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Thus far, Sea Limited (SE) shares have exploded in 2020, illustrating astounding returns of 170%. This company has shown seemingly impossible growth figures, and investors are finally starting to see the extraordinary value in SE.
Sea Limited is the leading internet company in Southeast Asia and Taiwan. These economies are digitalizing at an exponential rate, and Sea is well-positioned to take on the quickly expanding addressable market. The company operates two digital market-leading segments, including an e-commerce platform, and a digital entertainment division (Shopee and Garena, respectively).
SE has weathered the coronavirus better than most global equities. The pandemic has had positive implications on this company’s long-term growth outlook.
Southeast Asia is in lockdown mode, like the rest of the world, and people are looking to Sea Limited for their boredom-driven digital needs.
Sea’s e-commerce giant, Shopee, has been vital in supporting the people amid the country lockdowns across the region. The online shopping site is presently focused on delivering “stay home essentials” to its customers, to keep people indoors. This move should condition consumers across the region to rely on this site for all their shopping needs, which will strengthen its customer base once the pandemic is controlled.
Sea’s digital entertainment group, Garena, should see a sharp uptick in usage as people look to its mobile applications for amusement.
Southeast Asia is characterized by rapid economic growth with 5% GDP growth over the past decade, compared to the 2% globally and 2.3% in the US. Economic projections from global financial institutions like the IMF, World Bank, and the Asian Development Bank expect this growth trajectory to remain in place over the coming years.
The digital economy in Southeast Asia has tripled in the past 5 years to $100 billion and is expected to triple again by 2025 to $300 billion, according to a Bain & Co report. The digital economy in this rapidly developing region is red hot, and Sea is orchestrating its advancement. Below is a graphic from the Bain & Co report that breaks down the internet economy growth trajectory by country.
2020 Performance & Guidance
SE has exhibited astonishing topline growth that is seemingly accelerating, and the company closes in on profitability. Sea Limited's massive double-digit QoQ growth rates are something that most growth companies strive to accomplish on an annual basis
The enterprise's prolific growth slowed down marginally in Q1, with adjusted revenues up 58% year-over-year and 1% month-over-month, compared to Q4, where the company exhibited increases of 134% and 19%, respectively.
This global pandemic has provided the business with a long-term headwind that continues to propel analysts' estimates and optimism about the future of this business. The COVID-crisis is causing a digital inflection point, further accelerating the online economic shift, especially in rapidly developing regions like Southeast Asia.
The firm expects Shopee will more than double in 2020, while its digital entertainment segments are expected to expand sales by roughly 75% (according to its 2019 annual report).
The digital opportunity in Southeast Asia is massive, but Sea Limited is not the only company taking advantage of this gold rush. E-commerce in the region is a rapidly saturating market. Shopee controls the lion's share of the digital shopping space, but its competitors are nipping at its heels, weighing on this segment's margins. Alibaba (BABA) and Amazon (AMZN) are both looking to spread their global footprint further into this lucrative region.
Still, this platform is expected to remain the e-com leader in the region and is anticipated to achieve further economies of scale as it grows.
Garena isn't facing the same competitive hurdles that its e-commerce division is because of how quickly it has been able to produce high demand games that stand out from its competitors.
SE started trading in the US in October of 2017 and was under most analyst & investor radars for some time, illustrated by the low volume trading. This enterprise's unmatched performance could not be ignored forever, though. Investors have begun pouring money into this stock. SE is almost 10 times the value this it was when it started 2019, and this year's rally has some incredible momentum to it.
I am hesitant to add to my position, with the prevailing rally reaching seemingly frothy levels. Still, investors continue to a seemingly relentless amount of capital into these shares. 6 out of 7 analysts are calling this stock a buy right now, but I'm waiting for a pullback to add to my position.
Sea Limited has a firm grip on Southeast Asia's internet market, and there is no doubt that it has an incredibly bright future. For bullish long-term investors who believe in this stock market rally, it may be advantageous to start a small position in this revolutionary digital powerhouse.
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