To say Sea Limited(NYSE: SE) has been an excellent turnaround story would be a major understatement.
After being one of the top performers during the 2021 growth stock boom, Sea Limited plunged 90% from its high by the end of 2023. Revenue was dropping in its core gaming business, and the e-commerce platform was losing hundreds of millions of dollars per quarter, even on an adjusted basis. And while it was profitable, the digital financial services business was a relatively small piece of the puzzle. Overall, growth slowed sharply, and losses started to become alarmingly big.
Fast-forward to today, and Singapore-based Sea Limited has rebounded. Its stock gained more than 160% in 2024 and was the best performer in my portfolio by a wide margin. Looking into the business, it's easy to see why Sea Limited has performed so well. But there's also a solid case to be made that lots of upside potential could still lie ahead.
Sea Limited's excellent rebound
While we don't have year-end numbers yet, it's fair to say that 2024 was a much better year for Sea Limited than the last one. In 2023, Sea Limited posted revenue growth of just under 5%, but revenue growth in the third quarter of 2024 was 30% year over year.
Not only was overall growth impressive, but all three business segments are also doing well. On the e-commerce side, which has been the biggest profit concern among investors, the Shopee platform generated positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first time ever. Gross merchandise volume was up 25% year over year, and the take rate (revenue as a percentage of transaction volume) improved by 160 basis points. Combined, these two factors produced a stellar 45% e-commerce revenue growth.
On the Sea Money digital finance side of the business, the loan portfolio grew by 70% year over year to $4.6 billion, and revenue was 38% higher than a year ago. The company brought 4 million new borrowers into the ecosystem, and the percentage of non-performing loans actually declined.
Last but not least, the Garena digital entertainment (gaming) platform has returned to growth in spectacular fashion. Daily active users exceeded 100 million and grew 25% year over year. If we zoom out to quarterly active users, there are more than 628 million -- not quite as high as the COVID-19-era peak, but an impressive number. The hit Free Fire game is the most downloaded game in the world, and bookings (the best measure of gaming revenue) grew 25% year over year. Garena is also still the biggest driver of profits, accounting for 65% of Sea's operating income.
Overall, Sea Limited went from a loss of $144 million in the third quarter of 2023 to a net profit of $153 million.
Lots of potential from here
Although the results have been spectacular, Sea Limited could still be an excellent value. It trades for less than four times trailing-12-month sales, compared to a range of about 6-10 times book, even in the pre-pandemic years before the stock spiked. (The long-term average since its 2017 initial public offering is a price-to-sales multiple of almost 10.)
Sea could conceivably maintain its growth momentum for years to come. For one thing, its logistics network continues to improve and become more efficient, which could lead to more order volume on the e-commerce platform. A strong economy could have positive tailwinds for spending in all three businesses.
There's also tons of artificial intelligence, or AI, potential throughout the business. The company has a division known as Sea AI Lab (SAIL) that is laser-focused on developing technology to boost Sea's existing businesses and create new opportunities for the company. CEO Forrest Li has specifically said the company is very focused on building beneficial AI tools, especially for e-commerce and gaming applications.
Plus, Sea could just be scratching the surface when it comes to profitability. The business has a gross margin of 36% and an adjusted EBITDA margin of about 12% today, but it is still in growth spending mode, so these could expand significantly going forward. In a nutshell, Sea's future now looks brighter than ever, and I think it could handily beat the S&P 500 again in 2025.
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