The pandemic set in motion an accelerated digital transformation, motivating many businesses to build online shops and shift resources to the cloud. At the same time, many consumers turned to digital channels for shopping and entertainment. Those trends supercharged sales growth for many companies, but few have kept pace with Sea Limited (SE 3.67%) and Snowflake (SNOW +1.61%) over the last two years.
However, both companies have seen their stock prices fall more than 60% from their highs, dragged down by the looming possibility of a recession. Fortunately, that creates a buying opportunity for patient investors.
Here's what you should know.
1. Sea Limited: 337% sales growth
E-commerce, digital payments, and gaming were growing quickly before the pandemic, but business closures and lockdowns accelerated adoption across the board. As a key player in all three markets, Singapore-based Sea Limited saw its business boom to the tune of 337% sales growth cumulatively over the last two years.
NYSE: SE
Key Data Points
Sea Limited primarily operates across Southeast Asia and Taiwan, and its e-commerce arm (Shopee) runs the largest online marketplace in that region. Better yet, Shopee ranked as the most downloaded shopping app in the world in the first quarter. And Sea Limited has reinforced that strong market position with a number of value-added services, including payment processing through its digital financial services arm (SeaMoney).
Sea Limited also owns video game developer and publisher Garena, which is best known for Free Fire, the highest-grossing mobile game in Southeast Asia and Latin America for 11 quarters and counting. Unlike Shopee and SeaMoney, Garena operates at a profit.
Financially, Sea Limited saw revenue climb 105% over the past year, but its GAAP loss continued to widen due to particularly aggressive investments in e-commerce. But management expects SeaMoney and Shopee to achieve positive cash flow by the end of 2023. Moreover, Sea Limited is chasing a massive market opportunity, so its aggressive investment strategy makes sense.
E-commerce spend in Southeast Asia is set to reach $234 billion by 2025, according to Statista, but Shopee has also expanded into parts of Europe and Latin America, bringing its total addressable market to over $500 billion. For context, Shopee processed just $67 billion in transactions over the past year.
Additionally, digital payments volume in Southeast Asia will reach $1.2 trillion by 2025, but SeaMoney handled just $19 billion over the past year. And the mobile gaming market will hit $175 billion worldwide by 2026, but Garena saw only $4.3 billion in bookings in the past year. In short, Sea Limited has only scratched the surface of its true potential, and with shares trading at 3.8 times sales -- a big discount to the three-year average of 14.5 times sales -- now seems like a good time to buy this growth stock.
2. Snowflake: 328% sales growth
There is truth in the saying that knowledge is power, and substituting the word "data" for "knowledge" explains why Snowflake has been so successful. Businesses that can effectively harness data and unlock its value stand to gain a competitive edge. Snowflake helps its clients achieve that goal, and that has translated into 328% sales growth over the past two years.
NYSE: SNOW
Key Data Points
Snowflake's cloud platform unifies several workloads that have traditionally required multiple point solutions -- data ingestion, preparation, storage, and analytics -- while eliminating the cost and complexity of managing those systems on-site. Snowflake also provides tools for data-driven application development, and its platform facilitates the secure sharing of data between customers. That last point is particularly noteworthy because it creates a network effect. As more customers join, more data is available for exchange on the platform.
That broad functionality distinguishes Snowflake from other vendors, and it has fueled incredible demand. Snowflake saw its customer base increase 40% in the past year, and the average customer spent 74% more. In turn, revenue skyrocketed 98% to 1.4 billion, and the company posted positive free cash flow of $227 million, up from a loss of $75 million in the prior year.
Going forward, Snowflake is well positioned to maintain that momentum. New innovations like support for cybersecurity workloads and industry-specific tools for retailers should bring more customers to the platform, and its world class net promoter score of 72 -- which implies incredibly high customer satisfaction -- should boost spend per customer over time.
Management puts its addressable market at $248 billion by 2026, and despite a pricey valuation of 31 times sales, now looks like a good time to buy a few shares. That being said, I would keep the position at less than 2% of my portfolio, simply because the rich valuation could create better buying opportunities in the future.
