October 17, 2023

Further Simplifying Sea Ltd.

I recently shared a note with you in which I provided a simplified investment thesis for Sea Ltd.

After officially rating the company today, I wanted to take a moment to further distill the investment thesis.

This thesis is a result of roughly three years of monitoring the business, listening to each of its quarterly earnings calls, writing about the company, studying management, studying its competitive landscape, and much more.

In short, this initiation is the result of feeling very comfortable with the business after studying it over the years.

After all of this due diligence, I believe the entirety of the thesis could be distilled into just two bullets:

  • Sea's entire enterprise value of about $23.5B today could be justified by the cash flows that its digital ad business will generate over the lifetime of the business. That is, the Net Present Value, using a reasonable require rate of return, of Sea's Digital Ad business is likely *greater than its entire enterprise value at present.*
  • Sea will complete its first commercial data center in March of 2024, and, similarly, it's likely that this will prove to be more value, through the lens of Net Present Value of the cash flows it will produce, than Sea's entire enterprise value at present.

Note, of course, that Sea is not just these two businesses. Its Garena gaming platform is one of the most popular on earth, and it was recently unbanned in India. It generates roughly about $1B in cash from ops annually at present.

Sea also has a FinTech arm, i.e., Sea Money, which is growing rapidly with ~60M users in 2023. Both of these businesses, in my eyes, could be $20B to $30B in enterprise value businesses today.

There's also Sea Logistics, and future products such as Sea Computing, which I shared with you just a moment ago.

In closing, I believe there's exceptional value locked in the Sea conglomerate, and, as such, $48.25/share is an attractive price at which to initiate an Official Buy rating.

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