Sea Limited (NYSE: SE) is a holding company based in Southeast Asia. It operates three businesses, each of which hits on a major secular trend. Shopee is the leading e-commerce marketplace in the region, SeaMoney provides digital financial services, and Garena is a video game developer and publisher.
In this Backstage Pass video, which aired on Sept. 14, Motley Fool contributors Trevor Jennewine and Brian Withers discuss Sea Limited, and why this supercharged growth stock looks like a smart buy right now.
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Trevor Jennewine: Let's start with Sea Limited. Just for anybody who is not familiar with the business, I'm going to go through what Sea Limited does real quick, then I'm going to share some financial slides.
Sea Limited operates across seven different markets in Southeast Asia and Taiwan; and that's what SEA actually stands for, Southeast Asia. The company has also expanded into Latin America, India, and most recently, Europe. But the majority of the revenue is still coming from Southeast Asia. There are three operating segments -- Sea Limited is a holding company, and its three businesses are Shopee, SeaMoney, and Garena.
Shopee is an e-commerce platform. It's actually the most popular e-commerce platform in the region, both in terms of web traffic and the gross merchandise value that's flowing through the platform. Then just to put some numbers behind that fact, last year, Shopee averaged 281 million monthly visits. The next closest competitor was Alibaba's Lazada with 137 million. About double the next closest competitor. According to Web Retailer, Shopee's monthly visits have actually ticked up to about 340 million this year. Just a dominant player in the e-commerce market in that region.
Then SeaMoney was originally -- this is a fintech platform that was originally developed to support the Shopee platform. But it's more recently been expanding use cases off-platform, like MercadoLibre has done with its mobile wallet. Consumers can use the SeaMoney mobile wallet to pay for utilities, entertainment, food delivery, and they actually just partnered with Mastercard recently in Thailand. The mobile wallet users will be able to make purchases at 200,000 locations where Mastercard contactless payments are accepted. They also partnered with one of the largest supermarket chains in the Philippines. Consumers will be able to make in-store purchases with their mobile wallet at 400 stores in the Philippines.
Then the last operating segment is Garena, which is the video game publisher and developer. I think noteworthy point here is that Garena develops and publishes the game, Free Fire. It's the highest-grossing mobile game in Southeast Asia, Latin America, and India. It's currently No. 6 on the list of top-grossing mobile games worldwide.
Before we jump into the financials, one thing I'd like to point out is that the Garena segment is actually profitable, the other two operate at a loss. But having that cash flow from its digital entertainment or video game business, I think is a big advantage for Sea. It allows them to invest pretty aggressively in digital payments and in e-commerce on the other side of their business. With that, I'm going to throw up some slides here real quick, let's see. There we go. Let me make this a little bit bigger.
First slide here shows the e-commerce platform. This is Shopee, and it's just showing the growth in the most recent quarter. You can see gross order, that orders go up 127%. Gross merchandise volume or value was up 88%, growing quickly.
Brian Withers: Trevor, I'm sorry, I wanted to make a point on that. Can you go back?
Jennewine: Yeah. Sure.
Withers: The fact that the items or the number of orders is going up faster than the value on the platform, that says that people are putting in more regular, smaller orders than larger things. I think that bodes well for being habitual. How often do you guys go on Amazon now and just buy one thing. I do it like all the time. This, I think, helps cement Shopee as a place to go for just regular stuff.
Jennewine: Yeah. Management mentioned that one of their recent earnings calls, that they're seeing that repeat buyer activity, the habitual buying. Exactly like you said, that bodes very well for the company.
This shows their digital financial services. This is SeaMoney. Again, the growth here very quickly. The mobile wallet total payment volume was up to $4.1 billion in the most recent quarter, and that's up about 150% over the prior year. Then 32.7 million paying users or users of the mobile wallet up over 100%.
Then, in digital entertainment -- this is the Garena -- strong growth in quarterly active users and quarterly paying users growing a little bit more slowly here. But again, this the profitable segment; it's the cash flow driver for the business. I will touch on that. This breaks down the revenue. This column right here shows the revenue from the most recent quarter. This top slice is the digital financial services. SeaMoney represents a very small portion of the business today, which again, I think that's a big opportunity for this company. Then the other two, the segment right here is their e-commerce, and then this is digital entertainment down here. But just based on the size of the bar there, you can see, how quickly this company is growing from the previous year.
Withers: That's really awesome. I hadn't noticed that they started breaking out their SeaMoney portion of it because they hadn't done it until recently.
Jennewine: Right. I think that adds some color. Then this is what I thought was incredible. Gross profit over the prior year was up 364%. Almost $931 million dollars. The company is growing incredibly quickly. They are still operating at a loss though. In fact, the loss is widening. If there is one thing that I think investors see as a red flag with this company, I think it's the fact that the loss widening.
In my opinion -- e-commerce, digital payments, gaming -- they're such high-growth markets that it's important to get out in front of it. And Sea Limited has an advantage with Shopee; they're the dominant platform in that Southeast Asia region and Taiwan. I think it makes sense to spend aggressively on that.
I think the company could probably find their way to profitability very shortly if they really reeled in their operating expenses. But I think that would stunt the growth over the long term. I really like this e-commerce stock -- I'm a happy shareholder and I plan to continue being one for a while.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brian Withers owns shares of MercadoLibre and Sea Limited. Trevor Jennewine owns shares of Amazon, Mastercard, MercadoLibre, and Sea Limited. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Amazon, Mastercard, MercadoLibre, and Sea Limited. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.