Sea Limited: Still Dirt Cheap Despite The Recent Rally

Core Viewpoint - Sea Limited (SE) has shown strong performance in FQ2'24, leading to a reiteration of the Buy rating due to robust revenue growth, improved guidance, and a favorable PEG ratio [1][2]. Financial Performance - SE reported revenues of $3.8 billion in FQ2'24, reflecting a 1.8% quarter-over-quarter (QoQ) increase and a 22.9% year-over-year (YoY) increase [2]. - Adjusted EBITDA was $448.5 million, up 11.8% QoQ but down 12% YoY [2]. - E-commerce gross orders reached 2.5 billion, showing a 3.8% QoQ decline but a 40.3% YoY increase [2]. Market Position - SE holds a leading e-commerce market share of 48% in Southeast Asia, with significant shares in key markets: Indonesia (40%), Thailand (49%), Vietnam (61%), and the Philippines (54%) [2]. - The company is experiencing growth in advertising revenues, contributing to a core marketplace revenue growth of $1.8 billion, which is up 5.8% QoQ and 41.4% YoY [2]. Growth Opportunities - Management has indicated "meaningful room" for expanding ad take rates, which are currently below industry averages in more mature markets [2]. - SE's R&D and marketing expenditures increased to $1.07 billion, up 37.8% YoY, aimed at enhancing ad bidding algorithms and improving returns on ad spend [2]. - The introduction of Live Ads has contributed to a 20% YoY growth in the advertising consumer base [2]. Future Guidance - SE expects Shopee to become adjusted EBITDA positive from Q3 2024 and has revised its full-year GMV growth guidance for 2024 to mid-20% [2]. - The consensus estimates project a CAGR of 16.1% for revenue and a CAGR of 77.6% for adjusted EPS through FY2026 [4]. Valuation Metrics - SE's forward non-GAAP P/E ratio is 41.70x, which appears high but is justified by a low PEG ratio of 0.53x, indicating a favorable valuation compared to peers [7][8]. - The projected adjusted EPS for FY2026 is $4.39, suggesting a potential doubling upside to a long-term price target of $183.00 [8].