Sea Ltd. – Growth Supported by Spending May 20, 2024 109

PSR Recommendation: NEUTRAL Status: Downgraded
Target Price: 75.00
  • 1Q24 revenue exceeded expectations at 25% of our FY24e forecasts. The 23% YoY growth was primarily driven by 33%/21% YoY growth in Shopee and SeaMoney. While a net loss of ~US$24mn fell short of our FY24e forecasts due to continued high S&M spending and US$111mn unrealised equity investment losses.
  • Garena is seeing positive user trends, with bookings surged by 11% YoY. Quarterly active users/quarterly paying users were also up 21%/30% YoY as gamers finally returning to gameplay. We anticipate sustained improvements in most gaming-related metrics moving forward and expect double digit YoY growth in user base and bookings for FY24e.
  • We downgrade to a NEUTRAL rating from ACCUMULATE due to recent share price gains. We raised our FY24 revenue by 4% to account for higher e-commerce and gaming growth. We raised DCF target price to US$75 (prev. US$70), with an unchanged WACC/growth rate of 7.6%/3%.

















The Positive

+ Stronger-than-expected growth in Shopee. Shopee’s revenue growth has been accelerating since 3Q23. Its 1Q24 revenue grew 33% YoY, with gross order/GMV growth accelerating to 57%/36% YoY (4Q23: 46%/29% YoY, 3Q23: 13%/5% YoY). This growth was fueled by the seasonality effect of Ramadan occurring within Q1 and operational priorities that enhance price competitiveness (optimized logistics & introducing more sellers with competitive pricing) and improved customer services (direct management of returns and refunds by Shopee & introduction of features like guaranteed delivery times). Shopee has also put in efforts to strength its ecosystem, becoming the largest live streaming e-commerce in Indonesia.


+ Gaming user trends picking back up. Gaming is seeing positive user trends. Bookings were up by 11% YoY, highest in the last three years. Additionally, user metrics QAU and QPU have surged by 21%/30% YoY, ending the two years trend of decline/slow growth and indicating improvements in user retention and monetization. The acceleration is due to gamers finally returning to gameplay after the two year fatigue from excessive gaming during Covid. We anticipate sustained improvements in most gaming-related metrics moving forward and expect double digit growth YoY in both user base and bookings for FY24e.



The Negative

E-commerce spending still remains high. Since 3Q23, SE has been doubling up its S&M spending for Shopee YoY due to intensified competition from new entrants, such as TikTok Shop, resulting in a net loss for the company. The spending remains notably high with a 92% YoY increase. The sustainability of such aggressive S&M spending to support Shopee’s robust growth is questionable.

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Helena Wang
Research Analyst

Helena covers Hardware/Marketplaces/ETF. Helena graduated with a master degree in Financial Technology from Nanyang Technological University

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