Sea Limited (NYSE: SE) has been on a roller-coaster ride since the pandemic broke out in 2020.
The e-commerce firm saw its share price leap from US$45 to more than US$350 in November 2021, only to crash to US$52 by the end of 2022 as the boost from the pandemic wore off.
However, things may be looking up for Sea Limited.
The company saw its share price soar 68% year-to-date to hit US$65 and is just off its 52-week high of US$76.60.
Can the gaming and e-commerce firm revisit the highs it hit back in 2021?
First-ever annual profit
Sea Limited reported its first-ever annual profit when it unveiled its earnings report for 2023 back in March this year.
The company saw a 4% year-on-year rise in revenue to US$13.1 billion while gross profit improved by 12.5% year on year to US$5.8 billion.
Sea Limited announced an operating profit of US$224.8 million and a net profit of US$150.7 million for 2023, marking the e-commerce company’s maiden full-year net profit.
Looking at its cash flow statement, 2023 also saw a healthy positive free cash flow of US$1.8 billion, reversing the negative operating cash flow back in 2022.
For the first quarter of 2024 (1Q 2024), Sea Limited saw its revenue continue to climb, jumping 22.8% year on year to US$3.7 billion.
The better performance came from a surge in revenue from its e-commerce division but was offset by lower revenue from its digital entertainment segment.
Gross profit increased by 9.7% year on year to US$1.6 billion and the digital entertainment company generated an operating profit of US$71.1 million.
However, the business incurred a net loss of US$23.7 million for the quarter because of higher tax expenses and investment losses.
Free Fire seeing more paying users
Let’s break down Sea Limited’s business to see how each of its three divisions is performing.
Garena, its digital entertainment division, reported that its Free Fire mobile game was the most downloaded globally in 1Q 2024.
Another positive news was that Free Fire’s monthly average users (MAU) increased by 24% year on year.
Free Fire remains a very popular game even into its seventh year, and the new upcoming update (OB46) for the game (slated for between 4 to 8 September) should introduce a slew of new content to keep players engaged and spending money.
Garena’s quarterly active users (QAU) for 1Q 2024 increased by 21% year on year to 594.7 million, and the good news is that the quarterly paying user (QPU) ratio increased from 7.7% to 8.2%, the highest in five quarters.
As a result, QPUs climbed 28.8% year on year to 48.8 million.
Shopee continually upgrades its platform
Over at Shopee, 1Q 2024 saw a continued increase in both the division’s gross merchandise value (GMV) and gross orders.
GMV jumped 36.4% year on year to US$23.6 billion while gross orders leapt 62.5% year on year to 2.6 billion.
Shopee is continuously upgrading its platform to ensure that it keeps abreast with the latest demands from its customer base.
It has rolled out next-day delivery in Singapore and instant delivery services in Malaysia, Indonesia, Vietnam, and Thailand.
The brand has also improved its returns and refund processes while shoppers across the region will also benefit from its expanded Change of Mind policy which now covers a wider range of items.
Management has set several operational priorities for this year.
They include enhancing the e-commerce outfit’s price competitiveness, strengthening its content ecosystem, and improving service quality for its buyers.
Growing momentum in digital financial services
Things are also looking good at Sea Limited’s digital financial services division, SeaMoney.
Revenue for 1Q 2024 rose 21% year on year to US$499.4 million for the division.
Its loans business is also seeing healthy traction, with consumer and SME loans active users surging 42% year on year to more than 18 million.
Loans principal outstanding touched US$3.3 billion, up 29% year on year.
Non-performing loans past due for more than 90 days stayed constant quarter-on-quarter at 1.4% and was down from 1Q 2023’s 1.7%.
Its digital bank outfit, Maribank, saw revenue soar more than sixfold year on year from SS$1.6 million to SS$10.1 million.
Despite the surge, the digital bank’s total comprehensive income increased by 28% year on year to S$51.9 million.
Customer deposits saw a sharp increase from just S$2 million in 2022 to S$503.8 million last year.
Sea Limited also appointed Natalia Goh, the ex-COO of Trust Bank, as the new CEO of Maribank, replacing the outgoing CEO Zheng Yu Dong.
It appears the division’s momentum is staying strong but it will require more time and scale and break even.
Get Smart: Holding its own
The analysis above shows that Sea Limited is doing well in generating its first-ever full year of profitability.
However, required spending on marketing and promotions has increased its expenses for 1Q 2024 which led to a small loss.
Its three divisions are seeing healthy growth and both Garena and Shopee also occupy strong market positions within their respective sectors.
Sea Limited looks well-positioned to continue growing further, barring a significant deterioration in the economic landscape.
If you’re looking to buy the next S$100 billion stock in SGX, pay attention to our newest FREE report. We dug deep and uncovered which SGX companies have the potential for massive growth. Even if the numbers look great, things aren’t always what they seem. We let the numbers tell us the full story. Download for free now!
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclosure: Royston Yang does not own shares in any of the companies mentioned.
