SE Stock: Buoyed by Shopee Profit, Sea is up 200%

Introduction

Sea [SE] is a Singapore-based holding company that operates in the digital entertainment, e-commerce and financial services spaces.

Sea subsidiary Shopee was the leading southeast Asia e-commerce player last year, with a 48% share of the market, according to Singapore-based research firm Momentum Works. Alibaba’s [BABA] Lazada was second with 16.4%, while ByteDance’s TikTok and Tokopedia were joint third with a 14.2% share each. 

This stock spotlight will look at how the e-commerce business is Sea’s growth engine and why its digital financial services arm could be a key driver of expansion going forward. It will also highlight the risks posed by fierce competition in its key markets.

Sea and YouTube Team Up

In September, Sea subsidiary Shopee announced it was teaming up with Alphabet’s [GOOGL] YouTube to make it easier for shoppers in Indonesia to buy products they see in videos, with plans to expand the service into other southeast Asian markets in the near future. 

Youtube’s Asia-Pacific Director Ajay Vidyasagar cited the country’s “energy and velocity around online shopping” as being behind the launch. Though he declined to give details on the size of the deal when asked by Reuters, he said it was very significant. 

The tie-up could be a response to TikTok returning to the Indonesian market through a merger with Tokopedia, which ByteDance acquired in January for $1.5bn. The Momentum Works report noted that, while “TikTok Shop has yet to touch Shopee’s core, it has taken a large portion of Shopee’s potential growth”.

SE Stock Makes a Splash 

The Sea share price has surged 202.13% in the past 12 months through December 2, from $37.48 to $113.24. 

To put this into context, this is marginally lower than the 205.72% SE stock has gained over the past five years. The share price is also down 69.62% from its all-time high of $372.70 set on October 19, 2021. 

Sea Reports Stronger Earnings Than Alibaba and PDD 

Strong earnings reports have SE stock’s recovery in 2024.

In Q3, Sea reported revenue rising 30.8% year-over-year to $4.33bn, surpassing the $4.09bn analysts had been expecting. Earnings swung from a loss of $0.26 per share in the year-ago period to a profit of $0.24 per share, although this was lower than what analysts had forecast. Shopee turned profitable during the quarter.

Last quarter’s revenue was the best growth rate since Q1 2022 and was underpinned by a 42.6% jump in e-commerce sales to $3.2bn. Sales have come under pressure over the past couple of years amid fierce competition from Lazada, TikTok and PDD’s [PDD] Temu, but the tide appears to be turning. 

“I am very proud that we also improved our profitability while getting back to high growth,” Sea CEO Forrest Li said in the earnings release, adding that Shopee achieved positive adjusted EBITDA in Asia and Brazil during the July–September period. 

Both Alibaba and PDD reported mixed results in November, pointing towards weak consumer spend and a slowdown in China. 

Here is how Sea’s fundamentals compare with those of Alibaba and PDD. 

Source: Yahoo Finance

SE stock looks undervalued given its P/S ratio and healthy revenue projections. Sea is less reliant on China for sales than BABA stock or PDD stock, so its sales growth would be less exposed to any slowdown that might dent Chinese consumer confidence. 

SE Stock: The Investment Case

The Bull Case for Sea

With Shopee facing increased competition from the likes of Temu and TikTok, Sea could benefit from diversifying its income stream. 

SeaMoney, its digital payments provider, has seen its share of revenue grow over the past few quarters. Sea’s digital financial services segment reported a 38% rise in revenue to $615.7m for Q3, compared with growth rates of 21.4% and 21% in the previous two quarters. 

SeaMoney’s growing loan book also reflects Sea’s potential to play a key role in the future of digital finance in southeast Asia. The book grew over 70% in Q3, while the business added four million first-time borrowers, taking the total number of active consumer and SME borrowers to 24 million, up 60% from Q3 2023. 

The Bear Case for Sea

For now, the e-commerce business in southeast Asia remains Sea’s bread-and-butter. However, there is the risk of things going stale, especially if TikTok continues growing its share of the market. 

TikTok’s gross merchandise volume in 2023 increased more than three-fold from $4.4bn to $16.3bn. This was the highest growth rate among all the e-commerce players in the southeast Asia region, according to the Momentum Works report. 

Shopee’s presence in Thailand could also come under pressure from Temu, which launched there at the end of July. Simon Torring, Co-Founder of Cube Asia, points out that two out of every five of Temu’s products are cheaper than alternatives from Shopee, Lazada and TikTok. 

Sea may have to slash the price of products in the country to fend off competition, which could impact margins negatively. Temu’s arrival “has the potential to change the dynamics of regional e-commerce just when [Shopee has] shifted [its] focus increasingly towards profitability,” argues Torring. 

Conclusion 

Sea is leading the way in southeast Asia’s e-commerce market, but competitors, including ByteDance’s TikTok and PDD’s Temu are gaining ground. Sea’s digital financial services business is likely to be a key growth driver in the future and should help Sea to diversify its revenue stream. 

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