Why Bryan’s Expecting This Asian Ecommerce Giant To Deliver

Why Bryan’s Expecting This Asian Ecommerce Giant To Deliver

over 2 years ago2 mins

Summary:

  • Many opportunities for expansion aren’t yet factored into the shares
  • Revenue is forecast to nearly double this year
  • The stock is reasonably priced compared to peers, considering its faster growth

Introduce yourself, Bryan

I’m a Singapore-based coach in the fitness industry, who likes to leave people better than when he found them.

What’s the pitch?

A long-term investment in Sea Ltd. (ticker: SE). Singapore-based Sea has a leading position in Southeast Asian esports, ecommerce, digital payments, and banking. The company is currently investing heavily for future growth, funded by its highly profitable gaming segment.

I believe many of Sea’s expansion opportunities – like ecommerce in Latin America, for example – aren’t fully factored into the company’s valuation. The company reported a loss for the first quarter of 2021, but revenue more than doubled to almost $2.1 billion.

What does Sea Ltd. do?

Sea operates digital entertainment, ecommerce, and financial services businesses in Southeast Asia, Latin America, and elsewhere. 

What’s your investment thesis?

  • Sea’s digital entertainment company, Garena, is the largest gaming business in the Asean region. As the population shifts towards digital entertainment and esports, Sea is acting as a gateway to emerging markets in the region.
  • Sea has a strong customer base from its ecommerce platform, Shopee, which can be integrated with its digital payments platform.
  • Analysts expect its revenue to rise 89% this year and another 40% next year. They also expect its losses to narrow slightly, but it won't turn a profit anytime soon.
  • Based on those estimates, Sea's stock trades at 14x this year's sales and 10x next year's sales. Those price-to-sales ratios aren't cheap, but they're reasonable in a market filled with tech stocks trading at much higher valuations while generating slower growth.

What are the key events you’re watching?

  • Narrowing losses.
  • Increase in number of active users and expansion into new regions in ecommerce, esports, and financial services.
  • Shift in marketing spend from attracting new ecommerce users to attracting new esports users.

What’s the upside potential if your thesis is right?

Sea has the opportunity to establish itself as an Asian market leader in esports, ecommerce, and finance.

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

Sea isn’t likely to be profitable any time soon as it focuses on growth over earnings. The stock price may go through some big swings, but those who are able to ride them out should benefit in the long run. 

Do you agree with Bryan’s investment thesis? Add your thoughts and feedback here.

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