SE - Sea Limited: Q4 2023 Earnings Accelerating Growth And Better Unit Economics Maintain Buy

2024-03-13 06:20:08 ET

Summary

• Sea Limited shares surged by 13% following the 4Q23 earnings. These results prompted analysts to revise their revenue and earnings estimates.
• Average bookings per user growth accelerated on a quarter-on-quarter basis. However, quarterly active users ("QAU") count fell. Normalizing QAU and the relaunch of Free Fire India are catalysts for Garena.
• Shopee reported an acceleration in GMV growth and gross orders, while adjusted EBITDA losses narrowed. Unit economics improved as Shopee solidified its market leadership and remains focused on logistics.
• SeaMoney demonstrated robust growth and sustained its profitability. The fintech business will continue to grow as Shopee scales up, and this will also lower overall costs.
• We revised our fair value estimate from $88 per share to $94 per share, derived from 10-year DCF valuation. Risks include the continued decline in Garena's user base and heightened e-commerce competition.

Recap

In our recent article on Sea Limited ( SE ), we emphasized the rationale behind Shopee's strategic shift from prioritizing profitability to driving growth. This strategic pivot aims to take market share following the TikTok ban in Indonesia, ultimately driving scale and enhancing unit economics. Additionally, we previously believed that Garena had reached an inflection point, as evidenced by a quarter-on-quarter increase in average bookings per user and a stabilization in active user count. Traded at $38 per share, the stock was an obvious buy.

Since our previous analysis, a noteworthy development has emerged in the e-commerce space, with TikTok acquiring a 75.01% stake in Tokopedia for $1.84 billion, which includes a $1 billion promissory note. This acquisition marks a significant change, given Tokopedia's previous stance on maintaining a traditional search-based e-commerce model. According to the latest presentation material , Tokopedia intends to capitalize on TikTok's massive user base, estimated at 125 million monthly active users in Indonesia, to enter the live-streaming shopping arena....

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