We came across a bullish thesis on Sea Limited (SE) on Substack by Wolf of Harcourt Street. In this article, we will summarize the bulls’ thesis on SE. Sea Limited (SE)’s share was trading at $146.31 as of March 5th. SE’s trailing and forward P/E were 197.72 and 58.82 respectively according to Yahoo Finance.
A smiling customer receiving their purchase from an e-commerce company.
Sea Limited’s latest earnings report underscores its strong recovery and strategic execution across e-commerce, digital entertainment, and financial services. Total revenue surged 37% year-over-year to $4.95 billion, marking the company’s fastest growth rate in eleven quarters. This beat Wall Street expectations by 6%, driven primarily by Shopee’s continued dominance in e-commerce, where gross merchandise volume (GMV) expanded 24% to $28.6 billion, surpassing management’s own forecasts. Despite this, earnings per share came in at $0.44, missing estimates by 11% due to higher-than-expected investment in customer acquisition and logistics. However, adjusted EBITDA skyrocketed 366% to $591 million, showcasing the company’s improving profitability trajectory. Operating income swung from a loss of $57 million last year to a positive $306 million, while net income reached $238 million, a significant turnaround from the $112 million loss in the prior year.
Shopee’s marketplace revenue reached $3.2 billion, reflecting an 11.2% take rate, up from 10% a year ago, demonstrating improved monetization. The company raised merchant commission fees across key markets, such as Thailand, where rates increased from 10% to 13%, yet GMV growth remained resilient. Advertising revenue surged 50% year-over-year, supported by better ad targeting and higher adoption of Shopee’s ad tech tools. The logistics segment also contributed to margin expansion, with nearly 50% of orders in Asia now being delivered within two days. AI-driven automation further optimized costs, reducing customer service expenses by 30% and accelerating return and refund processing by 40%. Live-streaming commerce accounted for 15% of Shopee’s total orders in Southeast Asia, with new partnerships, including YouTube in Indonesia, helping drive further engagement. In Brazil, Shopee gained market share, with a 40% increase in monthly active buyers and two consecutive quarters of adjusted EBITDA profitability, fueled by faster deliveries, expanded product categories, and larger basket sizes.
Garena’s digital entertainment business showed signs of stabilization, with quarterly active users (QAUs) reaching 618 million, up 17%, while paying users increased 27% to 50 million. Free Fire’s resurgence was a key driver, achieving 34% growth in bookings and surpassing 100 million daily active users. However, average revenue per user declined slightly to $10.80 from $11.50 a year ago. Despite this, Free Fire remained the world’s most downloaded mobile game in 2024, with particularly strong user growth in Africa, where Nigeria saw a 90% surge in active players. Strategic collaborations with popular IPs such as Demon Slayer, BLUE LOCK, and NARUTO SHIPPUDEN enhanced user engagement, while the game’s esports ecosystem flourished, with the Free Fire World Series in Brazil witnessing a 43% jump in viewership hours. Social media traction remained robust, with Free Fire accumulating over a trillion views across TikTok and YouTube.
Sea Money’s digital financial services segment continued to scale, with outstanding loan principal rising 64% year-over-year to $5.1 billion. The platform added five million first-time borrowers, bringing total active users to 26 million. The company’s “low-and-grow” lending strategy mirrors that of Nubank, with initial small loans via Shopee’s SPayLater gradually expanding to larger, off-platform loans as customers build credit history. The off-platform segment now accounts for 50% of the loan book, addressing the low credit card penetration in Southeast Asia. Crucially, the non-performing loan (NPL) ratio remained stable at 1.2%, down from 1.4% a year ago, reflecting disciplined underwriting despite rapid loan growth.
Gross margin expanded to 45%, up from 42% a year ago, with improvements in e-commerce offsetting digital entertainment’s declining share of total revenue. Shopee’s pricing power and cost efficiencies played a crucial role, as evidenced by the 500-basis-point margin increase in e-commerce services. Operating margin reached 5%, a significant improvement from -2% last year, driven by operating leverage. Sales and marketing (S&M) expenses rose by just 9% to $1.05 billion, declining as a percentage of revenue from 27% to 21%, highlighting improved efficiency in customer acquisition. General and administrative costs increased 58% to $366 million due to one-time legal settlement expenses, but these are non-recurring and should not impact future profitability. Meanwhile, provisions for credit losses rose 48% in line with Sea Money’s loan book expansion, but stable NPL ratios suggest this is growth-driven rather than a sign of deteriorating credit quality.
Sea generated $3.2 billion in operating cash flow in 2024, including over $1 billion in Q4 alone, reflecting strong cash generation across its business lines. While e-commerce only recently reached cash flow breakeven, digital entertainment and financial services remain key contributors, with the latter accounting for 36% of total operating cash flow despite making up just 15% of revenue. Management refrains from providing formal guidance but expects Shopee’s GMV to grow 20% in 2025, supported by improving profitability. Garena is projected to see double-digit user and booking growth, driven by content innovation and community engagement. Wall Street estimates 2025 revenue at $21.15 billion, implying a 26% growth rate, with continued margin expansion.
With profitability now established and growth accelerating, Sea Limited presents an attractive investment opportunity. Shopee’s strengthened monetization, Garena’s turnaround, and Sea Money’s disciplined lending position the company for long-term success.
Sea Limited (SE) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 86 hedge fund portfolios held SE at the end of the fourth quarter which was 58 in the previous quarter. While we acknowledge the risk and potential of SE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.