Sea Limited FY2024 Earnings
Analysis of Earnings and Potential Catalysts Investors can Look out for
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Source: Sea Media Library
Introduction
Regular readers on Substack must have seen the buzz around Sea’s 4Q-24 earnings where the company outperformed across many metrics. Not only were revenues up 28.8% YoY, GMV reached $100 billion and the E-commerce segment was profitable on an Adjusted EBITDA basis for the first time on a full year basis. This highlights an inflection point in the business which was burning through cash not too long ago after coming out of COVID and was struggling to convince investors about its chances of achieving profitability. 4Q-24’s earnings provide a lot of interesting insights into the business and provide potential catalyst points investors can take advantage of. In this writeup, I will go through the earnings and then delve into commentary from the earnings call and notes from the documents to analyse points relevant for investors interested in Sea limited.
4Q-2024 Sales Performance
Total GAAP revenue up 36.9% YoY
E-commerce
Gross orders grew by 20.1% YoY compared to Q4 to 3 billion
GMV was $28.6 billion for the quarter, increasing by 23.5% YoY
GAAP revenue was $3.7 billion, up 41.3% YoY
Core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues was up 49.8% YoY to US $2.4 billion
Value added services revenue, mainly consisting of revenues related to logistics services, was up 20.8% YoY to US$794.8 million
Adjusted EBITDA was US$152.2 million
Both Asia and other markets recorded positive adjusted EBITDA for q4
Digital financial services
GAAP revenue was $733.2 million, up 55.2% YoY
Adjusted EBITDA was $211 million, up 42.1% YoY
Digital financial services revenue and operating income are primarily attributed to the consumer and SME credit business
As of December 31, 2024, consumer and SME loans principal outstanding was $5.1 billion, up 63.9% YoY
This consists of $4.2 billion on book and $0.9 billion off book loans principal outstanding
Non-performing loans past due by more than 90 days as a % of consumer and SME loans principal outstanding was 1.2%, stable QoQ
Digital entertainment
Bookings were $543.2 million, up 19% YoY
Quarterly active users were 618 million, up 16.9% YoY
Quarterly paying users were 50.4 million, up 27.2% YoY
Payer user ratio was 8.2% as compared to 7.5% for 4Q-23
Average bookings per user were 0.88 as compared to 0.86 for 4Q-23
FY-24 Sales Performance Earnings
Total GAAP revenue was $16.8 billion, up 28.8% YoY
Total gross profit was $7.2 billion, up 23.5% YoY
Total adjusted EBITDA was $2.3 billion as compared to $1.2 billion for FY23
E-commerce
Gross orders totalled 10.9 billion, up 33% YoY
GMV was up $100.5 billion, up 28% YoY
GAAP revenue was $12.4 billion up 37.9% YoY
GAAP revenue included 10.9 billion of GAAP marketplace revenue, up 37.8% YoY
Adjusted EBITDA was $155.8 million as compared to US (213.8) million for FY23
Digital Financial services
GAAP revenue was US$2.4 billion, up 34.6% YoY
Adjusted EBITDA was $712.2 million, up 29.5% YoY
Digital Entertainment
Bookings were 2.1 billion, up 18.7% YoY
GAAP revenue was 1.9 billion as compared to $2.2 billion for FY23
Adjusted EBITDA was $1.2 billion, up 30.2% YoY
Adjusted EBITDA represented 55.8% of bookings for FY24 as compared to 50.9% for FY23
Cost Breakdown for 4Q-2024 and FY-2024
4Q-2024 Digital entertainment
Cost of revenue was $159.1 million for Q4
Flat YoY
E-commerce and other services
Costs of revenue for e-commerce and other services segment combined was $2.1 bilion in Q4 compared to $1.6 billion in Q4-23, primarily driven by an increase in logistics costs as orders volume grew
4Q-2024 Cost of goods sold
Increased 42% to $439.3 million in 4Q23 from 309.3 million in Q423
4Q-2024 Sales and marketing expenses
Total sales and marketing expenses increased by 8.5% in 4Q from $967.4 million in 4Q-23
E-commerce sales and marketing expense declined by 2.9%
Digital Financial services marketing spend increased by 133.1%
Digital entertainment increased by 48.8%
FY-2024 Digital entertainment Cost of Revenue
Decreased by 9.2% to $610.6 million from $672.5 million in FY23
FY2024 E-commerce and other services Cost of Revenue
Cost of revenue for e-commerce and other services segment combined increased by 36.6% to $7.6 billion for FY24 from $5 billion in FY23 primarily driven by an increase in logistics costs as orders volume grew
FY-2024 Cost of goods sold
Increased 41.2% to $1.5 billion for FY24 from $1 billion for FY23
FY-2024 Sales and marketing expenses
Total sales and marketing expenses increased by 25% to $3.5 billion for FY24 from $2.8 billion for FY23
E-Commerce spend grew by 18.1%
Digital financial services spend grew by 156.2% to $298 million
Digital Entertainment spend increased by 12.3%
E-Commerce/Shopee Segment Catalysts
Brazil was profitable on an Adjusted EBITDA basis for another quarter. Average monthly active buyers grew by more than 40% in 4Q-24 and 3Q-24. If this continues to grow, we can expect profits to grow at rates above 30%. This can come from improved unit economics in Brazil with average transaction values and basket sizes growing with number of orders also growing. Through growth in the number of orders, scalability will kick in with the region following a similar trajectory to mature markets for SEA like Southeast Asia. This will result in Brazil taking up a higher proportion of sales and profits which will inturn drive up the growth rate for both metrics. Margins can expand with growth in Brazil, again providing a potential surprise to the market in the coming quarters. The effect can be realised in the next few quarters simply because of the stage of where the Brazil business is currently at.
Another catalyst for the share price is monetisation in the E-commerce business. For the past few quarters, we have seen a rationalisation of sorts with commission take rates increasing across the industry in Southeast Asia. In 2Q-2024, sellers who paid for ads grew by more than 20% YoY. This slowed down to 10% in 3Q-2024 and is likely to have grown by the same rate in 4Q-2024 as Ad revenue rose by more than 50% YoY. The ad take rate also improved by more than 50 bps in the quarter. This growth can be sustained as the e-commerce market is still growing in Southeast Asia and Brazil. As sellers become versed with the platform, they are likely to use ads to drive sales. As a result ad spending is likely to increase as regular sellers become more sophistication in their marketing. Additionally, new sellers are likely to increase engagement as they try to boost competitiveness. If Ad revenue continues to grow by 50% in the coming quarters, we can expect profitability to improve on a relative basis as Ads have higher margins than deliveries.
Seamoney Catalysts
Management gave interesting commentary about the credit model the company operates in new markets. As the Shopee user base grows, Sea limited tries to scale rapidly at low costs while maintaining a stable risk profile. First digital payments are offered which offer payment services such as money transfers, utility bill payments, and other payments both merchants and consumers may need to make for consumption and sales. Once there are significant transaction volumes in the digital payments offerings in a market, credit services are then provided.
The credit business stands on 3 pillars: Shopee SPayLater loans and Off Shopee cash and off Shopee SPayLater loans. In all markets, Shopee SPayLater purchases are the first and very natural touch point it has with most credit users. The pay later option allows customers to build an initial track record and gives the basis for a credit model for the market. Once a model is built using data from the Buy Now Pay Later services, and customers credit behaviour is understood, loan services are unlocked for both consumers and merchants. The credit risk model also allows for the loan book to be scaled. Scaling the loan book includes diversifying into off Shopee scenarios, giving it access to a much larger consumer base. The opportunity behind loans and pay latter is huge and is still a potential >30% lever of growth as SEA is often one of the first few companies providing fintech services in the markets they enter.
Garena Catalysts
Garena is unlike many other mobile game applications as it can monetise users over longer periods of times in markets that historically offer high user growth but little monetisation value. Fire Free’s lightweight nature allows it to run smoothly on a wide range of devices which gives it a competitive advantage in emerging markets with significant potential. Once users are acquired, the app aims to increase viewership hours which increased by 43% in 2024 thanks to partnerships with content creators and game streamers to build hype around events. This increases engagement, in turn driving spend on applications as users seek to level up and compete against their friends. Bookings grew by 43% but revenues declined by 12%. As long as DAU grows, monetisation should improve as engagement improves. As a result, any sort of revenue growth in the Digital Entertainment business should surprise the market in the coming quarters and is a key catalyst investor should look out for.
Conclusion
Sea limited is a company poised to grow at >18% for the next 1-2 years. The market seems to understand this with FY2025 consensus estimating revenue growth of 24.05% and FY2026 consensus averaging around 18.05%. Going through the investor documents and having tracked the company over the last few quarters, it is evident that there are aspects of the business which can surprise the market and in turn help revenues growth average over 20% on a base case. These include, Brazil being ahead of the curve in terms of maturity and profitability, ad spending, fintech penetration in markets like Indonesia and Philippines, attracting merchants who don’t use traditional banking services. Lastly, Garena should have an improvement in fortunes with DAU growing and user conversion efforts likely being stepped up to improve monetisation.
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