Chart of the Week: Sea’s Earnings Continue to Impress Investors

May 21, 2021

E-commerce stocks

Homegrown tech giant Sea Ltd (NYSE: SE) has become an investor favourite over the past few years.

Last year, the e-commerce and online gaming company (with a focus on Southeast Asia and Taiwan) had an extraordinary run.

Sea shares soared 400% in 2020 as e-commerce became the default option in Southeast Asia, traditionally a region which hadn’t adopted online shopping en masse.

Obviously, that has changed. Last year, Sea’s revenue skyrocketed 101% year-on-year to US$4.37 billion while its gross profit shot up by 123% year-on-year to US$1.35 billion.

Earnings continue to be robust

With the second half of last year appearing to see Covid-19 infection rates easing, and countries vaccinating populations, there seemed to be hope that the pandemic was coming to an end.

That illusion has now been shattered by Covid-19 mutant variants and renewed outbreaks that have led to tighter measures in many countries, including Singapore.

On the back of that, it was perhaps unsurprising to see that Sea reported another set of stellar earnings earlier this week.

For the first quarter of 2021, revenue was up by a stonking 147% year-on-year to US$1.76 billion while its e-commerce business, Shopee, saw quarterly revenue growth of 250% year-on-year.

Gaming on fire and e-commerce improving

Sea’s Free Fire mobile game continues to be a huge hit (particularly in Southeast Asia, Latin America and India) and has given Garena the ability to effectively print money.

These profits are redirected into the e-commerce business, which is still loss-making. However, Shopee’s opportunity for growth ahead is still huge.

Despite the headlines of an adjusted EBIDTA loss of US$413 million for Shopee in the first quarter – mainly down to increased investments – there was more than initially met the eye.

That’s because Shopee continued to improve on narrowing its EBITDA loss per order, seeing it fall slightly sequentially to US$0.38, a trend that has been consistent over the past few years (see below).

For long-term investors, patience will be required before Shopee starts turning profitable but if it continues to dominate the landscape like it has, that landmark could be reached sooner than expected.

Sea Shopee loss per order

Source: CGS-CIMB Research, Sea Ltd company reports

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Sea Ltd.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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