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Since August 2018, the S&P 500 jumped 55%, meaning investors saw a windfall of around 15% per year. Even so, this performance is paltry compared to that of Limited sea (NYSE: SE), an international holding company that operates in Southeast Asia. During the same period, this stock has climbed 2,250%, with a staggering growth of 186% per year.
After this massive race, it is natural to wonder how far the sea can rise. But I think this action still has potential to beat the market. Here’s why.
Image source: Getty Images
Three secular trends
Sea Limited operates in seven countries in Southeast Asia and Taiwan, a region with the fastest growing economy in the world. Specifically, Sea is a holding company with three separate businesses, each part of a major secular trend. Let’s take a look at all three.
Shopee is the leading e-commerce platform in Southeast Asia, receiving twice as many monthly visits as the next closest competitor, Ali Babait’s Lazada. Last year, the COVID-19 pandemic spurred the adoption of online shopping, and this momentum continued through 2021. In the last quarter, Shopee’s gross value of goods (GMV) increased jumped 88% year on year to reach $ 15 billion.
SeaMoney is a fintech platform that offers payment processing, financing and mobile wallet services. It was originally designed to complement Shopee, but its use cases have spread to other online and offline merchants, resulting in rapid growth in total payment volume (POS). In fact, TPV climbed almost 150% to $ 4.1 billion in the last quarter.
Garena is a video game developer best known for Free fire, a battle royale game for Android and iPhone. Notably, Free fire is the highest grossing mobile game in Southeast Asia, Latin America and India. More importantly, while Sea’s other businesses are operating at a loss, Garena is profitable. Indeed, its operating margin fell from 15% in 2018 to 58% in the last quarter.
The big picture
In general, Sea Limited’s sales trajectory has benefited from the digitization of commerce and payments, as well as the rise of e-sports and mobile games. But Garena’s profitability has also been a powerful engine of growth.
Specifically, Garena’s excess cash flow allowed the company to aggressively invest in Shopee and SeaMoney. And those investments – think hiring, marketing, technology development, and logistics services – have boosted the company’s financial performance.
|
Metric |
Q2 2018 (TTM) |
Q2 2021 (TTM) |
TCCA |
|---|---|---|---|
|
Returned |
$ 557.5 million |
$ 5.4 billion |
113% |
|
Free movement of capital |
($ 451.5 million) |
$ 1.1 billion |
N / A |
Source: Ycharts. TTM = 12 rolling months. CAGR = compound annual growth rate.
Looking forward, Sea Limited is well positioned to maintain this momentum. The population of Southeast Asia currently stands at 583 million, but only 69% of people have access to the Internet. As this figure continues to climb, Sea Limited is expected to experience strong demand for its digital services.
Indeed, according to research by AlphabetAccording to Google, the total GMV in Southeast Asia is expected to increase by 25% per year, reaching $ 300 billion by 2025. This is expected to be a significant tailwind for Shopee and SeaMoney.
Here’s the big picture: In Southeast Asia, Sea Limited is the clear leader in e-commerce, mobile games and digital payments, three age-old trends that make up a $ 116 billion market, according to management. And as these trends continue to gain traction, Sea Limited should continue to grow like wildfire.
That’s why I think this stock could triple over the next five years.
This article represents the opinion of the author, who may disagree with the “official†recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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