Sea Limited (NYSE: SE) blazed a trail of millionaires following its IPO in October 2017. The Singaporean company thrilled investors as its shares skyrocketed from $15 to nearly $367 by October 2021, translating a $50,000 investment into a jaw-dropping $1.2 million. Yet, the tides have turned, and Sea’s stock now hovers around $58, deflating that once mighty investment to a modest $193,000. The company hit headwinds as sales growth waned, losses piled up, and soaring interest rates burst the valuation bubble.
Image source: Getty Images.
Sea’s enterprise value has shrunk to $29 billion, merely 2 times its projected sales and 21 times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2024. Could this subdued valuation stabilize its stock price and herald a resurgence of millionaire-making gains?
The Slowdown in Sea’s Growth Trajectory
Sea predominantly reaps revenue from Shopee, the premier e-commerce hub in Southeast Asia and Taiwan, with Garena, a video game powerhouse primarily anchored by Free Fire, following suit. Its fintech division, embracing SeaMoney digital payments’ realm and other financial amenities, plays a smaller revenue role.
The company fuelled growth in its less lucrative e-commerce and fintech sectors using Garena’s robust profits, creating a precarious balance as Garena relies heavily on the success of one hit game. In recent years, Garena suffered a bookings nosedive amidst Shopee’s waning revenue expansion.
|
Metric |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|
|
Shopee revenue growth |
160% |
136% |
42% |
23% |
|
Garena bookings growth |
80% |
44% |
(39%) |
(36%) |
|
Total revenue growth |
101% |
128% |
25% |
5% |
Data source: Sea Limited.
Shopee’s momentum faltered as the pandemic tailwinds subsided, challenging competition from Alibaba’s Lazada and ByteDance’s TikTok Shop in Southeast Asia, alongside regressive international expansions to trim expenditures. Shopee missed the mark in garnering new shoppers post-pandemic, while Free Fire experienced a drastic bookings decline post-pandemic peak, exacerbated by the game’s ban in India during early 2022 over privacy and data apprehensions.
Garena concluded 2023 with 528.7 million quarterly active users, a noticeable shrink from 610.6 million at 2020’s close. In response to stagnating growth, Sea tightened the reins on expense management, boosting the adjusted EBITDA margin from 2% in 2020 to 9% in 2023, thereby notching its first GAAP-basis annual profit in 2023.
The End of Sea’s Hypergrowth Era?
Sea’s transition to profitability echoes positivity, albeit indicating the potential dusk of its hypergrowth epoch. Analysts forecast a mere 13% compound annual revenue growth from 2023 to 2025. Counterbalancing, they envision a 38% CAGR climb in adjusted EBITDA and a remarkable 138% jump in GAAP net income.
We must digest these projections warily, although the outlook banks on Shopee stabilizing, enhancing its logistics framework and leveraging Indonesia’s TikTok Shop prohibition to its benefit. Garena’s resurgence plans, including Free Fire‘s Indian resurrection and franchise enhancements, coupled with a diversified game lineup, may fuel expansion alongside the finetech ecosystem.
Can Sea Cultivate New Millionaire-Making Prospects?
If Sea aligns with analysts’ projections, maintaining a 25% adjusted EBITDA growth CAGR from 2025 to 2035, by the latter year, it could amass a whopping $9 billion in adjusted EBITDA. Trading at 21 times forward adjusted EBITDA, its enterprise value might spike to $189 billion in early 2035, an upsurge of 550%. This surge could escalate a $50,000 investment to over $325,000. While remarkable, Sea might not replicate past growth or independently birth massive millionaire-making gains. However, as a constituent in a diversified stock portfolio, it could still catalyze millionaire status.
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