Sea Ltd (SE US) Stock Analysis: 1Q25 Stellar Results & Updated Forecasts | Maybank Research

Maybank Research Pte Ltd

May 14, 2025

Sea Ltd (SE US): A Stellar Start to 1Q25, BUY Reaffirmed

1Q25 Performance: Exceeding Expectations Across All Segments

• Sea Ltd (SE US) has demonstrated a remarkable start to 2025, with its 1Q25 adjusted EBITDA significantly surpassing Street forecasts across all its business segments.
• The company’s 1Q25 adjusted EBITDA reached USD947m, marking a 2.5x year-over-year (YoY) increase and a 60% quarter-over-quarter (QoQ) rise. This figure is 29% above Maybank IBG’s estimates and 44% higher than Street forecasts [[1]].

Key Growth Drivers

• Structural Growth and Benign Competition: Under-penetration-led structural growth drivers and a favorable competitive landscape have significantly contributed to Sea Ltd’s performance.
• Seasonality: The gaming business was particularly boosted by the Chinese New Year (CNY) and Lebaran seasonality.
• Garena Bookings: Garena’s bookings increased by 51% YoY and 43% QoQ, exceeding expectations by 35% [[1]].
• E-commerce GMV: E-commerce Gross Merchandise Value (GMV) grew by 21% YoY, remaining stable QoQ, aligning with projections.
• Adjusted EBITDA Delta: The adjusted EBITDA delta experienced a substantial YoY increase of USD286m, up +74% QoQ, which is 69% above Street expectations [[1]].
• Margin Expansion: Seller take rate increases, ad penetration, and lower Sales & Marketing (S&M) spending due to 1Q seasonality contributed to margin expansion, although management anticipates a partial reversal in subsequent quarters.
• Digital Financial Services (DFS): The DFS business maintained strong momentum, growing by 58% YoY and 7% QoQ, surpassing expectations by 4-7% [[1]].

2Q25 Outlook: Expecting Softening Trends, Yet Multiple Growth Levers Remain

• Seasonality Impact: The momentum from CNY and Lebaran, which significantly boosted e-commerce and DFS in 1Q25, is expected to partially soften in 2Q25 [[1]].
• Garena’s Performance: Garena benefited from seasonal holidays and the Free Fire collaborative campaign with Naruto. A partial softening or reversal of these trends is anticipated in 2Q25.

Strategic Growth Initiatives

• E-commerce Monetization: Strong e-commerce monetization in 1Q25 could be reinvested into campaigns, such as shipping subsidies or higher marketing spend, to stimulate e-commerce GMV growth [[1]].
• Garena’s Expansion: Garena is set to launch Delta Force Mobile across its key markets and will release its self-developed game, Free City, in phases.
• DFS Rebranding: DFS aims to invigorate off-Shopee use cases following a rebranding initiative.

Forecasted Performance

• GMV and Bookings: E-commerce GMV and Garena bookings are projected to decline by 2% and 20% QoQ, respectively. However, YoY growth is expected to remain strong at 20% and 15%, aligning with full-year guidance [[1]].

Revised Target Price and Recommendation

• Recommendation: Reiterate BUY recommendation.
• Target Price (TP): Increased by 7% to USD186.
• Rationale: The upward revision is based on the strong 1Q25 performance, leading to increased adjusted EBITDA forecasts for FY25-27 by 6-8%. The SoTP-based TP has been raised by 7% to USD186.
• Valuation: The target EV/sales valuation for the e-commerce business has been revised upward to 3.9x (from 3.3x), aligning with MercadoLibre (MELI) [[1]].
• Strategic Advantages: Sea Ltd’s intent-based e-commerce platform and price leadership should perform well even in a macro slowdown. Free Fire initiatives and the launch of Free City indicate sustained Garena growth momentum.

Company Description and Key Statistics

• Description: Sea Ltd is an internet company with core businesses in gaming, e-commerce, and digital financial services [[4]].

Statistics:

• 52-Week High/Low (USD): 152.95/59.82
• 3-Month Average Turnover (USDm): 98.7
• Free Float (%): 142.7
• Issued Shares (m): 570
• Market Capitalization: USD87.1B

Major Shareholders:

• Tencent: 18.6%
• Li Xiaodong: 17.1%
• Gang Ye: 6.1%

Price Performance Analysis

• Absolute Performance:
• -1 Month: 29%
• -3 Month: 13%
• -12 Month: 131%
• Relative to Index:
• -1 Month: 20%
• -3 Month: 15%
• -12 Month: 113%

Financial Highlights and Forecasts

Key Financial Metrics:

E-commerce Segment: Detailed Analysis of 1Q25 Results

• Growth Drivers: 1Q25 growth was partly seasonal, with Ramadan fully captured in 1Q25 for the first time. Improved take rates, notably a 50bps YoY rise in ad take rate, also supported top-line performance [[2]].
• Macro Resilience: Shopee’s business remains largely unaffected by macro volatility, thanks to its local marketplace focus and minimal exposure to cross-border trade. As a price-leading platform, Shopee benefits from users seeking affordable alternatives, supporting e-commerce penetration in under-penetrated markets. Shopee’s lower reliance on impulse buying makes it more resilient to shifts in discretionary spending [[2]].
• Ad Revenue Surge: Advertising revenue grew over 50% YoY, driven by enhanced monetization efforts and adoption of upgraded ad-tech solutions like GMV Max. Sellers using ad products increased 22% YoY. Average ad spending per seller rose 28% YoY [[2]].
• Margin Improvement: Cost optimization drove stronger margins while AI tools helped reduce operating expenses through automation in customer service and listing management. Logistics efficiency gains: logistics cost per order dropped 6% YoY in Asia and 21% YoY in Brazil. Improvements led to faster deliveries and broader network coverage [[2]].
• Shopee VIP Pilot Success: Over 1.5m users subscribed to Shopee’s paid VIP program in Indonesia by March-end. VIP users purchased 3x more frequently and spent 4x more than regular users [[2]].
• Live Streaming: Approximately 20% of Southeast Asia’s physical goods order volume came from content-driven channels like livestreams and short videos. This was hovering at 15% for the previous few quarters, suggesting a pickup in content-driven commerce expansion. Over 4m YouTube videos featured Shopee links by Mar’25. Daily orders from YouTube content continued to grow steadily [[2]].
• Strong Performance in Brazil: Shopee remained adjusted EBITDA positive in Brazil. It continued to gain market share, expand its seller base, and diversified into higher ticket-size categories. Delivery times in Brazil improved by 2–3 days YoY in 1Q25, with same-day delivery launched in São Paulo. Ongoing SPX logistics investment has reduced costs and enhanced service quality. Early results from its seller-focused fulfillment services are positive, helping strengthen the platform’s overall value proposition. Brazil’s relatively low e-commerce penetration compared to Southeast Asia presents ample room for continued expansion [[2]].
• Growth and Margins Outlook: 1Q25 adjusted EBITDA to GMV margins of 0.9% was helped by seasonality. It’s likely to drop off in the coming quarters. FY25 margin is expected in between 4Q24 margins of 0.5% and 1Q25 margins of 0.9%. SE is confident in its 20% full-year GMV growth guidance [[2]].

Digital Entertainment/Garena: Best Quarter Since FY21

• Strong Performance: Garena had its best quarter since FY21. 1Q25 bookings increased 51% YoY, and adjusted EBITDA rose 57% YoY — the strongest performance since FY21. Momentum began in FY24 and it has accelerated into FY25E [[3]].
• Free Fire: Free Fire continues to be the core growth driver. Free Fire remains the world’s largest mobile game by average daily active users (DAU) and downloads (according to Sensor Tower). 1Q25 average DAU neared pandemic-era peaks, driven by successful content and marketing. The NARUTO SHIPPUDEN collaboration was a game-changer (SE’s largest anime IP collaboration to date, developed over 2 years). It reignited interest from new and returning users, boosting engagement significantly [[3]].
• Expanding Game Portfolio: The new game Delta Force Mobile was launched in Southeast Asia, MENA and LATAM; It has already surpassed 10m downloads. Pre-registration for Free City, a self-developed open-world adventure game, started in Apr’25 with phased launches starting in May’25. This signals a broader effort to diversify content and reduce reliance on a single title [[3]].
• Outlook: The 1Q25 strength was supported by seasonality (Lunar New Year and Ramadan) and one-off IP collaboration. Upcoming quarters may show volatility, but the overall outlook for FY25E is strong. Garena bookings in 2Q25 are expected to decline 20% QoQ, but increase by 15% YoY, in line with its double-digit growth guidance [[3]].

Digital Financial Services (DFS): Rebranding and Strategic Vision

• Rebranding: SeaMoney is now Monee, reflecting deeper synergy with Shopee and a commitment to simple, inclusive digital financial solutions. Monee is evolving beyond payments and credit into banking, investment and insurance to help consumers achieve long-term financial empowerment [[4]].
• Growth and Risk Management: In 1Q25, revenue and adjusted EBITDA both grew 50%+ YoY, with the loan book reaching USD5.8b (up 75% YoY). It added 4m first-time borrowers in 1Q25; Active loan users exceeded 28m (up 50%+ YoY). The NPL (90-day) ratio remained at 1.1%, supported by dynamic underwriting and ecosystem data [[4]].
• Market Expansion: There was continued growth in Thailand, Malaysia, Indonesia and Brazil — with Thailand’s loan book surpassing USD1b. Off-platform usage rose in Malaysia and Indonesia. In Malaysia, off-Shopee loans were >10% of the loan book. In Indonesia, ShopeePay app exceeded 30m downloads, supporting every day off-platform payments and credit [[4]].
• Attracting Premium Users: Introduction of credit products with lower interest rate, higher limits, and longer terms helped attract higher-income users in markets such as Indonesia and Malaysia [[4]].
• Capital & Funding Strategy: Management prefers not to rely solely on internal cash for loan growth and is actively pursuing third-party funding sources, including bank partnerships, channeling arrangements, and structured products (e.g., asset-backed securities) [[4]].

Revised Financial Forecasts

• Revenue Forecasts: Revised up for FY25-27 by 6-8% [[5]].
• Adjusted EBITDA Forecasts: Increased for FY25-27 by 6-8% [[5]].

Earnings Revision

Sum-of-the-Parts (SoTP) Valuation

• Target EV/Sales: 3.9x for e-commerce, in line with MELI [[6]].
• Target EV/EBITDA: 10.0x for Digital Entertainment and Digital Financial Services, inline with Paypal and Square [[6]].

Key Investment Considerations

• Dominant Market Share: Sea Ltd holds a dominant e-commerce market share in ASEAN and Taiwan [[7]].
• Digitization Beneficiary: It benefits from the increasing digitization in the under-penetrated ASEAN e-commerce space, with estimated ASEAN GMV growth at a 15% CAGR over 2030E [[7]].
• Competitive Moat: Own logistics & strong balance sheet remains key competitive moat. Risk of TikTok disruption is abetting while cross border platforms have unfavourable unit economics in ASEAN [[7]].
• Defensive Gaming Franchise: Although Sea’s gaming business is highly dependent on Free Fire, it is a defensive franchise with its position in less crowded and budget conscious EM markets [[7]].

Financial Metrics Forecasts

• Revenue CAGR (FY23-26E): 14%, driven by e-commerce and digital financial services [[7]].
• Adj EBITDA CAGR: 35%, boosted by e-commerce and digital financial services, with gaming adj EBITDA expected to grow at a low single-digit rate for FY25-26 [[7]].
• FCF Positive: Company is expected to turn FCF positive in FY24E [[7]].
• Cash Balance: As of 1Q24, stands at USD8.6b [[7]].

Potential Upsides

• Stronger-than-expected user growth across all businesses [[7]].
• Increased market share capture by Shopee, especially with GoTo focusing on profitability [[7]].

Potential Downsides

• Weaker consumer spending amid macro uncertainties affecting Shopee’s GMV growth [[7]].
• Slowing user growth due to increasing competition [[7]].
• Higher credit costs for SeaMoney due to economic slowdown [[7]].
• New entrants intensifying competition in the Southeast Asia e-commerce industry [[7]].

ESG Factors

• Social issues are the most relevant, followed by governance and then environmental [[8]].
• Driving social good is integral to sustainably growing the e-commerce platform.
• Key issues for Garena are addiction and compliance with local laws.
• SeaMoney’s growth will be influenced by adherence to local laws and advancing government agendas.
• Data security is a critical ESG factor.

Financial Table