Who needs dividends when you’ve got nearly 20x gains over the last five years? Here’s what you need to know about Singapore-based Sea Limited before you invest.
Headquartered in Singapore, Sea Limited (SE) has been making waves for its spectacular stock price gains, earning it a place in many investors' portfolios - or at least their watchlists.
Headed by founder and CEO Forrest Li, and modelled after China’s digital entertainment giant Tencent Holdings, the company has grown from strength to strength since its founding in 2009.
Among its notable feats are the securing of Tencent as an investor with 22% ownership, and successfully listing in the New York Stock Exchange.
What’s behind SE’s meteoric rise, and does it deserve a spot in your investment portfolio?
To help you find out, here’s what we’ll be covering in this article.
- Sea Limited share prices in the last five years
- Reasons behind the share’s past performance
- What investing approach should I use for Sea Limited?
- What risks do I face?
- What does the future hold for Sea Limited?
Sea Limited share prices in the last five years
|Sea Limited (SE)||Share price|
|Oct 2 2017||S$16.26|
|Nov 12 2021||S$341.29|
Source: Yahoo Finance
Nope, that’s not a typo.
SE’s stock price has managed an impressive run in the past five years, pumping up more than 19x. This kind of result is very rarely seen outside of, say, the frothy markets of cryptocurrency.
There’s nothing that can be done to stop the rise of an idea if its time has come. In the case of Sea Limited, its time has come, driven by its double bet on the increasing reliance of online services.
Actually, it would be more accurate to say that SE’s time had been coming all along. Even between 2017 and 2019, stockholders would have been delighted with a dizzying twofold increase from ~S$16 to ~S$35.
However, it wasn’t until the second quarter of 2020 that the real action began, with share prices growing from month to month, until it hit an all-time high of ~S$355 in October.
At last check, the stock price has retracted slightly to the ~S$340 range, but no one is complaining.
Reasons behind the share’s past performance
As mentioned in the opening, Sea Limited’s main guns are its successful ventures in online gaming and e-commerce - aka two activities that everyone and their grandmas regularly take part in.
What’s even more impressive is how the company managed to stand out in these two very crowded sectors filled with plenty of strong competitors.
For online gaming, competition abounds from top-notch AAA titles and platform exclusives to casual offerings in what can only be loosely described as mobile ‘gaming’.
And on e-commerce, you have to guard your lunch from everyone ranging from indie home bakers to titans like Amazon and the like.
Sea Limited, to its credit, made the right calls. Early on, it placed its bet on League of Legends (LoL), a newcomer to the free-to-play MOBA (multiplayer online battle arena) scene, often derided for being a more newbie-friendly alternative to the then-reigning DOTA 2 (gamers are weird like that).
However, it was exactly this more relaxed approach that helped LoL quickly establish a massive and loyal fanbase, catapulting it to one of the leading e-Sports title today.
Where Sea Limited came into the picture is when it decided to acquire the publishing rights for LoL for Southeast Asia.
Sea Limited’s other big gun is, of course, Shopee. If you’re like me, you may have a score to settle with them regarding their merciless use of annoying, stick-in-your-brain advertising jingles, and downright misuse of Jackie Chan.
Destruction of childhood heroes aside, Shopee - especially after landing a stake by Tencent Holdings - quickly rose to rival forerunner Lazada for a slice of Singaporean’s insatiable appetite for e-shopping.
And all you need is one look at SE’s stock prices to be convinced this is a company that gets things right.
What investing approach should I use for Sea Limited?
Source: Yahoo Finance
SE Limited is one of those rare stocks that rewards investors with spectacular capital gains, and is perfectly worthy of taking centre stage as a core pillar in an investment portfolio - perhaps one themed around gaming, online services, and tech in general.
It doesn't give out any dividends, but we reckon that’s a good thing, as the company then is free of having to address shareholders’ demands, which can hamper stock prices in some situations.
Besides, as a shareholder, you can always arrange to take profits at a pace and schedule that meets your preferences. And at almost 20x gains in the past five years, there’s plenty here to go around.
What risks do I face?
Although LoL is a behemoth in the e-Sports and gaming scene, the franchise is getting on in years. It was launched in 2009, which makes the game at least 12 years old - a geriatrician in the gaming world.
While LoL as an entertainment franchise still has a ways to go (it has recently branched out into anime, making its first foray on Netflix), its core game may be nearing its shelf life as a consumer gaming product, even if it’s still going strong in e-Sports.
Therein lies the first weakness in SE’s future performance - as a mere publisher for the Southeast Asian region, Sea Limited’s exposure to upsides stemming from future developments are, well, limited. When gamers inevitably move on from LoL, Sea Limited will invariably be impacted.
The forecast for Shopee is more upbeat. Simply put, e-commerce will never die. If Shopee keeps up with the competition, it’s reasonable to assume that SE should keep returning strong results.
What does the future hold for Sea Limited?
For the sake of clarity, we’ve zoomed in on the two main engines of Sea Limited’s commercial success: LoL and Shopee. But that’s not all that the company dabbles in.
In terms of gaming, while LoL is undoubtedly the crown jewel, Sea Limited also has publishing deals for other smaller games.
If it can continue to pick future winners from an ever evolving crop of titles - or perhaps bring innovative improvements to games-as-a-service - there is potential for its gaming division to continue to do well.
As for e-commerce, as Sea Limited continues to develop Shopee as a flagship product, it opens up opportunities to integrate other related online services.
The company is already making steps in this direction, with the launch of its digital payment service SeaMoney.
One thing we’d like to see is the company venturing into blockchain and related spaces, such as using cryptocurrency tokens to incentivise e-commerce activity, or developing a gaming NFT marketplace.
But all in all, barring any catastrophic missteps, all forecasts point to clear skies ahead for Sea Limited’s foreseeable future.
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