I know some folks have discussed SE on this forum. They announced a beat on earnings, and a miss on revenue. And in an unusual move, they suspended projections on the e-commerce unit due to unpredictable volatility.
Down about 14% today.
They are not an SAAS company, but their revenues and gross profit have shown substantial growth over the past few years (as can be seen at the link).
Disclosure: I have a small position is SE.
I think it’s necessary for me to share my SE post from the SE board… which is not a positive view of the earnings report. More at the SE board by both me and the Ticker Guide:
My Original Thesis:
The company is focused on areas of the world (South Asia/South America) with rapid growth in both population and in wealth, providing ample opportunity for profit. The business is a three legged stool of gaming, e-commerce and fintech. Overall, gaming is a relatively risky leg due to the competitive global landscape… games go in and OUT of favor regularly and IMO don’t belong in a long term growth strategy. And, gaming is the biggest part of the company. This risk, IMO, is offset by rapidly growing e-commerce and fintech initiatives that are being funded by that risky gaming leg.
As expected, the gaming leg is going through a period of faltering. Unknown recovery time or even if it will recover because… “fashion”. I think it’ll come back. Again, timing unknown.
As expected, fintech is growing rapidly, but progress toward profitability remains fairly slow. I would expect fintech to be profitable in a few years however. As a standalone company, fintech might be worth owning now for that turnaround in profits. As part of SE, it’s attraction is partially masked by the other legs.
e-commerce. GMV growth is unimpressive, but actual company e-commerce revenue growth is fairly decent, up 51%. Margins are gradually improving, but not impressive. This will take a long time to be worthwhile. I note that both Amazon and Coupang have lackluster e-commerce performance right now, but Mercado Libre seems to be doing better. It suggests to me that e-commerce may not be a “wonderful” business in general.
An investment in Sea Limited is a whole lot better than a bank deposit, but thankfully, our choices are wider than that. Market cap is a little over $40B, 2022 revenue around 13B… so P/S a little over 3. Pretty modest market expectations! One company leg (the biggest) is struggling, the other two are not yet big enough to drive market beating returns. My GUESS is that SE is an OK investment, better than some at the Fool, but… I can clearly see (ie, not guessing) that it is not as good as some others.
I’ll sell my small SE position but keep it on my watch list. Perhaps there will be stronger signs of progress in a few quarters to stimulate my interest.
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.