Singapore-based Sea Limited (SE +8.23%) is a triple threat when it comes to the digital economy. It operates the largest e-commerce app in Southeast Asia, in addition to a booming digital financial services platform and a digital entertainment (gaming) business.
The stock soared 162% in 2024, crushing the 23% gain of the S&P 500. It's up another 20% year to date, as of this writing, while all three major indexes currently trade in the red.
Despite that incredible run, shares are still 65% below their all-time high, which was set during the tech frenzy of 2021, so there is plenty of room for continued gains. In fact, Sea's accelerating revenue growth and soaring profits make the stock a bargain right now.
A three-headed juggernaut in the digital economy
Shopee is Sea Limited's hybrid consumer-to-consumer and business-to-consumer e-commerce platform, and it leads the industry in all seven of the Asian markets in which it operates. Users placed over 10.9 billion orders on Shopee last year, spending a record $100.5 billion. Considering the app is just 10 years old, it has scaled incredibly fast.
Sea has focused on improving Shopee's efficiency over the last couple of years, creating a better user experience that encourages more spending. In the fourth quarter of 2024, the company said almost half of all orders across Asia were delivered in two days or less, and improvements to the logistics network also resulted in a lower cost per order, which translated into savings for customers.
SeaMoney is Sea's digital financial services platform, and it has a number of synergies with Shopee. It offers merchant loans to sellers on the platform to help them grow their e-commerce businesses, and it also offers buy now, pay later loans to consumers to supercharge their spending.
SeaMoney had 26 million active users at the end of 2024, which was a whopping 60% increase from the year-ago period. Its loan book also swelled 64% to a record $5.1 billion, making Sea one of the largest consumer lenders in Southeast Asia.
Digital entertainment is Sea's third and final segment, and it's headlined by the Garena game development studio. It's responsible for global smash hits like Free Fire, which was the world's largest mobile game in 2024 with over 100 million average daily active users.
Unfortunately, Sea's digital entertainment business struggled to build on its incredible growth from the height of the pandemic, when gamers were spending record amounts of time online. It had 618 million quarterly active users in the fourth quarter of 2024, which was a 16.9% increase from the year-ago period, but it was still down significantly from its 2021 peak of 725 million.
NYSE: SE
Key Data Points
2024 was the best year in Sea's history
Sea generated $5.0 billion in total revenue during the fourth quarter, up 36.9% year over year. It was the fastest growth rate in almost three years, and it represented the fourth consecutive quarter of acceleration.
Most of Sea's Q4 revenue came from the e-commerce segment, which grew 41.3% to $3.7 billion. The digital financial services segment also delivered an incredible result with revenue surging 55.2% to $733.3 million. Even the digital entertainment business, where revenue shrank in the first three quarters of 2024, saw revenue increase 1.6% to $519.1 million.
The strong fourth quarter capped off the best year in Sea's history. The company's revenue jumped 28.8% in 2024 to a record $16.8 billion, which is even more impressive given the fact management has been very focused on keeping costs under control.
Sea's total operating expenses came in at $6.5 billion for the year (including growth-oriented costs like marketing) -- an increase of just 16.7%. Since revenue grew at a much faster pace, it allowed more money to flow to the bottom line. Net income grew a whopping 175% to $447.8 million.
In other words, Sea could potentially be growing even faster if it was spending on sales, marketing, and research and development as aggressively as it did in 2020 and 2021. However, management is trying to balance growth and profitability to create a more sustainable business for the long term, which should result in more reliable returns for investors.
Sea stock still looks very attractive despite recent gains
When Sea stock peaked in 2021, its price-to-sales (P/S) ratio was above 30, an unsustainable valuation. Investors were paying a high price based on the unrealistic assumption that Sea could grow continue its streak of triple-digit revenue growth.
However, the stock's 65% decline, combined with the company's continued growth, has pushed its P/S ratio down to a far more reasonable level of 4.9. In fact, that's a 47% discount to its average P/S ratio of 9.3 dating back to when Sea went public in 2017:
Data by YCharts.
Sea's P/S ratio has actually more than doubled over the past year thanks to its rising share price. Investors often flock to companies with accelerating revenue growth, and if the company can extend its growth streak, its P/S ratio could continue trending higher.
To support its current momentum, Sea also has the benefit of a fortress-like balance sheet. The company has $10.4 billion in cash, equivalents, and investments on hand, which it can use to ramp up spending on customer acquisition or product development. That is especially likely now that Sea is profitable because it can invest in growth without depleting its cash reserves.
Sea Limited is a rare example of a stock that is still an attractive value even after it has tripled in a short period of time. With these gains built on sound fundamentals, further upside is likely.
