Equity Analysis /

Sea Ltd: Expanding global e-commerce footprint

  • Foothold in Southeast Asia to strengthen together with penetration into Brazilian market.

  • segment revenue expected to grow 5x by FY23e.

  • Initiate coverage with a BUY recommendation and DCF-based target price (WACC 6.9%, g 4.0%) of US$196.00.

Jonathan Woo
Jonathan Woo

Research Analyst

22 March 2022
Published by

Shopee to drive revenue growth with CAGR of 62% expected over the next two years. Foothold in Southeast Asia to strengthen together with penetration into the Brazilian market.

The rapid expansion of SeaMoney as an additional growth driver, drawing on synergies with Shopee for frictionless transactions; segment revenue expected to grow 5x by FY23e.

The profitability of SE’s digital entertainment business concentrated on a single product, heavy reliance on equity markets for funding through convertible notes.

Initiate coverage with a BUY recommendation and DCF-based target price (WACC 6.9%, g 4.0%) of US$196.00.

Company Background

Sea Ltd. operates as a holding company with subsidiaries operating in digital entertainment (Garena, 43% revenue), e-commerce (Shopee, 52%), digital financial services (SeaMoney).

Investment Highlights

  1. Shopee’s high growth rate supported by uptick in both Gross Merchandise Value (GMV) and Gross Orders. E-commerce revenue from Shopee grew 130% YoY in FY21, supported by 118%/77% YoY increases in Gross Orders/GMV respectively – outpacing its main competitor Lazada (40% YoY). Shopee, which contributes almost 52% of SE’s total revenue, has consistently been top of its shopping category in Southeast Asia and Taiwan – monthly active users, and total time spent on the platform. We expect revenue from Shopee to more than double by the end of FY23e, as it expands its global footprint, and continues riding on a fast-growing Southeast Asian e-commerce industry.

  2. Shopee’s expansion into Brazil showing great potential. Shopee’s strategic expansion into the world’s 6th most populated market has seen a tremendous uptick, with 400% YoY revenue growth in 4Q21. Shopee Brazil also continues to be ranked at or near the top of its shopping category. With a profitability model that is well proven in the LATAM region – take rates of existing profitable players at <s>18% vs </s>8% in Southeast Asia, we think this expansion should contribute significantly to the overall profitability of SE’s e-commerce segment sooner rather than later.

  3. Rapid expansion of SE’s Digital Financial Services (SeaMoney). SeaMoney saw rapid YoY revenue growth of 673% in FY21, supported by expanding product offerings, and increasing user base and payment volumes. It contributed almost 5% of SE’s total revenue in FY21, compared with only 1% in FY20, with this number expected to increase. We view SeaMoney as a natural extension of SE’s e-commerce business and expect synergies between both business segments as they grow in tandem, and forecast revenue to grow 5x by the end of FY23e.


  1. Profitability concentrated in Free Fire. The majority of SE’s digital entertainment revenue comes from its most popular in-house developed game, “Free Fire”, which we view to be somewhat concerning as Garena’s revenue could be significantly impacted if the growth and popularity of Free Fire were to decline moving forward. We expect Garena’s revenue to contract by about 12% YoY in FY22e due to a recent ban on Free Fire downloads in India and a moderation in online activity globally.

  2. Reliance on equity markets for funding. SEA has been very reliant on raising funds via convertible notes and common stock, with almost US$10bn raised so far. Poor conditions in equity markets may result in difficulty raising more funds through these methods in the future, which could affect SE’s growth plans moving forward.

We Initiate coverage with a BUY rating and a target price of US$196.00 based on DCF valuation, with a WACC of 6.9% and terminal growth of 4%.


SE posted US$10bn in revenue for FY21 – increasing 128% YoY, with 51.5% of its total revenue coming from its e-commerce business (Shopee); 43.4% from its Digital Entertainment segment (Garena); 4.7% from its Digital Financial Services segment (SeaMoney), and the remaining 0.4% from other services (Figure 5).

E-commerce (Shopee): Shopee is a mobile-centric, highly scalable, social-focused marketplace platform that connects both buyers, as well as sellers. The platform also provides its own integrated payment and logistics infrastructure, as well as comprehensive services aimed at empowering sellers with the appropriate tools to better engage with buyers. Shopee generates revenue by: 1) selling paid advertising services; 2) charging transaction-based fees; 3) charging sellers for certain value-added services; and 4) direct sales of certain products to consumers. It is also the largest e-commerce platform in the Southeast Asian region by Gross Merchandise Value (GMV), and total orders.

According to data.ai, in 4Q21 and FY21, Shopee continued to top its shopping category in Southeast Asia and Taiwan by average monthly active users and total time spent in the app. Shopee also topped its shopping category in Brazil for most downloads and total time spent in the app, while ranking second for average monthly active users. Globally, Shopee was the top ranked app in the shopping category by downloads.

The main metrics used to track performance in this segment are GMV, Gross Orders, Take Rate, and Average Basket Size (Figures 7 and 8). Revenue from this segment was US$5.1bn for FY21, increasing 130% YoY. GMV increased 77% YoY to US$63bn, with gross orders increasing 118% YoY, and an average take rate of about 8% for FY21. We are quite positive on Shopee’s expansion into other highly populated markets like Brazil, where gross orders are growing around 400% YoY. Gross orders in Indonesia – where it’s the largest e-commerce platform, grew 88% YoY in 4Q21. However, we expect overall growth to slow down slightly in FY22e to about 75%, or US$9bn. This is mainly due to increased competition from other big players in the region like Lazada, a maturation of Shopee in several markets, and a reduction in platform incentives for users.

Digital Entertainment (Garena): Garena is a global developer and publisher of video games, mainly focusing on Mobile, as well as PC games. Besides developing its own games, Garena also exclusively licenses and publishes games developed by third parties, focusing on several game genres: battle royale, multiplayer online battle arenas (MOBA), action role-playing games (RPG) and massively multiplayer online role-playing games (MMORPG). Garena also provides access to other entertainment content, such as live streaming online gameplay, and social features such as user chat and online forums.

The majority of revenue generated from this segment can be attributed to its most popular in-house developed mobile game “Free Fire”, which has consistently been ranked amongst the top few mobile games on Google Play by Monthly Active Users (MAU). For 4Q21 and FY21, “Free Fire” remained the most downloaded mobile game globally, and ranked second globally by MAU for all mobile games on Google Play. It also continued to be the highest grossing mobile game in Southeast Asia and Latin America. SE monetizes this by adopting a “freemium” model, allowing users to download and play the game for free, while generating revenue from the sale of in-game virtual items.

Revenue from this segment came in at US$4.3bn for FY21 (Figure 9), representing a 114% YoY growth, and a 5-Yr CAGR of 67%. Quarterly Active Users (QAU) and Quarterly Paying Users (QPU) are the main metrics used in this segment, with both metrics seeing considerable QoQ growth since 4Q18, but this has started to plateau and decrease moderately over the last 3 quarters as a result of headwinds from reopening trends globally (Figures 10 and 11). Garena has also seen its Quarterly Paying Ratio creep up from 5.5% in 4Q18 to 11.8% in 3Q21 (Figure 12).

Revenue growth for this segment is expected to be negative for FY22e, as restrictions on downloads of Free Fire in India present significant headwinds in one of SE’s most heavily populated markets. We forecast revenue to decrease by 12% YoY to about US$3.8bn because of this, coupled with a moderation in online activity as reopening trends continue globally.