What do you get when you cross a digital wallet company, video game publisher, and an e-commerce
marketplace? The answer? A company called Sea Limited, ticker symbol S E, and what's awesome
about this company is how it combines all three of those businesses to be much more than the sum
of their parts. So, in this episode, I want to highlight all the awesome things Sea does today,
some unique initiatives they're cooking up for the future, and the insane growth they showed during
their most recent earnings call. This channel is all about using data to find great investments,
so let's start there. Specifically, with ARK Invest's trading data around Sea.
Sea is currently ARK Invest's 22nd biggest position overall, with well over half a billion
dollars in it across their funds. It's the 20th biggest position in ARKW, their fund themed around
the next generation of internet applications, with $97 million dollars in it. Sea is the 4th biggest
position in ARKF, ARK Invest's fintech fund, with one hundred and seventy eight million dollars in
it. And Sea is the 25th biggest position in ARKK, ARK Invest's flagship innovation fund,
with over two hundred and ninety million dollars in it. I'm calling out each fund individually here
because I think Sea is in each fund for pretty different reasons, which I'll get into. Another
thing worth calling out is that Cathie Wood has sold about 24% percent of ARK Invest's shares in
Sea in the last month alone. Full disclosure, I do NOT currently have a position in Sea Limited
outside of my positions in ARKW and ARKF but I may open a position in the near future based on
this research. So, here's another instance where I don't agree with ARK Invest. My guess is Cathie
Wood is selling because Tencent, the Chinese media conglomerate, owns 25% percent of this company and
they have a strong working relationship on all fronts. Sea is actually headquartered
in Singapore, but also operate in Thailand, the Philippines, Taiwan, and several other countries
in the region. It's actually a holding company and S E A is an acronym for South East Asia.
They have three big business units today: Garena, their gaming brand, Shopee, their e-commerce arm,
and SeaMoney, their digital payment solutions. Let's start with Garena since it's their oldest
and still their biggest division today. Also, I'm a huge nerd who loves video games, so there's
that. Garena started back in 2009 2009 and is an online game publishing and social gaming platform.
Garena publishes some of the biggest triple-A titles for the Southeast Asia region,
including League of Legends, FIFA, and Call of Duty Mobile. Garena lets you keep a friends list,
form guilds with them, and see what achievements they've been earning
in games. Garena has an on-platform virtual currency called Garena Shells, which allow
users to purchase games on the Garena platform and buy in-game items, premium modifications,
and upgrades. So, it's a high-margin, cross-game, digitial currency. A few years ago, Garena
obtained the right to publish all Tencent games in Indonesia, Taiwan, Thailand, the Philippines,
Malaysia and Singapore. Tencent, by the way, is the biggest gaming company in the world.
Player Unknown Battlegrounds, or PUBG, came out in 2017 2017 and is still one of the top downloaded
games in the world. Garena is more than just a publisher; they also developed and published
Free Fire in 2017 2017, which is also still one of the top downloaded games in the world. In
quarter one of this year, it was actually the top grossing mobile battle royale game in the U.S.,
beating out PUBG and Call of Duty, both of which it is also the publisher for in Southeast Asia. My
point here is Garena's presence can be felt in the United States, not just overseas. That's because
one important part of Garena is their focus on localization. There's nothing worse for digital
media than grammatical errors, spelling errors, or imagery that doesn't jive with the audience.
Whatever country they enter, they're serious about understanding the local language and culture,
and getting the most out of their potential user base. This is why huge game developers
use Garena to publish their games in the region. We're going to see this
emphasis on localization in their other two business units, Shopee and SeaMoney, as well.
Shopee started in 2015 2015. Shopee is social-first digitally-native e-commerce system,
kind of comparable to Pinduoduo, ticker symbol P D D, another company ARK Invest used to have over
$200 million dollars in before the regulatory crackdowns in China. Shopee sets up social
structures of friends and lets users share their purchases and uses that additional data set of
social interactions to promote other products within groups. Another interesting feature of
Shopee is called the Shopee Guarantee, which holds the consumer's payment until they actually
accept delivery of their order. The seller doesn't get any money until the buyer gets their stuff.
My guess is this is because it's hard to find a package that gets lost or stolen in Southeast
Asia and probably hard to return an item if it's damaged or a counterfiet. The Shopee Guarantee
bypasses all of those challenges and protects the buyer. I think of Shopee as a smaller,
mobile-first Amazon for Southeast Asia. Again, with an emphasis on localization. A customer's
home screen is pretty dynamic, including hyper-localized campaigns, trending products,
and daily flash sales. Unlike Amazon though, these things also take into account the social
element from what your friends are buying, reviewing, and recommending on the platform.
I think this social-first mentality really sets Shopee apart from Amazon on the customer
side. Shopee has a wide variety of services and solutions integrated into the platform,
from performance-based advertising and direct sales, to helping with logistics,
fulfillment, and online store operations. I'm bringing this up now for two reasons:
to highlight all the ways Shopee makes money today but also to keep in mind for the crazy
thing they're working on in the future. I'll get back to that in a minute. The last thing I want
to point out about Shopee is that e-commerce was the largest and fastest growing market
sector in Southeast Asia in 2019 2019, so even before the pandemic. It was growing
at a staggering 61% percent per year in the 5 years up to 2019 2019 and is projected to grow
at a 39% percent compound annual growth rate from 2015 2015 through 2025 2025,
so this is a big market opportunity and Shopee is a frontrunner to capitalize on it. Today, Shopee
is the biggest marketplace in Southeast Asia and still growing at a pretty substantial rate.
In a previous episode, I talked about how digitally-native financial technology companies
are able to serve the unbanked while big banks can't afford to.
Big Banks have high customer acquisition costs because of the large amount of
physical buildings and infrastructure they need to maintain. Digital banks don't have
this problem. If you want to learn more about the massive investing opportunities in Fintech,
check out my episode on that. I'll link it in the top right corner of your screen right now
and in the description below as well. The reason I'm talking about that now is that 3 in 4 people
in Southeast Asia have insufficient access to financial services. Literally almost half of
them are completely unbanked. Sea's third business unit is called SeaMoney, which used to be called
AirPay until a couple years ago. Here's where things start coming together. AirPay started in
2014 to make it easier for underbanked customers who wanted to make game purchases on the Garena
platform. Sea built the solution themselves so they didn't have to pay commissions on
these transactions but now it's a serious piece of financial infrastructure. SeaMoney has e-wallets,
payment processing solutions, micro-lending and other digital financial services. The AirPay app
has a dynamic home screen that is populated with a wide variety of services including promotions for
Garena and Shopee, as well as other third-party providers. One of the big draws of Square,
ticker symbol S Q, is that it's a combination of two ecosystems - the merchant ecosystem with point
of sale solutions and the customer ecosystem with CashApp. Well, this is also true for Sea
with the combination of Shopee and SeaMoney. In fact, all three of Sea's business units
share a wide variety of resources, including data centers and data science capabilities,
so a win in one of these areas affects all 3 businesses. Again, you can see the importance
of localization across all three, because when a customer feels like an app is built just for them,
they tend to stick to it longer. When Sea Limited expands into a new country and learns to localize
for it, all three of these business units win. I also want to call out their deep relationship with
Tencent again here, who makes use of all three of Sea's business units, localization knowledge,
and infrastructure because this is a real benefit if you like Tencent and a real risk
if you're concerned about the continued Chinese regulatory crackdowns affecting these stocks.
The reason that doesn't worry me is because Sea is focused outside of China and business is booming.
They just reported earnings in the middle of August, so now's a perfect time to cover
their financials. Let's take a look at just how fast they're growing. Taken together, Sea
had a whopping 159% percent revenue growth year over year. DE stands for digital entertainment,
EC stands for e-commerce, and DFS stands for digital financial services. So that's Garena,
Shopee, and SeaMoney, respectively. If we look at their growth individually, Garena's revenue grew
by 167% 167% percent, Shopee's revenue grew by 161% 161% percent, and SeaMoney's revenue grew by
a whopping 658% 658% percent, from $11.7 million dollars last year to $88.7 million dollars today.
It's the very early innings for SeaMoney. This is all healthy growth, too. Garena's quarterly active
users are up 45% percent year over year and their quarterly paying users are up 85% percent year
over year. I saw a lot of concerns in the comments of my deep dives on Draftkings and Skillz focusing
on the issues of these gaming companies spending tons of money to either acquire new customers
or to incentivize their existing customers spend more. Garena clearly doesn't have this
issue because it's a distribution platform for some of the most popular games on the planet
including Free Fire, a game they developed themselves. Shopee is also growing in very healthy
ways. I was the head data analyst at a high-end e-commerce design firm for a little bit before I
took YouTube full time, so let me give you some insight here. The total number of orders placed
on Shopee is up by a whopping 127% 127% percent year over year while the gross merchandise volume,
or the total amount of dollars spent, is up by 88% percent. Why the big difference? This is
because Shopee is expanding into new markets and when you have a lot of new first-time shoppers,
they tend to make test purchases with low dollar amounts. As these first time customers turn into
repeat customers, their average order value will go up. The bigger the difference between
these two numbers, the more new customers Shopee probably acquired, which is a pretty bullish sign
of their future exponential growth in this business unit. And SeaMoney is seeing the
same type of growth as well - total payment volume and number of quarterly paying users
are both up triple digits from this time last year. As a result, Sea's leadership raised their
guidance by about 5% percent for the second half of the year for both Garena and Shopee.
The last thing I want to point out about this insane amount of growth is it's pretty standard
for Sea. I bumped into this tweet by David Marlin that shows their year over year total revenue and
gross profit growth over the last 5 quarters and it's frankly pretty mind-blowing. In my opinion,
these are the early innings for Sea, so I'm really surprised to see ARK Invest selling this stock at
all. And speaking of which, here's one last thing I think ARK Invest doesn't see in Sea, yet.
Between Garena's games and digital currency, Shopee's e-commerce solutions,
and SeaMoney's digital finance offerings, Sea could end up being a leader in the metaverse.
Garena is doing the same thing that games like Fortnite and Roblox do, where it hosts digital
events in online lobbies and lounges for people to hang out, listen to music, and play mini-games.
Also, earlier this year, Shopee rolled out the first virtual mall in coordination with IMM,
which is Singapore's largest physical mall. The idea behind virtual malls today
is that when physical malls are closed because of things like pandemics or natural disasters,
you can still experience the mall online. People can log in and see product presentations,
buy something, and have the mall ship it to their home. This even applies to food and drinks;
you can go to a virtual cafe, hang out, and have that meal delivered in real life. And of course,
SeaMoney can get hooked in to monetize online shopping in games, or online gaming in shops,
however Sea wants it to, for example if a mall wants to run an interactive virtual event to
incentivize real world purchases. I know the metaverse is probably a decade away still, but
these are the seeds being planted today with the blending of physical and virtual experiences and
Sea IS planting these seeds in each one of their offerings. Comment below or tweet me
at ticker symbol you with your thoughts on Sea Limited. Do you think they can continue
to dominate the quickly growing digital markets of Southeast Asia? Or do you think I'm missing
something and agree with Cathie Wood's decision to slowly sell ARK Invest's shares in the company?
My goal isn't to always assume I'm right, it's to become a better investor by sharing my research
and my ideas with you. Until next time, this is ticker symbol you.
My name is Alex, reminding you, that the best investment you can make, is in you.