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sea limited (NYSE:SE) They are experiencing struggles that their peers in other parts of the world have avoided. This Singapore-based company Amazon Southeast Asian markets grew strongly even though the e-commerce conglomerate missed out on the recovery that benefited Amazon and its Latin American peers mercadolibre.
Unlike these competitors, Sea Limited operates its primary business, the gaming division. The question for long-term investors is whether these hardships will make a difference in five years.
Sea Limited’s two divisions continue to thrive
Wherever Sea Limited is in five years’ time, it will start from a relatively strong position. The company has long been Southeast Asia’s largest e-commerce company. The company is increasing its competitiveness in this sector by expanding its logistics network and opening five new sorting centers and 385 new first-mile and last-mile sorting centers in the region.
Additionally, the company announced in its fourth quarter 2023 earnings call that it had reduced contribution margin losses by more than 90% in Brazil, its largest non-Asian market. This news is encouraging as it shows that the division, called Shopee, can compete in non-core markets as well, and foreshadows its position in the next five years.
In 2023, Shopee’s gross merchandise value increased by 29% annually, and the number of orders increased by 46% over the same period. Additionally, since the company operates in developing countries, earnings are likely to continue to improve as Southeast Asia’s economic growth continues.
In the digital financial services sector, SeaMoney, the small and medium enterprise (SME) credit business, led the way by increasing lending volumes to small and medium-sized enterprises (SMEs).
It also reported growth in banking and insurance, making SeaMoney the company’s fastest growing division. Considering most of his SeaMoney’s markets in Southeast Asia are developing, it is likely to continue on this path for years to come.
Garena’s performance shows significant uncertainty
In fact, Garena’s gaming department continues to struggle. Much of its success continues to be found in: free firewhich is also the most downloaded mobile game in the world.
However, Garena’s other games are unremarkable.And even if free fire, the much-anticipated re-launch in India has yet to take place.Banned by India, a country with a population of 1.4 billion. free fire The company has since been working with regulators to return to the market.Restoration of access to India should provide a boost. free fire However, it is difficult to predict Garena’s future status due to the lack of success in other games.
C’s finances
Garena also poses the biggest challenge to Sea’s future. With the rise of Shopee and SeaMoney, these segments grew revenue by 24% and 44%, respectively, in 2023. Still, Garena’s 2023 revenue fell 44% over the period, resulting in overall revenue increasing just 5% to $13.1 billion.
Fortunately, operating expenses declined during that time, and Cee ended up posting a net profit of $163 million, its first annual profit. This lack of dependence on external funding means Sea has more options for the future.
Additionally, Sea Limited’s stock price has increased over 130% over the past five years amid bull and bear markets. The good news for current investors is that this increase came without any annual gains until the end. Sea investors could be well served over the next five years, as the company’s stock has experienced an astounding 2,100% rise during the bull market.
Another factor that works in the buyer’s favor is valuation. Measured by the price-to-sales (P/S) ratio, investors can buy the stock for just over twice its earnings. And despite the new profits, the stock trades at just 47 times forward earnings. If Garena improves and other sectors remain the same, this valuation could be beneficial for investors.
Sea Limited 5 years later
Whatever can happen over the next five years, current trends bode well for the stock. In Southeast Asia, Sea Limited strengthens its competitiveness in its region and leads in e-commerce, and the outlook for Brazil continues to improve. Additionally, SeaMoney continues to be the fastest growing segment and is likely to continue to strengthen the company.
Indeed, Garena’s significant revenue decline and dependence on free fire It becomes difficult to predict the future of that segment. Nevertheless, if current trends continue, Garena’s performance could become less important for the entertainment stock, allowing Sea’s other two divisions to drive the company’s growth. Such a trend should drive the stock price higher over time.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Will Healy has positions at MercadoLibre and Sea Limited. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Sea Limited. The Motley Fool has a disclosure policy.
What will Sea Limited’s inventory be like in five years? Originally published by The Motley Fool
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