Not Tesla or FAANG, inflated optimism drives Sea Ltd shares up more than 880%

It gets a lot less attention than Tesla, the FAANGs, or even the Robinhood Flavor of the Week.

However, Sea Ltd. has quietly become the world’s best-performing large-cap stock, fueling a debate on Wall Street over whether the Singapore-based games, e-commerce and payments company is the next big internet colossus or just the coin A in a world. technology bubble destined to burst.

For now at least, the bulls have the upper hand. Growing optimism that loss-making Sea could one day become both Southeast Asia’s Tencent and Alibaba has driven its New York-listed shares up more than 880% in the past 18 months. , the largest gain in the world among companies with a starting market value of at least $1 billion. Short sellers who placed record bets against the stock in June are retreating at an unprecedented rate.

If Sea CEO Forrest Li is paying attention to any of this, he’s not saying it. The 42-year-old billionaire said in a video interview that he has been working seven days a week in the office since April, leading his business through what could be his most pivotal year. Demand for Sea’s mobile games and online shopping platform has increased during the pandemic, and the company is bidding on a digital banking license in Singapore to accelerate its push into financial services. Li is also looking for potential acquisitions in games, logistics and e-commerce.

Forrest Li, CEO of Sea | Photo: Bloomberg

“We don’t like to think too much about our success or how we got here,” he said when asked about Sea’s stock price. “It doesn’t matter whether the environment is good or bad. It does not change a company or a person.

Even by the standards of today’s tech boom, Li’s rise has been remarkable. Born in the Chinese port city of Tianjin, he worked for local units of Motorola Solutions Inc. and Corning Inc. before enrolling in the Stanford MBA program. He founded Sea, then known as Garena, in 2009 and took it public with the backing of Tencent in 2017.

After a difficult first year of trading, Sea shares continued to beat all in its category. Initial earnings were fueled by the runaway success of Sea’s first mobile game – a battle royale called Free Fire that attracted up to 80 million daily active users across more than 130 markets.

But Sea’s e-commerce and financial services units are now increasingly important pillars of the bull case. Its Shopee platform overtook Alibaba’s Lazada in the fourth quarter of 2019 to become Southeast Asia’s top e-commerce provider, according to research firm iPrice, and the company accounted for more than 40% of Sea’s revenue. in 2019, compared to 2.3% in 2017.

SeaMoney, which offers everything from e-wallets to micro-loans, could ultimately be just as big, according to Li. “We think it’s a huge business opportunity,” he said.


The soft-spoken founder has a big following. Tencent still owns about 20% of Sea, and the stock was the largest stake in May in Noah Blackstein’s Dynamic Power Global Growth Class fund, one of the world’s best-performing equity mutual funds of the last decade. Other top shareholders include Chase Coleman’s Tiger Global Management LLC and Kora Management LP, an emerging-markets-focused hedge fund in New York, according to regulatory filings in March.

Kora started investing in Sea in early 2018 after meeting Li, the hedge fund’s founding partner Daniel Jacobs said in an interview. “We’ve seen a company over the past couple of years that has a great team and great products that are going after a big market and working incredibly well,” he said. “We think it’s a mini Tencent and has the ability to be a really successful big business in a global context.”

Sea has already claimed the title of Southeast Asia’s largest company after its market value hit $65 billion, overtaking DBS Group Holdings Ltd. and PT Bank Central Asia for the first time earlier this year. Revenue has also grown rapidly, jumping 163% to $2.2 billion in 2019, though it’s still only a fraction of DBS’ $11 billion.

As for Sea’s $1.46 billion net loss last year? Jacobs isn’t embarrassed. “They are thoughtful and careful in building a business,” he said. “We are very much of the opinion that the company has all of this under control.”


Not everyone is convinced.

DBS Bank Ltd. analyst Sachin Mittal lowered his recommendation to sell Sea in July, citing Indonesia’s new tax regulations for cross-border transactions and the likelihood that the firm will burn cash to expand its payments business. . “There’s a tech bubble right now,” he said in an interview. “Sea’s stock is overvalued and that’s partly a reflection of the industry.”

While short-sellers have been closing bets against Sea at a rapid pace in recent weeks, they still have a bearish position worth more than $3 billion, or around 8% of the stock’s free float, according to S3 Partners, a financial analysis company. “Losses in market value may have forced the shorts out of their position,” said Ihor Dusaniwsky, head of predictive analytics at S3. “But they can still have a negative view.”

Skeptics note that Sea faces deep-pocketed competitors in all of its major businesses, from Lazada to Grab Holdings Inc. and a slew of other digital finance newcomers. Meanwhile, Sea’s gaming unit has yet to prove itself to be more than just a one-hit wonder.

“We could have a post-Covid situation where the increase in revenue does not materialize, and the gaming business is doing well but is based on one popular game,” said Nirgunan Tiruchelvam, head of equity research. consumers at Tellimer Ltd.

Seaside optimists see little reason to cash in. In fact, Georg Krijgh, founder and head of the investment team at Amsterdam-based Fratres, said his company’s Knight Tech Fund, which manages 150 million euros ($177 million), plans to add to his maritime possessions.

The stock is already the fund’s second-largest position after Shopify Inc., a Canadian e-commerce company that has gained more than 500% in the past 18 months. “There are always people who like to short-circuit excellent companies like Sea, Tesla or Carvana, mainly on the basis of the high valuation argument,” he said. “It’s an inferior strategy.”

Sea’s biggest challenge now may have less to do with execution and more to do with meeting “exorbitant” investor expectations, said Bloomberg Intelligence analyst Matthew Kanterman. In the past seven days alone, Sea’s stock has soared 28% to record.

For his part, Li seems well aware that the bar has been raised. It was hard not to notice that everyone was calling his business a South Asian mashup of Tencent and Alibaba, two of the most successful companies in history.

“We learned a lot from these pioneers,” said Li, who has an estimated net worth of $7.5 billion. “But at the end of the day, we don’t have to be their mini-versions. We can just be ourselves.

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