Sea Limited: Upside remains in all 3 businesses

Execution has been stellar once again this quarter, with momentum in all 3 segments continuing

After reviewing the first quarter results and speaking to the management team after the results were published, I continue to see a positive outlook for Sea Limited in the current uncertain macro backdrop.

Management has been executing well quarter after quarter on all 3 business segments.

While Sea has generated more than 350% returns from the lows, I still see more upside for the stock.

The article will cover the following:

1. First Quarter: Profit Beat

2. Guidance: Increasing Confidence

3. Digital Entertainment: Best Quarter Since 2021

4. Shopee: Resilient Growth

5. Digital Financial Services: Monee goes live

6. Valuation

7. Conclusion

First Quarter: Profit Beat

Sea reported revenue growth of 29.6% year-over-year, with revenues coming in at $4.8 billion in the first quarter, which was somewhat in-line with expectations.

By segments, e-commerce revenue grew 28.3% to $3.5 billion and digital financial services revenue grew 57.6% to $787 million, both beating expectations, while that was offset by digital entertainment revenues of $496 million, coming in below expectations.

I think the e-commerce segment is now the significantly more important segment and the beat in the segment is the key here.

The digital entertainment segment is now a much smaller business by revenue and increasingly, by adjusted EBITDA as well, which I will share more next.

Total adjusted EBITDA came in at $946 million, beating expectations of $637 million by more than 48%.

This was a significant beat on the adjusted EBITDA front.

E-commerce adjusted EBITDA came in at $264 million, more than 150% ahead of expectations.

Digital entertainment adjusted EBITDA came in at $458 million, 44% ahead of expectations.

Digital financial services adjusted EBITDA came in at $241 million, 12% ahead of expectations.

The e-commerce segment mix of adjusted EBITDA is now 28%, up from 26% last quarter and negative 5% from the quarter from one year ago.

Net profit came in at $571 million, ahead of expectations by 9.6%.

Sea’s 3 business segments are now all self-sufficient and cash-generating.

I cannot emphasize how well management has executed to reach this milestone, but with this, this enables the company to have the financial flexibility to invest into future growth opportunities.

Guidance: Increasing Confidence

With the strong beat especially to adjusted EBITDA in the first quarter, management is now more confident about achieving its full-year 2025 guidance.

Recall, Sea gave a 2025 e-commerce GMV growth of 20% and also for the e-commerce segment’s profitability to continue to improve in 2025 relative to 2024.

Management is seeing Shopee, Sea’s e-commerce segment, have a lower association with impulse spending than its competitor and Shopee’s competitive pricing is also attracting cost-conscious consumers amid the softness in the macro backdrop.

As a result, Shopee is seeing greater insulation to macro the backdrop compared to competitors.

Management continues to also be confident in being able to grow the loan book of the digital financial services segment faster than Shopee GMV given steady traction of off-Shopee loans.

Lastly, management is also confident about meeting its double-digit year-on-year game grossing guidance, backed by strong first quarter performance.

There are also other factors driving their confidence in the growth here, including the April launch of Delta Force across Southeast Asia, MENA and Latin America garnering more than 10 million downloads so far, and the upcoming phased rollout of its self-developed Free City game.

Free City is an open-world adventure game, and it will be launched in phases beginning in May.

Digital Entertainment: Best Quarter Since 2021

This was the best quarter for the digital entertainment segment, Garena, since 2021.

Total bookings grew 51% year-over-year to $775 million, 36% ahead of expectations.

Adjusted EBITDA grew 57% year-over-year to $458 million, 44% ahead of expectations.

We see adjusted EBITDA, adjusted EBITDA margin and total bookings accelerate significantly from the prior few quarters, which is always a good leading indicator for the rest of 2025.

This was driven by the success of Free Fire’s collaboration with Naruto, which was launched in January. This was Free Fire’s largest ever anime IP collaboration which required more than 2 years to prepare.

The hard work was all worth it as the collaboration resulted in the average daily average users in the first quarter to nearly peak quarterly average daily average users during the covid period.

In short, this collaboration has helped Free Fire to re-activate churned players and also bring in new players to the game.

Apart from Free Fire, management also highlighted that other games like Arena of Valor, EA Sports FC Online, and Call of Duty: Mobile also showed a strong start to 2025.

We see all metrics like quarterly active users, quarterly paying user ratio and ARPPU all increase by 11%, 1.6 percentage points and 14% respectively.

This is clearly a very good sign for Garena and the digital entertainment segment going forward.

Shopee: Resilient Growth

E-commerce revenue grew 28.3% from the prior year as highlighted above, contributed by the e-commerce GMV growing 21.5% and order numbers growing 20.5%.

E-commerce adjusted EBITDA came in at $264 million, more than 150% ahead of expectations.

The adjusted EBITDA trajectory for the e-commerce segment has been on a spectacular run since the third quarter of 2023 and to double adjusted EBITDA margins in the current quarter was quite an achievement.

The strong performance this quarter was due to a few factors.

First, it is due to better seasonality with Ramadan falling in fully in the first quarter compared to either partially in the second quarter or first quarter in the past.

Secondly, Shopee continued to improve in ad take rate which grew 50 basis points from last year.

Thirdly, Shopee continued to optimize its costs over time such as a significant drop in shipping costs and continued optimization in sales and marketing. By bringing different initiatives such as AI automation for customer service and listing management, this further reduced operating cost, derived better cost structure and contributed to margin improvement.

In terms of the macro outlook, management suggested that they did not see a material impact on Shopee’s growth due to the macro environment. Management highlighted its competitive pricing and low mix of impulse-driven purchases as a key reason for the resilience in its business thus far.