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Sea Limited - $SE: My Analysis (Thread)
The first thing I look at is the mission statement. $SE ‘s is “to better the lives of consumers and small businesses of Southeast Asia and Taiwan with technology.” It’s simple, optionable, and inspriational. I like it.
Next, I look at the most. $SE has a good, but not great moat. Their network effect is very strong, especially for their gaming segment, Garena, in which each additional user makes the game more valuable and widely spread, which draws in more users.
I also think $SE has some switching costs, especially for companies actually listing prodocts on Shopee. However I have heard from people in SE Asia that many shoppers switch back and forth between Shopee and Lazada (a $BABA backed competitor), depending what they are looking for
This implies that for users, the switching costs are lower. Nonetheless, for payments and gaming, there might actually be higher switching costs for customers than e-commerce.
Continuing with moat, $SE has built a strong scale across multiple SE Asian countries, and they have an effective distribution network. They are rapidly building a strong brand and are backed by regional powerhouse Tencent $TCEHY. $SE is growing quickly, but so is the competition
Next, I look at the company’s potential. $SE has a TON of potential. Their optionality is impressive, as they are already a dominant player in gaming, payments, and e-commerce. They are one of the top dogs and first movers, and $SE is a disruptive platform in an emerging market.
$SE ‘s revenue is growing at 58% Y/Y; they are expanding throughout SE Asia, and their customers love what $SE is doing. Lots of potential!!
Next, I look to the company’s financials. $SE has a lot of cash and little debt, but negative free cash flow, return on equity, and earnings per share. Their gross margin is 38.2%. This is a decent financial sheet, especially for a company seeking $AMZN-like growth, but not great
Next is $SE ‘s customers. They spend a lot of money on sales and marketing right now, which is expected. Over time, the hope will be that their brand draws people in, but right now that isn’t the case. Even so, their products are dependable to be demanded, even during tough times
In terms of company analysis, they have pretty strong recurring revenue from e-commerce and payments, some pricing power (although a competitor like Lazada makes that tough), and are a future-focused company with a widening moat.
Their founder, Forrest Li, is still the CEO, and the company has high levels of insider ownership. Li has a 79% approval on Glassdoor and employees give the company a 3.6/5 rating (have to search “Garena”; few ratings for $SE). This is solid, but I’d like to see better ratings.
In terms of $SE stock, it has significantly outperformed the market over the last few years, while beating analysts expectations 2 of the last 4 quarters.
I have a few concerns about $SE, though. They are operating in multiple different countries, some with strict, Chinese-influenced governments. This raises a bit of concern about government regulation. Additionally, their revenue all comes from abroad, which raises a currency risk
One other concern is dilution, which $SE has high levels of. The single biggest threat factor to $SE is Lazada, however. Companies can exist and thrive in a duopoly (like $V and $MA), but I would like to see $SE continue to take market share in SE Asia
Overall, I am a $SE investor and am bullish on its prospects. However, for a company that is already the same size as $MELI (~$45B market cap), there seem to be significantly more threats. Consequently, $SE currently makes up a small percent of my portfolio.
Any thoughts would be appreciated. This certainly isn’t comprehensive, but I think it captures most of my feelings toward $SE.
@Camcaine3 Check out this thread for my thoughts on $SE!
