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Sea Ltd.: We've Likely Seen Nothing Yet
Mar. 21, 2025 6:18 PM ETSea Limited (SE) StockSE

Louis Stevens
Investing Group Leader

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Summary
Today, I will walk us through the Sea Ltd. thesis, illustrating the strength of the business purely via data.
In late 2023, I set about to defend the company against the endless onslaught of bearish opinions, and, at the time, I likewise simply used the data available to me.
With expanding margins, accelerating growth, a massive cash hoard of $10.4B, and a huge, data-based runway for growth, I continue to like Sea quite a bit at about $126/share.
I am Louis Stevens, MBA. I serve investors of all kinds. I lead the investing group L.A. Stevens Research where I help my subscribers find growing, cash-rich, and industry-leading businesses.
Aerial view of river in the green mangroves forestand and limestone hill in Phang nga bay, Thailand.

Chayanan Narksompong/iStock via Getty Images

Introduction
In late 2023, as Sea Ltd. (NYSE:SE) hovered around $35-$45/share and as the investing community left it for dead, I penned a series of articles in which I articulated my vehemently held bullish thesis for the business.

Notably, I contended that Sea was not a small, speculative investment; instead, an investment grade juggernaut who held nearly 50% ecommerce market share in the rapidly growing region of SE Asia.

SE Asia Has Some Of The Most Favorable Demographic Trends On Earth
se asia population growth
Google SE Asia e-Conomy Report

SE Asia Is One Of The Fastest Growing Regions On Earth, Anchored By Advanced Economies Such As Singapore
SE Asia GDP growth
Google SE Asia e-Conomy Report

Up 200%+ from its lows in late 2023, I'd like to revisit the thesis, which, to a large degree, has now become self-evident, for a number of reasons that I'll walk us through today.

Sea Ltd. Is Up 200%+ From Its Late 2023 Lows
sea stock price
YCharts

Most notably, in late 2023, I predicated my thesis on just one line of business:

Sea's digital ads business, which grew over 50% in Q4 2024.


This was driven by market becoming more rational and increased adoption of our ad tech offerings among sellers. In the fourth quarter, our ad revenue increased by more than 50% year-on-year, and our ad take rate improved by more than 50 basis points compared to the same period last year.

Forrest Li, CEO, Q4'24 Earnings Call

In 2023, Sea's digital ads business was still nascent, and its ads data was not discussed in the detail in which it's now discussed, but, of course, investing is about anticipating the future, and successful has been my and my fellow readers' anticipation of the growth of this line of business.

Importantly, my contention at the time was that Sea was undervalued based on just this line of business alone.

We weren't just getting its logistics business for free. We weren't just getting its 1P and 3P businesses for free. We weren't just getting its gaming business for free. We weren't just getting future lines of business, such as its somewhat recently launched and market-share capturing delivery business for free. We weren't just getting its recently accelerating fintech business for free.

We were actually buying Sea at a discount just based on its ads business alone.

Yes, it may have sounded fantastical at the time, but, with the stock now up 220% from those late 2023 lows, it's clear that there were major valuation dislocations present during that time.

I am back today to share that nothing has changed in this regard: The market still can't seem to understand that Sea's ads business will, should it follow the trajectories of the ads businesses of Amazon (AMZN) and MercadoLibre (MELI), and all signs point to this being the case, generate billions, and then tens of billions, of dollars in 50-60% free cash flow margin ad sales over time.

Allow me to provide a more granular articulation of this above-conveyed thesis, predicated only on Sea's ads business:

Presently, Amazon's ads business is about 5% of its total ecommerce GMV. Meli's ads business is approximately 2%, and has been steadily growing as a percentage of revenue for the last five years or so.

Let's say, somewhat conservatively, Sea only achieves 3.5% of GMV in ads sales over time:

As of today, this implies that Sea operates a "pull thru" ads business of about $3.5B in scale (3.5% of trailing twelve months ecommerce GMV of about $100B), of which roughly 50% falls to the bottom line as free cash flow.

This implies that Sea generates $1.75B in pull thru ads free cash flow.

(I would thoroughly and enthusiastically welcome debate on this methodology in the comments section below.)

At an enterprise value of roughly $65B today, this implies that Sea trades at 37.5x EV/Sea's pull thru ads free cash flow, which is growing at over 50% presently, as the quote above from Forrest Li communicated.

Were Sea's ads business a standalone business, it would likely fetch even more than a 37.5x EV/fcf multiple, due to its incredible growth rate, suggesting that Sea remains undervalued on just this one line of business.

This was as astonishing to me at $35/share as it is today to me, today, at $126/share, and it implies that there's still lots of upside ahead.

Again, we're getting Fintech (19% sequential growth recently(!)), 1P/3P ecommerce (ex ads take rate), gaming, Shopee delivery (like Uber Eats (UBER)), SPX (shipping & logistics, growth accelerated to 20%+ in most recent quarter), and future lines of business for free, as was the case at $35/share and as remains the case today.

Alright, so this has been my thesis for the last 18 months or so, and it remains my thesis today; however, there have been very notable changes outside of just the incredible growth of ads and the more direct articulation thereof from management.

In fact, Sea is now firing on all cylinders in a fairly profound way.

I understand I have been speaking perhaps somewhat excitedly, but this is simply what the data patently states. I'm actually quite coldly writing this, but I must be objective, and, objectively, as you will see in the sections below, Sea's metrics have been fantastic. They've even surprised me in terms of how great they've been, as someone who's been bullish on the business.

While the future is inherently uncertain and risks are always present, it's indisputable that Sea is doing better than ever. It's basic data. Allow me to illustrate.

Sea's Growth Rate Accelerated to 37% In Q4 2024, True Hypergrowth At Giant Scale; Up From 5% In Q3/Q4 2023
sea growth rate
YCharts

This is just one example of what I mean: Sea has accelerated growth from about 5% in 2023 to now an eye-watering, blistering 37%.

37% is really fast growth for a business of any scale.

But it does not stop here. Let's investigate the data together further.

Let's start with FinTech.

SeaMoney (Digital Financial Services) Takes Off
Following the recent Sea report, I referred to its FinTech slide, i.e., SeaMoney or DFS, as "a work of art." A masterpiece.

Again, sounds perhaps overly enthusiastic. But let's consider the data before judging my language.

sea fintech business
Sea Ltd. Q4'24 Investor Presentation

As we can see above, like the growth of its ecommerce and gaming businesses, Sea's FinTech business has been accelerating.

In fact, it grew 19% sequentially from Q3 2024 to Q4 2024.

19% sequentially. I'd considered 5% sequential growth really great. It's worth noting that I would not use italics and bold lettering were it not for this being otherworldly growth.

But it makes sense: According to a UN impact report conducted in 2021, roughly 300M SE Asians have no access to formal credit, and, like China, they will very likely skip the legacy financial system and integrate directly into the digital financial system.

I have called SeaMoney a mini-Ant, Alibaba's (BABA) massive and systemically important financial arm in China, and this recent data provides support for that contention.

With hundreds of millions of SE Asians ready to adopt financial services, it's evident that this growth is no fluke: It's a reflection of the fact that SeaMoney's TAM is huge, and this growth is very likely just the start of many, many years of elevated growth for the division.

Presently, SeaMoney generates ~$3B in annualized sales and just grew at an annualized rate (1.19^4) of ~200%. Were this a standalone company, it'd likely fetch between $30B and $50B in market cap, especially when we consider the multi-hundred million person TAM that lies in front of it.

Remember: Sea only trades at a total enterprise value of $65B, which its $1.75B of pull-thru ads free cash flow could justify and then some.

You may think by now: Louis, it just can't get better, but, indeed... it can.

Let's now turn to Sea's hypergrowth ecommerce business, and I'll also touch on the SPX (Shopee Express) (which will become fulfillment by Shopee, akin to Amazon's massive fulfillment business, over time), whose growth accelerated to 20%+ in Q4 2024.

Ecommerce & Shipping/Logistics
In late 2023, the ecommerce business was called into question; at the time, I painstakingly delineated a competitive landscape that strongly favored Sea Ltd. For the sake of brevity, I will not walk through the nuance and founding stories of rivals Tokopedia and Lazada, as well as a few subscale players, with you today; however, it's worth briefly noting that these are ailing platforms whose execution and velocity have ground to a halt in recent years. This was as much the case in late 2023 as it is today.

Today, these questions have largely been put to rest with Shopee now growing at nearly 30% and with guidance for 20% ecommerce GMV growth in 2025, which Sea will likely easily surmount as the year progresses.


With e-commerce penetration still low across many of our markets, we remain confident about our ability to continue delivering profitable growth in 2025. We expect Shopee's full year 2025 GMV growth to be around 20%. And with improving profitability.

Forrest Li, CEO, Q4'24 Earnings Call

Moreover, management has stated that the competitive environment, in which platforms like TikTok Shop were spending many billions, giving away products at huge losses to attract customers, has become more rational, allowing Shopee to expand its take rate on its commerce platform while also sustaining elevated GMV growth (accelerating growth + expanding margins = a potent cocktail as I call it, i.e., a potent cocktail for share price appreciation).

Sea's Take Rate Continues To Expand, While GMV Growth Remains Over 20% (This Is The Strongest And Clearest Indicator That Competition Is Not Harming The Business)
sea ecommerce
Sea Ltd. Q4'24 Investor Presentation

Where Take Rate Could Trend Over Time Based On The Evolution Of Meli's Take Rate In The Last Half Decade
meli ecommerce take rate
FinChat

In short, Shopee remains the "50% market share juggernaut" I communicated it was in 2023, and which the market vehemently communicated to me, it was from the 2010s until it lost the narrative in late 2023.

In some sense, I spent 2023 trying to remind the market what it already knew!

Turning to Sea's logistics arm, SPX...

In the same way I have been years ahead of the market on Sea's ads business, concrete data for which we now have, I've also been trying my best to get ahead of the market on SPX, and specifically, it as a foundation for Sea's "Fulfillment By Shopee" business over time.

Amazon's FBA (fulfillment by Amazon) business operates at over $150B in scale and is a very profitable business.

In bygone years, I've highlighted SPX and its potential, but, admittedly, the numbers did not perfectly align with my thinking: Growth was tepid at below 10%.

However, in Sea's most recent report, this line of business accelerated growth: up from sub 10% to now above 20%:


Value-added services revenue, mainly consisting of revenues related to logistics services, was up 20.8% year-on-year to US$794.8 million.

Sea Ltd. Q4'24 Press Release

Considering the nascent nature of SE Asia's ecommerce and digital economy, data supporting which I provided just below, it's likely that SPX/logistics services/FBS grow at elevated rates not just for years, but for decades to come.

SE Asia's Internet Economy Remains In Its Early Innings, With Digital Product Adoption (Of Any Kind!) At Still Only ~60% Across The Region
se asia growth
Google SE Asia e-Economy Report

In short, Shopee has successfully emerged from the competitive concerns as a margin-expanding, hypergrowth line of business. These two metrics in concert, i.e., expanding margins and sustained 20-30% growth, concretely communicate to us that competition is not harming the business, as was thought throughout 2023.

Moreover, SPX and fulfillment by Shopee have entered something close to hypergrowth at 20%+, and there's clearly and demonstrably a long, long runway for growth for both of these business, as is the case for Sea's FinTech business.

And so... the 37% top line growth rate is likely not a one-time thing: The data very clearly indicates that there's ample, ample room for quarters such as this one in the years, and likely decades, ahead.

Summary
Sea's Q4 2024 was its best quarter in its company history.

At no point in the company's history has it generated free cash flow robustly while also growing at over 30%.

In short:

Shopee has expanded margins and accelerated growth: a clear illustration of a competitively advantaged business.
FinTech has accelerated profoundly with 19% sequential growth and with a runway ahead that spans hundreds of millions of SE Asians (it's already a $3B annualized business!)
SPX and logistics have entered elevated growth at 20%+, and have many years of runway ahead.
Ads is growing 50%+.
Gaming is stable and growing double digits, with the battle royale format, in which Free Fire is globally dominant, very likely not going away any time soon (feel free to follow up with me about this in the comments).
New lines of business, such as Shopee Delivery, have been taking market share and growing.
The business overall is now growing 37%, while sustainably generating free cash flow, atop $10.4B in liquid cash, against just $1.5B in convertible notes (down from $3B+ in recent years... because the company generates healthy free cash flow, it has been able to buy back and retire over half of its debt burden in just the last two years!).
It's not just me cheerleading the stock:

This is stone-cold data illustrating a company operating as the best version of itself in its company history.

Of course, the future is inherently uncertain, and there's always risks related to execution, but competition has been bested (data says it clearly above). Growth has accelerated. Free cash flow has been generated and continues to be generated sustainably. The debt burden has been largely extinguished.

Doing great.

Long SE.

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This article was written by


Louis Stevens
16.89K Followers
Louis Stevens, MBA, offers a proprietary approach to investing. Employing his Four Foundational Investment Frameworks, Louis purchases industry-leading businesses that possess mountainous cash hoards, robust free cash flow generation, long runways for growth, and quality company cultures.

Louis leads the investing group L.A. Stevens Research. Whether you're just getting started or are an analyst at a hedge fund, Louis has served folks like yourself throughout his career in equity research and investing. Features include: weekly top ideas to give you an edge in the market, direct access to Louis, vibrant chat community of investors, 30+ deep dives per quarter of owned business and Differentiated investment strategies & frameworks. Learn more >>.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of MELI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.


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Stock Covered
SE
Analyst's rating at publication
Strong Buy
Price at publication
$128.88
Change
1.10%
S&P 500 change
1.02%
Analyst's rating history
About SE Stock
Symbol Last Price % Chg
SE
129.27 -0.79%
Pre 130.90 1.26%
Market Cap
$74.84B
PE (FWD)
34.88
Yield
-
Rev Growth (YoY)
28.75%
Short Interest
2.97%
Prev. Close
$129.48
SE Ratings
Source Rating Score
SA Analysts
Buy
Rating: Buy4.20
Wall Street
Strong Buy
Rating: Strong Buy4.57
Quant
Strong Buy
Rating: Strong Buy4.91
Quant Ranking
?
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Industry
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Ranked in Industry
More on SE

Sea: Despite E-Commerce Strength, Gaming Risks Abound, Take Caution Here (Downgrade)
Gary Alexander
Sea Limited targets 20% GMV growth for Shopee in 2025 amid profitability improvements
Sea in charts: Revenue from Digital Entertainment +1.6% Y/Y, E-commerce +43% in Q4
Earnings Snapshot: Sea beats Q4 revenue estimates, profit misses

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Market Update & #PCE Preview 🔔

Hey everyone! First off, I hope you all had a great trading day. Quick recap from Wednesday analysis - left a hint at the bottom of my analysis: "my bias is higher."😅

What unfolded? Today's straddle was set for a 45pt move. We opened with a ~20pt drop and dipped instantly, but from that bottom, $SPX rose 1.08% to 5732.28, only to relinquish those gains, closing down 0.33%. We caught moves on both longs and shorts, sharing insights across trading groups.

👀 What's next? #PCE data drops tomorrow at 8:30 AM, expected to stir the market. #GEX profile is thin-expect the unexpected. Tomorrow's straddle hints at a 48pt swing, projecting a range between 5647 and 5743 for $SPX. Eyes on the sold puts at 5650 strike (3041 contracts) and 5700 strike (-1822 contracts), hinting at a potential 50pt exploration zone above. Above $SPX 5750 potential for a swift move higher is there. Same is true below 5650.

🔮 My outlook for tomorrow? Neutral to bullish. Keep in mind, this is short-term analysis tailored for #daytraders—not a long-term perspective.

🌙 As we head into tomorrow, expect shifts. And hey, if you find value in these insights, a like or retweet goes a long way. Doing this for free makes it even more rewarding with your feedback!

NFA..At close 5693.32

Market Update & #PCE Preview 🔔

Hey everyone! First off, I hope you all had a great trading day. Quick recap from Wednesday analysis - left a hint at the bottom of my analysis: "my bias is higher."😅

What unfolded? Today's straddle was set for a 45pt move. We opened with a ~20pt drop and dipped instantly, but from that bottom, $SPX rose 1.08% to 5732.28, only to relinquish those gains, closing down 0.33%. We caught moves on both longs and shorts, sharing insights across trading groups.

👀 What's next? #PCE data drops tomorrow at 8:30 AM, expected to stir the market. #GEX profile is thin-expect the unexpected. Tomorrow's straddle hints at a 48pt swing, projecting a range between 5647 and 5743 for $SPX. Eyes on the sold puts at 5650 strike (3041 contracts) and 5700 strike (-1822 contracts), hinting at a potential 50pt exploration zone above. Above $SPX 5750 potential for a swift move higher is there. Same is true below 5650.

🔮 My outlook for tomorrow? Neutral to bullish. Keep in mind, this is short-term analysis tailored for #daytraders—not a long-term perspective.

🌙 As we head into tomorrow, expect shifts. And hey, if you find value in these insights, a like or retweet goes a long way. Doing this for free makes it even more rewarding with your feedback!

NFA..At close 5693.32