payments for its merchants, allowing them to accept payment cards and digital wallets across websites, mobile apps, and physical stores.
Additionally, by unifying transaction data across multiple sales channels, Adyen can also lean on artificial intelligence to prevent fraud, increase authorization rates, and improve marketing campaigns through shopper insights. Collectively, those services optimize revenue for merchants, and that value proposition has helped Adyen win big customers like McDonald's, Etsy, and Spotify.
Currently, the company generates most of its revenue from Europe, Asia, and Latin America, though its North American business is growing more quickly than any other geographic segment. In 2021, payment volume soared 70% to 516 billion euros ($543.21 billion), revenue climbed 46% to 1 billion euros, and free cash flow rose 53% to 567 million euros.
Going forward, shareholders have good reason to be bullish on this fintech company. Digital payments are only becoming more common. In fact, payment card volume will grow at 6% per year to reach $79 trillion by 2030, according to the Nilson Report. That puts Adyen in front of a massive market opportunity, and its ability to streamline digital payments and surface insights across channels gives the company an edge over traditional point solution providers. That's why this growth stock is a smart long-term investment.
2. Sea Limited
Sea Limited is a holding company that operates three businesses, primarily in Southeast Asia and Taiwan, including e-commerce marketplace Shopee, digital payments platform SeaMoney, and video game developer Garena. Sea's core geographies include some of the fastest-growing economies in the world, and the company is well positioned to capitalize on that tailwind.
Shopee has reigned as the largest e-commerce marketplace in Southeast Asia and Taiwan for several years, and it ranked as the most-downloaded shopping app globally in the first quarter. The company has reinforced its competitive edge with value-added services for advertising, logistics, and payment processing. On that note, while SeaMoney was originally designed to support Shopee, the digital wallet has expanded beyond the marketplace, and it now facilitates transactions across online and offline channels for a number of third-party merchants.
Garena has an equally strong foothold in the gaming industry. The company is best known for Free Fire, a multiplayer battle royale that has ranked as the highest-grossing mobile game for the last 11 quarters in Southeast Asia and Latin America. But Garena also licenses games from other developers and adapts them to its markets, including titles like League of Legends and Call of Duty.
Collectively, revenue 105% to $11.1 billion in the past year, though Sea generated negative free cash flow of $833 million, as SeaMoney and Shopee continued to operate at a loss. However, SeaMoney is expected to generate positive cash flow by 2023, according to management, and Shopee is also expected to achieve positive adjusted EBITDA in Southeast Asia next year.
Going forward, Sea Limited has a truly massive market opportunity. This year in Southeast Asia, digital payments volume will total $200 billion, e-commerce spend will total $143 billion, and the gaming market will surpass $7 billion, according to Statista. For context, SeaMoney's payment volume hit $17.2 billion last year, and Shopee's gross merchandise volume hit $62.6 billion.
However, Shopee has expanded its business into Latin America and Europe, and Garena's Free Fire is available in 130 markets. That means Sea Limited's addressable market is much larger than Southeast Asia alone. And with shares trading at 3.7 times sales -- far cheaper than their three-year average of 15.6 times sales -- now is a great time to buy this growth stock.
