It is an ambitious, innovatively structured organization facing mounting losses and moneyed competitors. Taken together, Sea appears to be at a crucible moment. Some think finding a replacement of similar magnitude may be difficult, given gaming’s alchemic properties. As its e-commerce division retreats from markets like Mexico, Colombia, and Chile, global sensation Free Fire is also losing its luster, with declining active and paying users. Layoffs have accompanied this market cap evisceration, with 3% of Shopee employees dismissed in a recent round of departures. Like other pandemic darlings and high-growth tech stocks, its valuation has plummeted, hovering around $26 billion. The weather has turned against Sea over the past twelve months. The productive use of free cash flow drew favorable comparisons with Amazon and AWS, with Sea portrayed as a perfect market machine gathering speed in regions with potent secular tailwinds. Gaming division Garena printed money thanks to the hit franchise Free Fire, while Sea’s e-commerce division, Shopee, leveraged those earnings to devour share in cities around the world, including Jakarta, Rio de Janeiro, Ho Chi Minh, and Bogotá. The markets valued the Southeast Asian gaming and e-commerce conglomerate at more than $200 billion, surpassing established peers like Mercado Libre. One year ago, Sea Limited was on top of the world. If Sea plays its cards right, it could build the region’s version of Ant Financial. With 70% of the Southeast Asian population either unbanked or underbanked, there’s a significant need for a tech-forward financial institution. Though a small part of Sea today, the fintech division SeaMoney could prove influential over time. Sea will need to show a similar trajectory in Brazil, a newer market, to justify its presence. In Shopee’s most mature markets, it is operating close to break even. Losses per order have improved from $0.41 to $0.33. Though Sea’s e-commerce arm continues to lose money, there are signs of promise. After dominating the charts for three years and grossing billions, Free Fire’s user base and bookings have started to fall. Much of Sea’s available cash comes from Free Fire, a battle royale game and global phenomenon. Just as Amazon uses AWS’s free cash flow to fund e-commerce growth, Sea relies on gaming division Garena to fuel Shopee’s expansion. Sea’s shorthand during the last bull cycle was “Amazon for Southeast Asia.” There’s some validity in that comparison. Losses swelled from $24.1 million to $506.3 million on an adjusted EBITDA basis. The company lost $177 billion of its peak market cap, retreated from Europe and Latin America, and laid off staff. If you only have a few minutes to spare, here's what investors, operators, and founders should know about Sea Limited.
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