Can Sea Limited More Than Double to Regain Its All-Time Highs?

Don't look now, but one of the best stocks over the past 18 months has been Sea Limited (SE 0.08%). In fact, since early 2024, the stock has nearly quintupled, up 400%.

Amazingly, Sea's stock still remains 58% below its 2021 all-time high. That just goes to show how far the stock ran during the pandemic, how severe the downturn was, and how negative the sentiment eventually got.

While investors shouldn't expect new all-time highs tomorrow, Sea's trials have made it a stronger company on the other side. Over time, high-quality, "anti-fragile" compounders can go up much more than one might think.

Sea's trial by (Free) Fire

Sea boomed during the pandemic, when its mobile gaming, e-commerce, and digital payments businesses saw a huge increase in adoption. The stock reached the high $300s, management set its sights on a plethora of markets outside of Southeast Asia, and strong top-line growth made everyone ignore profitability.

But when the economy reopened, Sea was hit by a "perfect storm." Inflation and interest rates shot up, while consumers reduced playing its hit video game "Free Fire." That was a big deal, as the huge profits for "Free Fire" fueled the growth of Sea's unprofitable e-commerce and digital finance arms, Shopee and SeaMoney.

Impressively, Sea did a hard pivot, cutting marketing expenses to the bone, while raising seller fees on the Shopee platform. That slowed growth, but also lessened losses. In just one year, the company's massive losses turned into profits for the first time in Q4 2022.

Sea finds its sweet spot

After the hard pivot from growth-at-all-costs to profits-at-all-costs, Sea has since found an ideal balance, achieving healthy, profitable growth. Each of its businesses is now self-sustaining, and growth is now even starting to reaccelerate after the long pandemic hangover, as its Q1 2025 results showed:

Data source: Sea Limited Q1 2025 results. Top-line growth for Digital Entertainment is bookings, which are recognized as GAAP revenue over time.

Sea posted strong, near-30% top-line growth, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) exploded higher, albeit off a small base.

The surge in profitability indicates that Sea Limited has built a robust, competitively advantaged asset, and is now generating huge profits on incremental revenue. Last quarter, the company's revenue grew by about $1.1 billion. Of that incremental revenue, $545 million fell right to the EBITDA line. That suggests the company is making almost 50% incremental EBITDA margins today.

Image source: Getty Images.

All the makings of a long-term compounder

How did Sea achieve this? By focusing on its business. In e-commerce, Sea has invested in fast delivery, consistently reducing its cost per package over time. Now, Sea is lowest-cost provider for many e-commerce goods in the region. Meanwhile, new AI features and a growing user base have enabled strong, high-margin advertising growth, which surged 50% last quarter.

Meanwhile, Sea has also steadily grown its digital payments and unsecured loans business, carefully selecting good credits on both the consumer and seller side of its Shopee platform, where Sea had robust data. Now, SeaMoney -- which the company just rebranded as, "Monee," is even growing its non-Shopee payments and loans in the region, while expanding into new financial products.

But perhaps most impressive and encouraging is Garena, the name for the digital entertainment business, and the re-emergence of "Free Fire. Garena's bookings topped out at $1.22 billion in the third quarter" of 2021, sank below $500 million in the downturn, but had steadily recovered to just over $500 million-per-quarter mark over the past two years.

But in Q1 2025, there was a big jump back up to $775 million in bookings, with management noting a pickup in "Free Fire." In fact, management noted that the number of "Free Fire" daily active users were back close to the pandemic average. In Q1, Sea unveiled a new anime integration into "Free Fire" with Japanese studio Naruto. Management said it had been working on this integration for two years. Given the huge success of the new game features, it shows management is taking a patient, long-term strategy that should keep "Free Fire" an "evergreen" annuity stream.

Sea isn't cheap, but the best companies rarely are

At its current market cap of $92 billion, Sea might not look cheap at 5.4 times sales and 60 times this year's earnings estimates.

That looks expensive on the surface, but it's often a mistake sell a truly high-quality company even if its valuation looks a tad high.

Sea also seems to have a long runway for growth. According to Cube Data, the Southeast Asia e-commerce market is projected to grow at a 14% annualized rate through 2030, more than doubling. And Sea is also growing strongly in Brazil, its only market outside Southeast Asia, but a big one.

And don't forget, Sea once had ambitions to enter lots of new markets during the pandemic, including some European countries and India, before scaling back. As the company becomes comfortably profitable, it's not out of the question Sea could choose to reenter those markets.

So while a new all-time high seems far-fetched today, Sea should continue to grow profitably over time and could see a new high within this decade. That would still provide a solid long-term return from today's stock price.