Sea Limited FY24 "Evergreen Enterprise"
Three segments all profitable, $2B+ FCF and 20-30% growth ahead for many years.
Hi, I am Trung. I deep-dive into market leaders that passed my sleep-well checklist. I follow up on their performance with my Thesis Tracker updates, and when the right price comes, I buy them for the Sleep Well Portfolio, which I am building for my daughters to redeem in 2037. I disclose my reasoning for all BUY and SELL (ideally never). Access all content here.
Hi friends,
Sea Limited (SE) reported FY2024 results, the largest position in my PA and a 10% in the Sleep Well Portfolio, acquired at $73.5/share last June. Before I review the results in detail, I’ll step back a little so you can get a better feel of the business changes during the financial year 2024.
As an owner of the business for over five years, it’s hard to imagine that around Q3’22, Shopee, the e-commerce arm of Sea Limited, was still losing $500M per quarter. All the while, Garena, the gaming arm from where the cash came, was shrinking as the world reopened, and TikTok and Temu were all in. Shares were ~$40/share after falling 80%+ from the Covid peak of ~$340/share. Forest Li, the CEO and founder, sent a letter rallying for self-sufficiency within 18 months (Sea Change).
The change wasn’t linear, but 24 months later, in Q2’24 [review], all three segments, Garena, Shopee, and SeaMoney, returned to 20%+ growth and generated roughly $1.9B of annualized free cash flow as a group. Shopee was near breakeven, while Temu and Tiktok posed less threat than imagined due to their minor cost advantages and logistics inferiority.
Then, 28 months later, in Q3 ’24 [review], the group posted 30% growth, all segments achieved profitability, and free cash flow reached >$2B annualized. Better yet, Temu was really a non-issue, and management found a solution to counter TikTok in the Shopee Live and Shopee+Youtube partnership. Then, we had more evidence of a fourth revenue driver: advertising. Following Meli’s playbook, advertising can be as big as SeaMoney or the current Sea Limited market cap in 10 years, leveraging Garena’s over 628M quarterly active users, Shopee’s 300M+ monthly active, and SeaMoney’s 24M active loan users. Retail media is the new pink. Traditional advertising is dead.
FY2024 business update
As a reminder, I focus on the long-term story/execution of the business, not the quarterly Wall Street beat/miss quarterly records. So, my thesis tracker primarily checks how my picks build their value propositions, cope with adversity, and maintain/grow moats and market share.
