Amazon It started selling books online in 1994 and now dominates the entire e-commerce industry. However, the company is also expanding into other areas such as streaming, digital advertising, and cloud computing.
The stock has soared over the past decade, and while e-commerce remains the company's largest source of revenue, other segments have made notable contributions to its profits and success.
sea limited (NYSE:SE) It's very similar to Amazon in its early days. The company derives most of its revenue from e-commerce, but has also expanded into other areas of the technology sector, such as digital entertainment (gaming) and digital financial services.
Trading at about $59 per share, Sea is valued at $33.5 billion at the time of writing, and its stock price could rise 10x over the next 10 years. Investors who missed out on Amazon may want to jump on this opportunity.
Amazon of Asia?
Amazon founder Jeff Bezos saw the shift to online shopping faster than most others. The Internet offers unparalleled convenience to consumers, and the digitalization trend is likely to continue for a long time to come. Sea is based in Singapore and serves Southeast Asian markets such as Indonesia, which are in the early stages of e-commerce transition compared to more mature markets such as the United States.
Sea's Shopee app is a hybrid consumer-to-consumer and business-to-consumer e-commerce platform that generates most of the company's revenue. Like Amazon, Shopee is currently focused on reducing logistics costs and increasing delivery speed. Management said that automation and operational improvement drives reduced logistics costs per order in Asia by 12% (year-over-year) in the fourth quarter of 2023.
In Java, Indonesia's economic hub, more than half of e-commerce orders were delivered within two days during December, Shi said.
But Sea's digital entertainment division, home to the Garena game development studio, continues to be a drag on the company overall. I am in charge of popular titles such as. free fire and Call of Duty: Mobile. Activity peaked at the height of the pandemic, and since then, Garena's quarterly active users metric has steadily declined, and with it, its revenue.
The good thing is that free fire was the world's most downloaded mobile game in 2023, and management says that momentum has continued into 2024 so far. Additionally, Garena's quarterly active users in the fourth quarter were 528.7 million, an increase of 8.9% year over year. This is a good sign that the worst may be over.
Finally, Sea Money is the powerhouse of Sea's fintech business. We offer digital banking services and small loans to consumers, including buy now, pay later formats. But at the same time, he provides funds for merchants to expand their businesses on his Shopee platform, which in turn benefits the company's e-commerce division.
Sea Limited's revenue growth slowed in 2023, but there's more to the story
Sea generated a record $13.1 billion in revenue in 2023, but year-over-year growth was just under 5%, lower than the 25% growth in 2022 and the 127% growth in 2021.
Most of the slowdown came from its digital entertainment division, where sales fell 44% last year. Meanwhile, e-commerce revenue increased by 24%, and digital financial services revenue soared by 44%. Digital Financial Services is the smallest of Sea's three divisions, with revenue of $1.8 billion in 2023, but is rapidly catching up to digital entertainment ($2.2 billion) due to a wide gap in growth rates.
However, the company actually planned for an overall revenue slowdown in 2023 by cutting costs to ensure profitability.
Sea's operating expenses fell 16% last year, with net income of $162.7 million.That was a huge change from the net amount of $1.6 billion. loss Starting in 2022, this was also the first annual profit in the company's history.
Sea's quarterly profitability remains unstable. But Wall Street believes the company's sales will grow at an accelerated rate of about 13% this year, which should help boost earnings (assuming operating margins don't deteriorate).
Why Sea Limited can rise 10x over the long term
As I mentioned earlier, Sea is valued at $33.5 billion. Based on the company's 2023 sales of $13.1 billion, the price-to-sales (P/S) ratio is just 2.6x. This is close to the lowest level since the stock went public in 2017 and is well below its peak P/S ratio of 22.9.
That top valuation was unsustainable, as was the company's triple-digit revenue growth over the past few years. But if Sea can get its revenue growth back to an average of 20% over the next 10 years, it could generate $81 billion in annual revenue by 2034.
At the current P/S ratio, the company is worth $211 billion. However, there is also the possibility of multiple expansions, and investors may consider the stock's P/S ratio higher on the back of more stable growth and profits. A peak P/S ratio of around 23 is almost certainly impossible, but a rise to 4.1 would value the company at $335 billion.
That is, the profit from here will be 10x. There is precedent. Amazon has grown its revenue at an average rate of 23% per year over the past decade. Due to increased sales and improved economic conditions, the P/S ratio has almost doubled in the past year alone.
Just to be clear, a few things need to go right for the above scenario to play out. Sea's overall revenue growth rate returning to at least 20% is the most important hurdle. However, we know that our e-commerce and financial services divisions have already expanded well beyond that baseline, and that our gaming business is showing signs of recovery.
So investors who have missed out on Amazon's big rally since 2014 may find a comparable opportunity in Sea Limited stock if they buy now.
Should you invest $1,000 in Sea Limited now?
Before buying Sea Limited shares, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks Investors can buy now…and Sea Limited was not among them. These 10 stocks have the potential to generate impressive returns over the next few years.
stock advisor We provide investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks every month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.
See 10 stocks
*Stock Advisor returns as of March 8, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Anthony Di Pigio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon and Sea Limited. The Motley Fool has a disclosure policy.
“Buying this super stock for $59 could be like buying Amazon in 2014” was originally published by The Motley Fool
