Sea Limited

Summary

Sea Limited, together with its subsidiaries, engages in the digital entertainment, e-commerce, and digital financial service businesses in Southeast Asia, Latin America, rest of Asia, and internationally. It offers Garena digital entertainment platform for users to access mobile and PC online games, as well as eSports operations; and access to other entertainment content, including livestreaming of gameplay and social features, such as user chat and online forums. The company also operates Shopee e-commerce platform, a mobile-centric marketplace that provides integrated payment and logistics infrastructure and seller services. In addition, it offers SeaMoney digital financial services to individuals and businesses, including offline and online mobile wallet, and payment processing services, as well as other offerings across credit, insurtech, and digital bank services under the ShopeePay, SPayLater, SeaBank, and other digital financial services brands; and payment processing services for Shopee. The company was formerly known as Garena Interactive Holding Limited and changed its name to Sea Limited in April 2017. Sea Limited was incorporated in 2009 and is headquartered in Singapore.

Strategy and Outlook

History

Sea Limited was founded in 2009, initially as Garena, by Singaporean entrepreneur Forrest Li. The company was specialising in video game development, publishment and distribution. Through its platform, Garena+, it distributed major game titles across Taiwan and Southeast Asia including League of Legends, Heroes of Newerth, FIFA Online 4 and Call of Duty: Mobile. By 2014 it was valued at $1bn and was named the biggest internet company in Singapore. In 2017 the company acquired $550 million through a round of funding and rebranded itself as Sea Limited, maintaining the Garena digital entertainment branch, and additionally introducing the e-commerce and online financial services platforms, Shopee and SeaMoney. The same year, it went public starting at $15 per share,aiming to raise $1 bn . In 2020, Sea Limited acquired Singaporean football club Home United FC and rebranded it as Lion City Sailors FC, which made its debut in the upcoming Singaporean Premier League (SPL) season. In 2021, Sea Limited secured Southeast Asia's largest ever funding, raising $6bn by selling $3.5bn of equity and $2.5bn of convertible bond. In 2021, the Chinese company Tencent that owned 21.3% of Sea Limited's shares, announced a divesting of almost 15 million class A shares to raise a $3bn fund for other investments and activities. In 2023, a variety of factors including macroeconomic instability, increased interest rates and failed investments such as FTX, led Sea Limited to disband its investment arm.

Mission Statement

As mentioned in Sea Limited's website, the mission of the company is to "to better the lives of consumers and small businesses with technology". The company highlights its commitment to driving innovation, growth, and positive impact in the markets it operates. Moreover Sea Limited strives to empower individuals and communities across Southeast Asia and beyond, by aiming on a culture of continuous innovation, fostering meaningful connections, and enhancing financial inclusion.

Marketing and growth strategy

Product diversification and ecosystem

Sea Limited focuses on product diversification, which enables the company to target a wide range of consumer groups, and attract an extensive amount of total customers. At the same time, the company has interconnected its platforms in a way that introduces customers of one sector to the others, integrating them into the Sea ecosystem. A great example of that strategy is the Free Fire, Garena's extremely popular mobile game, and Shopee's interconnection, as users of Free Fire are offered promotions and discounts for Shopee through the game. This proved successful, with Shopee increasing its quarterly revenue by $200 million in the second quarter of 2021.

Investments and game development

Sea Limited was built in the success and currently relying on its digital entertainment brand, Garena. The company was the first to acquire licenses to distribute third-party, extremely popular video games to a massive geographical region. They were therefore much anticipated and Garena automatically established a monopoly in the market. However, the company's investments didn't only focus on distributing third-party games, as Garena has published many original games such as Free Fire, which was the most downloaded mobile game worldwide in 2019 and 2020 and continues to be a major revenue stream.

Another notable investment was in subsidies to local express delivery services that led to rapid development of the industry. Until Shopee's emergence in 2017, delivery in Southeast Asia was very expensive and slow, ranging from a week for e-commerce purchases to a year for international parcels. With this investment, Shopee managed to provide delivery of 1-3 days and even offered free shipping, attracting an extensive amount of customers and led users to order via the platform even if they had originally seen the product advertised in other e-commerce companies.

Innovation

On top of that, the innovation of the company is notable, as it adapted the platform to regions it is operating and included exclusive features. It adjusted the prices for in-game purchases depending on the country, introduced its own platform currency "Garena Shells" and created game characters that represent the cultures of the countries it is targeting.

Shopee has also shown a great deal of innovation, by offering the shopping security feature "Shopee Guarantee", that freezes the payment to the seller until the buyer has confirmed they received the order in good condition. The importance of this feature is highlighted by a 14.7% increase in customer complaints for e-commerce purchases that was reported by the Consumers Association of Singapore (CASE), differentiating Shopee from other e-commerce giants, such as AliExpress and Lazada.

Sector and Income Breakdown

Subsidiaries

Sea Limited, as mentioned, owns several subsidiaries including the digital entertainment company Garena, the e-commerce platform Shopee and the digital financial services company SeaMoney, therefore operating in 3 different markets.

Corporate Governance

The Team

Forrest Li - Chairman and Group CEO

Forrest Li has been the founder, chairman, and group CEO since Sea Limited's establishment in 2009. He's a board member of the Singapore Economic Development Board, an independent non-executive director of Shangri-La Asia Limited, and part of the National University of Singapore's board of trustees. He's also on Stanford University’s Graduate School of Business advisory council. Li holds an M.B.A. from Stanford University and a bachelor’s degree in Engineering from Shanghai Jiaotong University.

Gang Ye - Group Chief Operating Officer

Gang Ye is Sea Limited's co-founder and has been on theboard since March 2010. He's been the COO since January 2017, having previously held the role of CTO from March 2010 to December 2016. Prior, he worked at Wilmar International and Singapore's Economic Development Board. Ye holds B.S. degrees in Computer Science and Economics from Carnegie Mellon University.

Chris Feng - Group President

Chris Feng became part of Sea Limited in March 2014 and has been Group President since January 2022. Earlier, he was CEO of Shopee starting from July 2015 and held the position of CEO of SeaMoney from March 2020. He was also previously the head of mobile business. Feng gained experience at Rocket Internet SE, managing Zalora and Lazada, as well as at McKinsey & Company. He holds a first-class honours bachelor's degree in Computer Science from the National University of Singapore.

Tony Hou - Group Chief Financial Officer

Tony Hou joined Sea Limited in September 2010 and has been the group CFO since January 2013. Before this, he was the company's financial controller. He brought experience from Ernst & Young, where he worked from October 2000 to September 2010 in China and the U.S. Hou is a non-practicing U.S. Certified Public Accountant and a non-practicing member of the Chinese Institute of Certified Public Accountants. He holds an M.B.A. from the University of Chicago’s Booth School of Business and a bachelor’s degree in Accounting from Fudan University.

Terry Zhao - President, Garena

Terry Zhao has been part of Sea Limited since its start in 2009 and has been Garena's President since November 2018. Before this, he held various senior positions in our digital entertainment business across key markets. Zhao holds a first-class honors bachelor's degree in Computer Engineering from Nanyang Technological University.

Yanjun Wang - Group Chief Corporate Officer

Yanjun Wang holds the roles of group chief corporate officer, group general counsel, and company secretary. Since May 2019, she has been group chief corporate officer, since November 2017, the company secretary, and since March 2014, the group general counsel. Before joining Sea Limited, she practiced law at Skadden, Arps, Slate, Meagher & Flom LLP and Kirkland & Ellis. Wang is a qualified lawyer in the State of New York and holds a J.D. degree from Harvard Law School and a B.A. degree in Economics from Harvard University.

David Chen - Chief Product Officer, Shopee

David Chen, also a co-founder, currently holds the role of Shopee's chief product officer. He was previously group chief of staff from January 2017 to December 2019, and prior to that, group chief operating officer from May 2009 to December 2016. Chen also has a background at PSA Corporation Limited. He graduated with a first-class honors bachelor’s degree in Computer Engineering from the National University of Singapore.

Ownership Structure

Sea Limited is currently distributed in 566,758,842 shares, valued at $36.85 as of Aug 23, 2023. The majority of shares is owned by institutions, and a complete breakdown is shown in the figure below.

Sea Limited's share ownership distribution

The top 25 shareholders, as listed below, currently own 67.93% of Sea Limited. The most notable shareholder is Tencent, holding 18.4% of the total shares, a value that was 21.3% until 2021, when Tencent divested $3bn worth of shares to raise funds for other projects.

Ownership	Name	Shares	Current Value
18.4%	Tencent Holdings Limited	104,264,743	US$3.8b
8.53%	Xiaodong Li	48,336,624	US$1.8b
7.83%	Capital Research and Management Company	44,386,483	US$1.6b
5.29%	Gang Ye	29,968,937	US$1.1b
3.85%	Baillie Gifford & Co.	21,795,993	US$803.2m
2.91%	BlackRock, Inc.	16,515,843	US$608.6m
2.75%	Sands Capital Management, LLC	15,576,947	US$574.0m
2.75%	FMR LLC	15,573,573	US$573.9m
1.82%	T. Rowe Price Group, Inc.	10,307,631	US$379.8m
1.8%	Kerry Group Limited	10,208,127	US$376.2m
1.46%	Chen Jingye	8,289,101	US$305.5m
1.12%	State Street Global Advisors, Inc.	6,373,278	US$234.9m
1.03%	Aspex Management (HK) Limited	5,846,284	US$215.4m
0.9%	Goldman Sachs Group, Investment Banking and Securities Investments	5,101,620	US$188.0m
0.88%	Charles-Lim Capital Ltd	5,000,000	US$184.3m
0.81%	Norges Bank Investment Management	4,562,488	US$168.1m
0.71%	Artisan Partners Limited Partnership	4,040,204	US$148.9m
0.7%	JP Morgan Asset Management	3,972,940	US$146.4m
0.69%	Ward Ferry Management (BVI) Limited	3,904,986	US$143.9m
0.68%	Kora Management LP	3,854,500	US$142.0m
0.63%	Temasek Holdings (Private) Limited	3,564,826	US$131.4m
0.61%	Teachers Insurance and Annuity Association-College Retirement Equities Fund	3,456,932	US$127.4m
0.6%	Eastspring Investments (Singapore) Limited	3,374,004	US$124.3m
0.59%	Tiger Global Management, LLC	3,371,611	US$124.2m
0.59%	Marshall Wace LLP	3,338,448	US$123.0m

Market

Total Addressable Market

Sea Limited operates digital entertainment, e-commerce, and digital financial services businesses primarily in Southeast Asia. Its main sector is communication services and within that sector it operates in the interactive home entertainment industry. Its primary markets include Indonesia, Thailand, Vietnam, the Philippines, Malaysia, and Singapore.

• Revenue in the Home Entertainment segment reached US$176m in 2022.
• Revenue is expected to show an annual growth rate (CAGR 2022-2027) of 7.71%, resulting in a projected market volume of US$276m by 2027.

Key Market Drivers and opportunities

The main market drivers include GDP/capita, level of digitization, and consumer attitudes toward apps.

Moreover non-financial market drivers include the following:

• Artificial intelligence and machine learning presents vast opportunities for media and entertainment firms to understand what content, shows, movies and music consumers want.

• The upcoming mass 5G rollout in countries such as Singapore and Malaysia, will allow firms to expect more entertainment and gaming innovations such as virtual and augmented reality will be introduced to the market. As such, the demand for hyper-personalised content and immersive entertainment will continue to increase.

• With the help of platforms and data analytics technologies, companies can scale their use of data while complying with consumer privacy regulations and reducing their costs. Through data-driven decision-making, companies within the media and entertainment sector can deliver personalised content and experiences, retain customers, grow their business, and build a data-driven future.

• This success is fuelled by substantial financial backing from central governments. For example, China plans to build a USD 30 billion fund to ensure they are a world leader in AI by 2030. At the same time, India is making headway with mobile wallets and Progressive Web Applications to streamline in-app experiences (especially for places with slow mobile broadband). Such holistic developments in the infrastructure, which acts as a technical backbone to the market will result in growth opportunities and improved customer retention.

Key Market Challenges and Risks

Some of the main challenges and risks that can affect Sea Limited, as mentioned in their Q2-2023 earnings report include the following.

• Expected changes or guidance in its revenue, costs, or expenditures.
• Ability to continue sourcing, developing, and offering new and attractive online games.
• Ability to offer other engaging digital entertainment content.
• Expected growth of its digital entertainment, e-commerce, and digital financial services businesses.
• Expectations regarding growth in its user base, level of engagement, and monetization.
• Ability to continue developing new technologies and upgrading existing technologies.
• Expectations regarding the use of proceeds from financing activities, including follow-on equity offerings and convertible notes offerings.
• Growth and trends of its markets and competition in its industries.
• Government policies and regulations relating to its industries, including effects of government orders or actions on its businesses.
• General economic, political, social, and business conditions in its markets.
• Impact of widespread health developments, including the COVID-19 pandemic, and responses thereto (such as voluntary and mandatory quarantines, shut downs, restrictions on travel and activities, and availability of effective vaccines or treatments).
• Impact of economies reopening further in response to the COVID-19 pandemic.

Financials

Historic

All periods

Year	Year end date	Income Statement		Balance Sheet
		Revenues($thousands)	Net losses ($thousands)	Total Assets($million)
22	31/12/2018	826,968	-961,241	N/A
23	31/12/2019	2,175,378	-1,462,799	5,224,169
24	31/12/2020	4,375,664	-1,618,056	10,455,671
25	31/12/2021	9,955,190	-2,046,759	18,756,025
26	31/12/2022	12,449,705	-1,651,421	17,002,796

Breakdown of Sea Limited's operating expenses for 2022

Forward

Financial Forecasts

Year	Revenue ($thousands)			Gross Profit ($thousands)
	Forecast	Lower-bound value	Upper-bound value	Forecast	Lower-bound value	Upper-bound value
2024	15,744,835	13,081,969	18,407,702	6,489,624	5,187,205	7,792,042
2025	18,910,452	16,164,985	21,655,918	7,891,384	6,434,652	9,348,115
2026	22,076,068	19,249,784	24,902,353	9,293,143	7,696,416	10,889,871
2027	25,241,685	22,336,213	28,147,156	10,694,903	8,969,007	12,420,799
2028	28,407,301	25,424,142	31,390,460	12,096,663	10,250,152	13,943,173

Gross profit historical (2018-2022) and forecasted (2023-2027) values for Sea Limited

Revenue historical (2018-2022) and forecasted (2023-2027) values for Sea Limited

Revenues and gross profit are steeply increasing, but after applying operating expenses, the company reports an increasing loss every year. This is attributed to disproportionate increase of operating expenses year by year, which outweigh the increase in revenues.

Sea Limited's great investment in subsidies to local express delivery companies were one of the major operational expenses that keep Shopee, and by extension the entire company from being profitable.

Appendix

Income Statement

Year end date	31/12/2022	31/12/2021	31/12/2020	31/12/2019	31/12/2018
Total Revenue ($million)	12,449,705	9,955,190	4,375,664	2,175,378	826,968
Cost of Revenue ($million)	-7,264,428	-6,059,455	-3,026,759	-1,570,458	-812,210
Gross Profit ($million)	5,185,277	3,895,735	1,348,905	604,920	14,758
Operating Income/Expenses
Research and Development ($million)	-1,376,501	-831,703	-353,785	-156,634	-67,529
General and Admin. ($million)	-1,437,612	-987,868	-599,706	-385,865	-240,781
Sales and marketing ($million)	-3,269,223	-3,829,743	-1,830,875	-969,543	-705,015
Other Operating Income ($million)	279,184	287,946	189,645	15,890	9,799
Provision for credit losses ($million)	-513,690	-117,427	-57,509	--	--
Goodwill ($million)	-354,943	--	--	--	--
Total operating expenses ($million)	-6,672,785	-5,478,795	-2,652,230	-1,496,152	-1,003,526
Operating Loss ($million)	-1,487,508	-1,583,060	-1,303,325	-891,232	-988,768
Interest income/expense and others* ($million)	-13,025	-132,124	-179,913	-477,387	34,888
Earnings/Losses Before Tax ($million)	-1,500,533	-1,715,184	-1,483,238	-1,368,619	-953,880
Income Tax ($million)	-168,395	-332,865	-141,640	-85,864	-4,088
Share of results of equity investees ($million)	11,156	5,019	721	-3,239	3,066
Net loss ($million)	-1,657,772	-2,043,030	-1,624,157	-1,457,722	-961,034
Net income/loss attributable to non-controlling interests ($million)	6,351	-3,729	6,101	-5,077	-207
Net Loss Applicable to Common Shareholders ($million)	-1,651,421	-2,046,759	-1,618,056	-1,462,799	-961,241

Cash Flow Statement

Year end date	31/12/2022	31/12/2021	31/12/2020	31/12/2019	31/12/2018
Net Income ($ thousands)	-1,657,772	-2,043,030	-1,624,157	-1,457,722	-961,034
Cash Flows-Operating Activities
Depreciation ($ thousands)	428,344	279,032	169,067	116,783	54,902
Other Adjustments ($thousands)*	1,543,364	696,427	484,793	628,741	38,100
Operating cash flows before changes in working capital ($ thousands)	313,936	-1,067,571	-970,297	-712,198	-868,032
Changes in Operating Activities
Accounts Receivable ($ thousands)	98,981	-37,066	-174,767	-86,546	-38,524
Accounts Payable ($ thousands)	43,311	99,639	50,860	31,381	29,733
Changes in Inventories ($ thousands)	1,441	-62,735	-38,528	11,762	-28,465
Deferred revenue ($ thousands)	-1,093,229	314,048	1,162,399	637,214	204,161
Lease Liabilities ($ thousands)	385,911	429,366	46,352	70,901	--
Other Operating Activities ($ thousands) *	-492,107	-534,603	-490,448	-594,847	-662,125
Net Cash Flow-Operating ($ thousands)	-1,055,692	208,649	555,868	69,865	-495,220
Cash Flows-Investing Activities
Capital Expenditures ($ thousands)	-924,178	-772,177	-336,274	-239,844	-177,343
Investments($ thousands)	-2,630,842	-2,505,358	-219,548	-118,462	-69,641
Other Investing Activities ($ thousands)	1,126,211	-489,738	-331,090	-4,913	22,456
Net Cash Flows-Investing ($ thousands)	-2,428,809	-3,767,273	-886,912	-363,219	-224,528
Cash Flows-Financing Activities
Proceeds from issuance of convertible notes ($ thousands)	--	2,846,250	1,141,362	1,138,500	564,938
Proceeds from issuance of shares ($ thousands)	50,211	4,050,055	2,970,248	1,538,802	4,574
Net Borrowings ($ thousands)	-68238	114035	-30609	-2003	-643
Other Financing Activities ($ thousands)	418,283	391,249	-347,869	-95,704	-22,241
Net Cash Flows-Financing ($ thousands)	400,256	7,401,589	3,733,132	2,579,595	546,628
Effect of Exchange Rate ($million)	-143,511	-58,218	80,727	25,025	-12,546
Net Increase/Decrease in Cash Flow ($ thousands)	-3,227,756	3,784,747	3,482,815	2,311,266	-185,666
Cash flow at beginning of year ($ thousands)	10838140	7053393	3570578	1259312	1,444,978
Cash flow at end of year ($ thousands)	7,610,384	10,838,140	7,053,393	3,570,578	1,259,312

Balance Sheet

Year end date	31/12/2022	31/12/2021	31/12/2020	31/12/2019
Current Assets
Cash and Cash Equivalents ($thousands)	6,029,859	9,247,762	6,166,880	3,118,988
Short-Term Investments ($thousands)	864,258	911,281	126,099	102,324
Net Receivables ($thousands)	2322581	1,889,262	648,936	187,035
Inventory ($thousands)	109,668	117,499	64,219	26,932
Other Current Assets ($thousands)	3,361,646	2,969,593	1,932,870	974,860
Total Current Assets ($thousands)	12,688,012	15,135,397	8,939,004	4,410,139
Long-Term Assets
Long-Term Investments ($thousands)	1,253,593	1,052,861	190,482	113,797
Fixed Assets ($thousands)	1,387,895	1,029,963	386,401	318,620
Goodwill ($thousands)	230,208	539,624	216,278	30,952
Intangible Assets ($thousands)	65,019	52,517	39,773	15,020
Other Assets ($thousands)	1,132,843	841,908	583,829	265,301
Deferred Asset Charges ($thousands)	245,226	103,755	99,904	70,340
Total Long-Term Assets ($thousands)	4,314,784	3,620,628	1,516,667	814,030
Total Assets ($thousands)	17,002,796	18,756,025	10,455,671	5,224,169
Current Liabilities
Accounts Payable ($thousands)	258,648	213,580	121,637	69,370
Short-Term Debt / Current Portion of Long-Term Debt ($thousands)	88,410	100,000	--	1,258
Accrued expenses and other payables ($thousands)	1,396,613	1,519,938	2,033,461	980,805
Escrow payables and advances from customers($thousands)	1,862,325	1,789,973	161,379	65,062
Deferred revenue ($thousands)	1,535,083	2,644,463	2,150,165	1,097,868
Other Current Liabilities ($thousands)	1,794,613	908,482	169,425	148,003
Total Current Liabilities ($thousands)	6,935,692	7,176,436	4,636,067	2,362,366
Long-term Liabilities
Accrued expenses and other payables ($thousands)	87,072	76,234	36,159	25,802
Operating Lease Liabilities ($thousands)	756,818	491,313	177,870	144,000
Other Liabilities ($thousands)	107	107	107	1,334
Deferred Liability Charges ($thousands)	73,533	111,818	344,823	161,683
Convertible notes ($thousands)	3,338,750	3,475,708	1,840,406	1,356,332
Total long-term liabilities ($thousands)	4,256,280	4,155,180	2,399,365	1,689,151
Total Liabilities ($thousands)	11,191,972	11,331,616	7,035,432	4,051,517
Stock Holders Equity
Common Stocks ($thousands)	281	278	225	230
Capital Surplus ($thousands)	14,559,690	14,622,292	8,526,571	4,687,284
Statutory reserves ($thousands)	12,490	6,144	2,363	46
Accumulated deficit ($thousands)	-8,745,541	-7,201,498	-5,150,958	-3,530,585
Other Equity ($thousands)	-16,096	-2,807	42,038	15,677
Total Equity ($thousands)	5,810,824	7,424,409	3,420,239	1,172,652
Total Liabilities & Equity ($thousands)	17,002,796	18,756,025	10,455,671	5,224,169

Financial Ratios

Year End Date	2022	2021	2020	2019	2018
Current Ratio	183%	211%	193%	187%	N/A
Quick Ratio	120%	155%	147%	140%	N/A
Cash Ratio	87%	129%	133%	132%	N/A
Gross Margin	42%	39%	31%	28%	2%
Operating Margin	-12%	-16%	-30%	-41%	-120%
Pre-Tax Margin	-12%	-17%	-34%	-63%	-115%
Profit Margin	-13%	-21%	-37%	-67%	-116%
Pre-Tax ROE	-100%	-45%	-78%	-382%	N/A
After Tax ROE	-111%	-54%	-85%	-406%	N/A