Sea Ltd: Undervalued Gaming Stock up 368% YOY, Poised for Stronger Gains

Sea Ltd Stock
@RLTheis via Twenty20

Sea Ltd Stock Soars 282% in 2020, with More Gains Coming

Sea Ltd (NYSE:SE) stock continues to enjoy strong gains, advancing 368% year-over-year, up 282% since the start of 2020, and climbing 330% since bottoming in March. While the Singapore-based gaming company has had a stellar year, it appears to be primed for even greater gains.

Thanks to the coronavirus pandemic, quarantined and self-isolated people around the world have taken a shine to online gaming. And investors are hoping that the increased love for digital entertainment becomes part of people’s daily lives, even after things eventually return to normal.

In general, gaming stocks have done well in 2020, but Sea Ltd has been a standout.

With market cap of $72.7 billion, Sea Ltd is bigger than Activision Blizzard, Inc. (NASDAQ:ATVI), Zynga Inc (NASDAQ:ZNGA), and Nintendo Co., Ltd (OTCMKTS:NTDOY).

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Sea Ltd stock has also experienced much larger gains in 2020 to the point where it’s up 282% year-to-date. Comparatively, NTDOY is up 43%, ZNGA has climbed up 42%, and ATVI has gained 37%. Tencent Holdings ADR (OTCMKTS:TCEHY), which has a 20% stake in Sea Ltd and is the largest game company in the world, has seen its share price grow 38% in 2020.

Chart courtesy of StockCharts.com

SE Stock Overview

You may not be all that familiar with the name Sea Ltd, but you probably play some of its games.

Sea Ltd is a global consumer internet company that operates three main businesses: Garena, Shopee, and SeaMoney. (Source: “Products and Services,” Sea Ltd, last accessed September 23, 2020.)

Its Digital Entertainment business, Garena, operates in online game development and publishing with a global footprint in more than 130 markets.

Garena is responsible for games such as “Free Fire,” which was the most downloaded mobile game in the world in 2019. With more than 100 million daily active users, Free Fire was the third most downloaded game in the second quarter of 2020.

Garena is also a leading esports organizer, holding events around the world. In 2019, Garena hosted the Free Fire World Series, the largest global esports tournament, which achieved more than 130 million cumulative online views.

Shopee, which was just launched in 2015, is already the top e-commerce platform in Southeast Asia and Taiwan. Shopee consistently ranks as the most popular app in the shopping category in Southeast Asia in terms of downloads, monthly active users, and total time in app on “Android.”

SeaMoney is a leading digital payments and financial services provider in Southeast Asia. Some of SeaMoney’s offerings include payment processing, mobile wallet services, credit, and digital financial services.

Strong Revenue Growth and Gross Profit

On August 18, Sea Ltd announced that revenue for the second quarter ended June 30 had increased 93.4% year-over-year to $1.3 billion. (Source: “Sea Limited Reports Second Quarter 2020 Results,” Sea Limited, August 18, 2020.)

Digital entertainment revenue was up 61.6% at $716.2 million. During the second quarter, Free Fire hit a new record high of over 100 million peak daily active users. Its digital entertainment segment saw its monthly active user total increase 61% to 499.8 million, while quarterly paying users grew by 91.2% to 49.9 million.

Adjusted e-commerce revenue was up 187.7% year-over-year at $510.6 million.

Total gross profit advanced 196.1% to $200.8 million and total adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $7.7 million, compared to an adjusted EBITDA loss of $11.0 million in the second quarter of 2019.

Analyst Take

Sea Ltd may not be the most recognizable gaming company, but it is performing significantly better than its peers. The company reported strong second-quarter results, with its digital gaming and e-commerce platform experiencing strong growth.

In addition to attracting more gamers and paying customers, Sea Ltd could see fresh revenue come in from new global partners. For example, in July, Garena announced a partnership with Netflix Inc (NASDAQ:NFLX) for a special Free Fire crossover with the Netflix show “Money Heist.”

Thanks to its deep gaming portfolio, which has resulted in strong financial results, the company’s near- and longer-term outlooks remain solid.