Sea Limited (SE +1.01%) has gone to both extremes since the pandemic. After rising to a high of $372 in 2021, it fell as much as 91% from those levels in 2023.
Despite that move, past and present share prices show a market willingness to bid the stock higher with a suitable catalyst. Hence, the stock is likely to rise. Still, investors need to take a closer look at its businesses to determine whether it holds the potential to turn small investors into millionaires.
Sea Limited's current business
At first glance, Sea Limited's three segments point to significant growth potential. Its fintech arm, Sea Money, has grown rapidly. Shopee, the e-commerce business, leads the Southeast Asian market but faces competition from TikTok and others.
NYSE: SE
Key Data Points
Still, its markets in Southeast Asia have a combined population of over 600 million, nearly double that of the United States. This market area also combines wealthy countries like Singapore and Taiwan with fast-growing, developing areas such as Thailand and Vietnam. This could mean massive sales growth over time.
Where it struggled in recent quarters is in its gaming segment, Garena. After experiencing rapid growth when Free Fire was the world's most downloaded mobile game, revenue has plunged. But the long-awaited return of Free Fire to India or the emergence of a new game could turn Garena around.
Can it grow enough?
A factor in millionaire-maker stocks is starting relatively small. For example, it is more difficult to call Amazon a millionaire-maker stock today because its market cap of $1.5 trillion is unlikely to rise 100-fold to $150 trillion.
Conversely, Sea Limited now supports a market cap of $22 billion. A 100-fold gain would take that market cap to $2.2 trillion.
Since that is higher than Amazon's current size, it may struggle to grow to that extent. Nonetheless, two U.S.-based stocks -- Microsoft and Apple -- now support a market cap of over $2.2 trillion, so such a level is possible.
The state of its financials
Still, to grow to such a size, investors need to see considerable revenue and profit growth, something Sea Limited has not delivered in recent quarters. In the first nine months of 2023, Sea Limited's revenue came in at $9.4 billion, an increase of 5% from the same period last year. In comparison, the yearly growth rate in the first three quarters of 2022 was 34%.
As mentioned before, much of the decline is attributable to Garena. In Q3, its revenue dropped 43%. Shopee and Sea Money's gains of 16% and 37%, respectively, barely made up for Garena's massive decline.
Sea Limited has performed better in one metric -- net income. In the first three quarters of 2023, the company earned $260 million. But this represented a quarterly slippage back to net losses after three straight quarters of profitability.
However, analysts forecast 12% revenue growth in 2024, well below 2022 levels. That could bring investors back to the stock, given a relatively modest price-to-earnings (P/E) ratio of 34, but it may lead investors to question how much the stock can grow over time.
Is Sea Limited a millionaire-maker stock?
Given its current state, investors should not count on Sea Limited minting millionaires. While its three segments point to massive growth potential in its home region of Southeast Asia, the struggles at Garena could hold the entertainment stock back.
Nonetheless, Sea Limited is still not a huge company in relative terms, pointing to possible growth potential. And when considering its relatively low P/E ratio and the expected growth for next year, owning Sea Limited could still pay off handsomely for its shareholders.
