Sea Limited: $100 Inbound

Core Viewpoint - Sea Limited has reported mixed Q2 earnings, resulting in a 12% increase in stock price, with a year-to-date increase of 89%, indicating a shift in investor sentiment towards bullishness on the company [2][29][30] Financial Performance - Sea reported record revenue of $3.8 billion in Q2, a 23% year-over-year increase, surpassing analyst estimates by nearly $90 million [4] - The company achieved a net income of $80 million in Q2, representing a 2% net margin, marking a return to profitability after three consecutive quarters of losses [12] - Adjusted EBITDA was $448 million, reflecting a 12% margin, with Garena achieving a 70% margin, while Shopee remained near breakeven [12][13] Segment Performance - Shopee generated $2.8 billion in revenue, up 34% year-over-year, driven by a gross merchandise value (GMV) of $23.3 billion, which increased by 29% year-over-year [7] - SeaMoney reported $519 million in revenue for Q2, a 21% year-over-year increase, with significant growth in its consumer and SME credit business [9][10] - Garena's bookings grew 21% year-over-year to $537 million, primarily due to the success of the Free Fire game, which had over 100 million daily active users [11] Market Position and Strategy - Sea maintains a strong competitive position in Southeast Asia, with Shopee holding a significant market share and superior service quality [7][8] - Management has raised the 2024 Shopee GMV growth guidance to the mid-20% range, indicating expectations for continued acceleration in growth [11] - The company is focusing on improving its advertising take rate, which is currently below industry averages, presenting an opportunity for increased monetization [17] Financial Health - Sea has a net cash position of approximately $1.8 billion, with operating cash flow of $618 million in Q2, representing a 16% margin [19][20] - Free cash flow for Q2 was $554 million, indicating strong financial resilience and the ability to capitalize on growth opportunities [19] Valuation - Despite recent stock price increases, Sea is still trading at low valuations of 3.0x revenue, significantly below pre-COVID levels [21][24] - Analysts are upgrading the stock with a price target of $82, while a conservative base-case price target of $119 suggests a potential upside of 54% from the current price of $77 [24][26]