SEA Ltd (SE) Downgraded to Hold: 2025 Forecast, Target Price & Analysis

CGS International

May 14, 2025

SEA Ltd: Strong Start to 2025F, But Growth Could Slow

Investment Summary

• SEA Ltd’s 1Q25 adjusted EBITDA surpassed expectations, primarily due to a resurgence in the digital entertainment segment. The company has maintained its 2025F guidance. [[1]]
• The digital entertainment segment has shown a strong comeback, and is expected to continue its strong performance throughout 2025F. [[1]]
• The recommendation is downgraded to Hold with a target price (TP) of US\$160, due to anticipated slower growth in operating metrics following a strong 1Q25. [[1]]

1Q25 Performance Overview

• Sea Ltd (SE) reported strong results for 1Q25, with all business segments outperforming expectations. [[1]]
• Adjusted EBITDA reached US\$947m, a 60% increase quarter-over-quarter (qoq) and a 136% increase year-over-year (yoy). [[1]]
• The performance was driven by a rebound in the digital entertainment segment and improved profitability in e-commerce and digital financial services. [[1]]
• Management has maintained its FY25F guidance, indicating confidence in sustained earnings growth across core verticals. [[1]]

Digital Entertainment Segment Resurgence

• The digital entertainment segment saw a significant resurgence in 1Q25, with an adjusted EBITDA of US\$458m, the highest since 4Q21. [[1]]
• This is attributed to the success of the collaboration between Free Fire and Naturo, launched in January 2025, leading to strong booking growth. [[1]]
• Average daily active users in 1Q25 were close to peak levels seen during the pandemic. [[1]]
• The segment is expected to continue delivering strong contributions, driven by: [[1]]
  • The launch of Free Fire – Naruto phase 2 in 2H25. [[1]]
  • The launch of its second self-developed game, Free City, in May 2025. [[1]]
  • Good traction from its Delta Force mobile version, with over 10m downloads in April 2025. [[1]]

E-commerce Profitability Growth (Shopee)

• The e-commerce segment’s adjusted EBITDA was strong at US\$264m in 1Q25, mainly due to margin expansion. [[2]]
• The group continued to reduce logistics costs, with cost per order down 6% yoy in Asia and 21% yoy in Brazil in 1Q25. [[2]]
• Delivery times were improved and network coverage expanded. [[2]]
• FY25F is expected to record steady adjusted EBITDA to GMV margin growth (+c.90bp yoy), driven by: [[2]]
  • Lower cost per order via enhanced scale and efficiency. [[2]]
  • Ramp-up in high-margin advertising contribution. [[2]]
  • More disciplined marketing spend amidst a stable competitive landscape. [[2]]

Downgrade Rationale

• The recommendation is downgraded to Hold with a higher TP of US\$160. [[2]]
• This is due to an expected moderation in the pace of operating metrics growth in coming quarters, following an exceptionally strong 1Q25. [[2]]
• 1Q25 benefited from festive seasonality and impactful content releases. [[2]]
• The SOP-based TP is raised to US\$160 (previous: US\$155), mainly on higher adjusted EBITDA estimates for Garena. [[2]]
• Upside risks include strong GMV growth and quick Shopee margin growth. Downside risks include intensified e-commerce competition weighing on GMV/margins. [[2]]

Key Figures and Ratios

• Current Price: US\$142.5 [[2]]
• Target Price: US\$160.0 [[2]]
• Previous Target Price: US\$155.0 [[2]]
• Market Cap: US\$84,333m [[2]]
• Average Daily Turnover: US\$627.9m [[2]]
• Current Shares O/S: 575.0m [[2]]
• Free Float: 73.4% [[2]]

Key Changes in This Note: FY25-27F EPS forecasts raised by 33-37% due to margin expansion for Shopee and higher bookings for Garena. [[2]]

Price Performance: [[2]]

• 1M: Absolute (%) 20.9, Relative (%) 11.9
• 3M: Absolute (%) 9.0, Relative (%) 12.4
• 12M: Absolute (%) 119.5, Relative (%) 107.6

Major Shareholders: [[2]]

• Forrest Li Xiaodong: 18.5%
• Tencent: 18.2%

Financial Summary: [[2]]

1Q25 Results Review

Group Level

• 1Q25 GAAP revenue of US\$4.84bn (-2% qoq, +30% yoy) was above estimates. [[3]]
• 1Q25 adjusted EBITDA of US\$947m (+60% qoq, +136% yoy) was above forecasts. [[3]]
• FY25F guidance maintained: [[3]]
  • E-commerce GMV growth of around 20% yoy with improving profitability. [[3]]
  • Double-digit growth yoy for Garena’s user base and bookings. [[3]]
  • Loan book size to grow meaningfully faster than Shopee’s GMV annual growth rate in 2025. [[3]]

E-commerce Segment (Shopee)

• 1Q25 adjusted segment revenue of US\$3.52bn (-4% qoq, +28% yoy) was below estimates. [[3]]
• 1Q25 marketplace take-rate slowed 0.27% pts qoq to 11.09% mainly due to shipping subsidies. [[3]]
• 1Q25 adjusted EBITDA was US\$264m, with EBITDA-to-GMV margin almost doubled to 0.9% from 0.5% (4Q24). [[3]]
• Management remains confident it can achieve 20% yoy GMV growth, supported by a stronger emphasis on the local marketplace and reinforcing Shopee’s position as a price leader. [[3]]

Digital Entertainment Segment (Garena)

• 1Q25 bookings of US\$775m (+43% qoq, +51% yoy) were a strong beat, thanks to the success of the Free Fire and Naruto collaboration in Jan 25. [[3]]
• Average DAU close to the peak seen during the pandemic. [[3]]
• 1Q25 adjusted EBITDA of US\$458m was above estimates. [[3]]
• Quarterly active users (QAUs) increased 7% qoq, while quarterly paying users (QPUs) were up 28% qoq. [[3]]
• Paying ratio rose 1.6% pts qoq to 9.8%. [[3]]
• The strong first quarter results were driven by the collaboration of Free Fire and Naruto in Jan 25 and further benefits from seasonal factors, with festive periods such as Ramadan in Indonesia and Lunar New Year in Taiwan driving increased user engagement and spending. [[4]]

Digital Financial Services (DFS/Monee)

• 1Q25 segment adjusted revenue of US\$787m (7% qoq, 58% yoy) was ahead of estimates. [[4]]
• 1Q25 adjusted EBITDA was at US\$241m (+14% qoq, +62% yoy), beating estimates. [[4]]
• Loan principal outstanding grew over 75% yoy, while non-performing loans past 90 days remained low and stable at 1.1%. [[4]]

Earnings Revision

Valuation

The Sum-of-Parts (SOP) valuation yields an equity value per share of US\$160. [[5]]

Peer Comparison

Comparison against industry peers in gaming, e-commerce, and financial services sectors. [[5]]

ESG Analysis

ESG Overview

• SEA Ltd actively engages in CSR activities and is committed to the UN Sustainable Development Goals (SDGs). [[6]]
• Focus areas include education, decent work and economic growth, reducing inequalities, health and well-being, and partnerships with international organizations, government-linked bodies, and educational institutions. [[6]]
• SE maintains a good employee diversity profile with an almost equal gender mix of males and females from over 70 nationalities. [[6]]
• Its localized approach across markets helps merchants draw more customers onto its platform, providing more selling opportunities, which can raise household income and create employment to narrow the income inequality gap in rural and emerging regions in ASEAN. [[6]]

Key Implications

• SE adopts a hyperlocalization strategy for its offerings across its three platforms (digital entertainment, e-commerce, and digital financial services). [[6]]
• This strategy can raise household income and create employment to narrow the income inequality gap, especially in rural and emerging regions in ASEAN. [[6]]
• Hyperlocalization is key to its success in ASEAN, attracting more consumers to SE’s ecosystems and enabling existing merchants to derive greater sales revenue. [[6]]
• This, in turn, attracts more new merchants onto the platform, expanding product offerings and increasing user stickiness, driving further monetization for SE through higher take-rates and stronger ARPU and ARPPU. [[6]]

ESG Highlights

• SE continues to increase its positive impact on employment levels via Shopee, allowing underserved local communities to access e-commerce marketplaces. [[6]]
• SE maintains a good diversity profile, with a gender ratio of male to female employees at 56:44 as of end-FY22, and a workforce comprising employees from over 70 nationalities. [[6]]
• Further room for improvement exists as the group grows its platform user base, increasing value for the local communities served, potentially elevating SE’s ESG profile and attracting increased interest from ESG-focused investors. [[6]]

ESG Trends

• SE commenced disclosures on carbon emissions in 2021. [[6]]
• Energy intensity rose 43%/27% yoy in FY22/23, attributed to global business expansion. [[6]]
• The commencement of emissions disclosures is a step in the right direction, providing relevant information for stakeholders concerned about the group’s carbon footprint. [[6]]

Financial Charts

P/BV vs ROE

Rolling P/BV (x) vs ROE (%) from Jan-21A to Jan-26F. [[7]]

12-mth Fwd FD Core P/E vs FD Core EPS Growth

12-mth Fwd Rolling FD Core P/E (x) vs FD Core EPS Growth (%) from Jan-21A to Jan-26F. [[7]]

Profit & Loss

Cash Flow

(US\$m)	Dec-23A	Dec-24A	Dec-25F	Dec-26F	Dec-27F
EBITDA	666	1,052	2,712	4,074	4,793
Cash Flow from Invt. & Assoc.	7	10	(3)	(9)	(11)
Change In Working Capital	55	922	773	660	482
Other Operating Cashflow	1,018	1,075	88	(163)	(288)
Net Interest (Paid)/Received	290	327	309	284	260
Tax Paid	44	(108)	0	0	0
Cashflow From Operations	2,080	3,277	3,880	4,845	5,237
Capex	(258)	(256)	(350)	(410)	(454)
Other Investing Cashflow	(5,804)	(5,041)	(2,375)	(1,297)	(1,202)
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