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3 Things I like about SEA Limited!

What is SEA Limited?

SEA Limited is Singapore’s largest internet company, currently valued at $128B. It owns Garena, Shopee and SEA Money. It has businesses in Southeast Asia (S.E.A), Latin America and rest of Asia.

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.

In this article I will share 3 things I like about SEA limited

 Garena’s profit margin

The digital entertainment segment, Garena has been a cash-cow for SEA. It is highly profitable, with 610 million quarterly active users. Whats more impressive is the growing paying users, an astounding 120% YoY increase!

Garena has been focused on monetising their users over time. They understand their customers well and have an addictive platform. As an avid gamer myself, I have spent a significant portion of my savings on the games.

It also owns one of the most popular game, Free Fire. It is the most downloaded mobile game globally in 2020, maintaining this leading position for a second consecutive year.

Another world renowned game is League of Legends (LoL), with a player count of 115 Million monthly players!

As mentioned, Garena really understands their customers and has cleverly came out with tournaments. The gaming industry blown up massively, garnering millions watching and playing the games. Today, gaming has even been recognised as a sport!

According to Dean Takahasi, Lead Writer for GamesBeat mentioned that “esports isn't just hype. It produces real-world impacts: The thrill of victory and the agony of defeat. And it is on its way to being a bigger business than traditional sports.”

SEA has been utilising Garena’s profit to reinvest into it's other growing business. It has plowed profits to develop Shoppee; it’s e-commerce division and SEA Money; it's Fin-Tech business.

SEA used to be purely in the gaming space, it's fin-tech services only started in 2014. The development of SEA Money partly stemmed from in-game digital payments. This complements it's gaming business and the e-commerce business was inaugurated subsequently.

Shopee expansion into Latin America

Shopee is an e-commerce platform, that enables people to purchase and sell their goods online. It is a mobile-centric marketplace that offers integrated payment and logistics infrastructure.

Until recently, SEA has stuck to serving it's home region, Southeast Asia. However, Shopee has made a bold move of expanding to Latin America, past several years.

It is customary for SEA to release games to countries it doesn’t have a physical foot print. This is to understand the marketplace and study its customers behaviour. Only then they set up their e-commerce operations. An excellent business strategy, to ensure effective marketing in the region/country.

Despite facing strong competitors such as Amazon and homegrown e-commerce business MercadoLibre. Shopee’s Latin America revenue has grown by 53 times since 2018.

This reflects the ability of Shopee to scale and capture huge amount of customers. With effective marketing and incentive scheme on the platform, I believe they will be able to continue growing it’s business.

With such enormous scale and volume, it will allow them to achieve economies of scale and reduce their costs over time. It will also allow them to develop better systems and past on costs savings to consumers.

As the countries in Latin America develop, there will be a greater addressable market. This is because with increasing internet users, there will be more people buying and selling online.

Hence, Latin America is an exciting region to expand into, with a huge population and increasing internet penetration.

https://data.worldbank.org/indicator/IT.NET.USER.ZS?locations=ZJ

SEA Money awarded digital bank license.

As we all know the financial industry is extremely lucrative, hence SEA is seeking to expand it's fin-tech business.

SEA Money has been awarded the digital bank license in Singapore. The entry of digital banks increase competition and poses a threat to incumbent firms.

Why is this so?

This is due to various factors such as :

1. Better user-oriented experience.

Before the advent of digital banks, consumers had very limited options when it came to choosing the ideal bank to meet their needs. (Monopolistic environment, only 3 Singapore banks)

This meant that banks do not have the incentives to improve their services since consumers will go to them regardless. This also meant that, banks are in a position of power and could cherry-pick their clients.

As a result, for many people, especially new entrepreneurs. It is hard for them to obtain loans.

The entry of digital banks will be assist the under-served markets in Singapore. Digital banks leverage on advancements of technology such as AI and big data. This allows digital banks to perform in-depth analysis and increase knowledge of their clients.

With this knowledge, digital banks can better personalise their platform, optimising it to best-satisfy the needs of clients. Hence, it provides superior user experiences

2. Higher interest rates

Without the need to set up brick and mortar branches, it significantly reduces operation costs. This enables digital banks to pass on these cost savings onto the customers. Which could potential translate to higher interest rates on savings.

In addition, digital banks may offer lower fees for financial products, as there are no middleman involved.

3. Convenience

With everything online, one need not travel down to a physical branch to open an account. One can send in an online application and the process is seamless and efficient.

User can access banking services 24/7 at their finger tips. Unlike traditional banks where there are opening hours and queues before you are attended.

The Southeast Asia region is underbanked and still heavily reliant on cash.

According to SEA’s statistics, in less developed countries such as Indonesia, Vietnam and Philippines, up to 74% of total consumer transaction are in cash.

In contrast, Singapore only 26.3% of total consumer transaction are in cash.

In addition, many countries in Southeast Asia have low credit card penetration, with an average of 18.6% in the region.

Hence, there is tremendous opportunity for digital banks to serve the unbanked population.

Closing thoughts

SEA has an established digital entertainment business, constantly generating huge profits. They also have a growing e-commerce and fin-tech platform that can potentially serve millions.

Hence, I am excited about SEA and I strongly believe in the management’s execution.

However, we should also note competition is tough with big names such as Amazon, Alibaba, MercadoLibre and Grab.

No one knows who will emerge victorious, hence it is best to diversify your investments.

WATCH VIDEO TO HEAR MY THOUGHT PROCESSES AND HOW I SEE THE MARKETS

Sources

https://data.worldbank.org/indicator/IT.NET.USER.ZS?locations=ZJ

https://www.ces.tech/Articles/2019/Is-Esports-a-Sport.aspx#:~:text=Yes%2C%20esports%20qualifies%20as%20a,impact%20that%20physical%20sports%20have.&text=And%20it%20is%20on%20its,bigger%20business%20than%20traditional%20sports.

https://leaguefeed.net/did-you-know-total-league-of-legends-player-count-updated/#:~:text=League%20of%20Legends%20player%20count%20has%20reached%20a%20total%20of,played%20games%20in%20the%20world.

https://cdn.sea.com/webmain/static/resource/seagroup/website/investornews/4Q2020/khiWHUxulNOmaecf/2021.03.02%20Sea%20Fourth%20Quarter%20and%20Full%20Year%202020%20Results%20Deck.pdf

https://www.fool.com/investing/2021/03/25/duplicatevideo-template/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article

https://www.straitstimes.com/business/banking/mas-awards-digital-full-bank-licences-to-grab-singtel-and-sea-ant-gets-digital

Last updated on May 10th, 2021 at 09:47 am

Kasper Toh

Enthusiastic Research Associate and Writer at The Astute Parent!

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