I'm Cautiously Optimistic About Sea Limited's Gaming Business. Here's Why.

Core Viewpoint - Garena remains a profitable segment within Sea Limited, despite being overshadowed by Shopee, and is expected to recover and grow in the coming quarters [1][4]. Performance Overview - Garena experienced a significant decline in performance post-COVID-19, with quarterly active users (QAU) dropping from a peak of 729 million in Q3 2021 to 529 million [2][3]. - By the end of 2023, QAU improved to 618 million in Q4 2024, with bookings increasing by 19% and adjusted EBITDA rising by 30% [3]. User Base and Profitability - Garena maintains a substantial user base with over 600 million quarterly users and more than 100 million daily active users, generating $1.2 billion in adjusted EBITDA in 2024 [4]. - The flagship title, Freefire, is responsible for over 100 million daily active users and saw a 28% increase in DAUs in 2024 [5][6]. Concentration Risk - Garena's reliance on Freefire poses a concentration risk, as user interest could wane, leading to potential revenue declines if no new titles are developed [6][7]. - The absence of a second blockbuster title raises concerns about Garena's game development capabilities compared to competitors like Tencent and Netease [7]. Growth Potential - Despite challenges, Garena is well-positioned for growth, particularly due to Freefire's strength and its expansion into new markets like Africa and India [8][9][10]. - The management is focusing on hyper-localization to enhance user engagement, with initiatives like in-game donations and local esports events [11]. Future Outlook - Garena anticipates double-digit growth in user base and bookings for 2025, indicating a positive short-term outlook [11].