Shares of Singapore-based internet company Sea Limited (SE) took off last year, rocketing higher by a massive 255%. Although the company is relatively unknown in the west, it is a wildly successful growth story in the ASEAN (Association of Southeast Asian Nations) region.
If you’re wondering if it is worth getting in after such a mercurial run up, then according to Goldman Sachs analyst Miang Chuen Koh, 2020 will provide further upside, though nowhere near the levels seen in 2019. The analyst added SE to Goldman’s Conviction List, while maintaining a Buy rating and raising the price target from $42.50 to $50.
Sea operates through three segments: Digital Entertainment, E-Commerce, and Digital Financial Services.
The digital entertainment segment is represented by Garena, a gaming and eSports platform which counts as the dominant platform in the region. Apart from licensing games from publishers such as Tencent and Activision Blizzard, Sea has also started publishing its own games. The first one to be released, Free Fire, has grossed more than $1 billion since launching two years ago. The move into producing the company’s own content is a smart one, as no royalties need to be paid out to third parties, therefore increasing profit margins. For The last 12 months the gaming platform’s year-over-year growth has increased by 86.7% with revenue almost doubling from $462 million to $863 million.
Although Garena is extremely successful and currently provides the bulk of cash flow, the sector that is exciting Koh the most is Sea’s ecommerce platform; Shopee is the top e-commerce platform in the Southeast Asian region and Koh believes it will take center stage in 2020. While Garena’s growth rate has been impressive, Shopee’s growth curve has been even mightier; Last quarter’s revenue grew year-over-year by 261%, and the platform is on its way to becoming a $1 billion business less than 5 years after being founded. The company’s ambitious growth plan, though, means Shopee is still a way off from profitability.
Nevertheless, Koh expects revenues and EBITDA to slightly beat consensus expectations in Sea’s 4Q19 results. The analyst noted, “Although the stock has more than tripled last year, we see further upside as we expect it to be a key beneﬁciary of the growing ASEAN/Taiwan internet space, supported by 1) strong content support from Tencent (30% shareholder); 2) a growing competitive position in the high-growth e-commerce market; and 3) ability to diversify/scale into the high-growth payments sector… We believe 2020 is the year for Sea’s e-commerce business to demonstrate its path to proﬁtability alongside high GMV growth.”
The Street is unanimous when it comes to the ASEAN platform’s future prospects. 5 Buy ratings add up to a Strong Buy consensus rating. At $45.92, though, the average price target presents only modest upside of 2.6%. Either the analysts have yet to update their models or they believe Se has soared high enough for now. (See Sea Limited stock analysis on TipRanks)