🌏 SE Stock | ARK Invest Has $550M in Sea Limited Stock

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What do you get when you cross a digital wallet company, video game publisher, and an e-commerce
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marketplace? The answer? A company called Sea Limited, ticker symbol S E, and what's awesome
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about this company is how it combines all three of those businesses to be much more than the sum
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of their parts. So, in this episode, I want to highlight all the awesome things Sea does today,
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some unique initiatives they're cooking up for the future, and the insane growth they showed during
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their most recent earnings call. This channel is all about using data to find great investments,
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so let's start there. Specifically, with ARK Invest's trading data around Sea.
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Sea is currently ARK Invest's 22nd biggest position overall, with well over half a billion
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dollars in it across their funds. It's the 20th biggest position in ARKW, their fund themed around
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the next generation of internet applications, with $97 million dollars in it. Sea is the 4th biggest
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position in ARKF, ARK Invest's fintech fund, with one hundred and seventy eight million dollars in
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it. And Sea is the 25th biggest position in ARKK, ARK Invest's flagship innovation fund,
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with over two hundred and ninety million dollars in it. I'm calling out each fund individually here
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because I think Sea is in each fund for pretty different reasons, which I'll get into. Another
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thing worth calling out is that Cathie Wood has sold about 24% percent of ARK Invest's shares in
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Sea in the last month alone. Full disclosure, I do NOT currently have a position in Sea Limited
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outside of my positions in ARKW and ARKF but I may open a position in the near future based on
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this research. So, here's another instance where I don't agree with ARK Invest. My guess is Cathie
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Wood is selling because Tencent, the Chinese media conglomerate, owns 25% percent of this company and
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they have a strong working relationship on all fronts. Sea is actually headquartered
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in Singapore, but also operate in Thailand, the Philippines, Taiwan, and several other countries
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in the region. It's actually a holding company and S E A is an acronym for South East Asia.
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They have three big business units today: Garena, their gaming brand, Shopee, their e-commerce arm,
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and SeaMoney, their digital payment solutions. Let's start with Garena since it's their oldest
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and still their biggest division today. Also, I'm a huge nerd who loves video games, so there's
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that. Garena started back in 2009 2009 and is an online game publishing and social gaming platform.
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Garena publishes some of the biggest triple-A titles for the Southeast Asia region,
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including League of Legends, FIFA, and Call of Duty Mobile. Garena lets you keep a friends list,
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form guilds with them, and see what achievements they've been earning
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in games. Garena has an on-platform virtual currency called Garena Shells, which allow
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users to purchase games on the Garena platform and buy in-game items, premium modifications,
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and upgrades. So, it's a high-margin, cross-game, digitial currency. A few years ago, Garena
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obtained the right to publish all Tencent games in Indonesia, Taiwan, Thailand, the Philippines,
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Malaysia and Singapore. Tencent, by the way, is the biggest gaming company in the world.
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Player Unknown Battlegrounds, or PUBG, came out in 2017 2017 and is still one of the top downloaded
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games in the world. Garena is more than just a publisher; they also developed and published
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Free Fire in 2017 2017, which is also still one of the top downloaded games in the world. In
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quarter one of this year, it was actually the top grossing mobile battle royale game in the U.S.,
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beating out PUBG and Call of Duty, both of which it is also the publisher for in Southeast Asia. My
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point here is Garena's presence can be felt in the United States, not just overseas. That's because
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one important part of Garena is their focus on localization. There's nothing worse for digital
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media than grammatical errors, spelling errors, or imagery that doesn't jive with the audience.
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Whatever country they enter, they're serious about understanding the local language and culture,
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and getting the most out of their potential user base. This is why huge game developers
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use Garena to publish their games in the region. We're going to see this
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emphasis on localization in their other two business units, Shopee and SeaMoney, as well.
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Shopee started in 2015 2015. Shopee is social-first digitally-native e-commerce system,
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kind of comparable to Pinduoduo, ticker symbol P D D, another company ARK Invest used to have over
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$200 million dollars in before the regulatory crackdowns in China. Shopee sets up social
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structures of friends and lets users share their purchases and uses that additional data set of
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social interactions to promote other products within groups. Another interesting feature of
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Shopee is called the Shopee Guarantee, which holds the consumer's payment until they actually
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accept delivery of their order. The seller doesn't get any money until the buyer gets their stuff.
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My guess is this is because it's hard to find a package that gets lost or stolen in Southeast
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Asia and probably hard to return an item if it's damaged or a counterfiet. The Shopee Guarantee
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bypasses all of those challenges and protects the buyer. I think of Shopee as a smaller,
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mobile-first Amazon for Southeast Asia. Again, with an emphasis on localization. A customer's
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home screen is pretty dynamic, including hyper-localized campaigns, trending products,
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and daily flash sales. Unlike Amazon though, these things also take into account the social
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element from what your friends are buying, reviewing, and recommending on the platform.
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I think this social-first mentality really sets Shopee apart from Amazon on the customer
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side. Shopee has a wide variety of services and solutions integrated into the platform,
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from performance-based advertising and direct sales, to helping with logistics,
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fulfillment, and online store operations. I'm bringing this up now for two reasons:
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to highlight all the ways Shopee makes money today but also to keep in mind for the crazy
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thing they're working on in the future. I'll get back to that in a minute. The last thing I want
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to point out about Shopee is that e-commerce was the largest and fastest growing market
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sector in Southeast Asia in 2019 2019, so even before the pandemic. It was growing
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at a staggering 61% percent per year in the 5 years up to 2019 2019 and is projected to grow
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at a 39% percent compound annual growth rate from 2015 2015 through 2025 2025,
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so this is a big market opportunity and Shopee is a frontrunner to capitalize on it. Today, Shopee
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is the biggest marketplace in Southeast Asia and still growing at a pretty substantial rate.
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In a previous episode, I talked about how digitally-native financial technology companies
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are able to serve the unbanked while big banks can't afford to.
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Big Banks have high customer acquisition costs because of the large amount of
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physical buildings and infrastructure they need to maintain. Digital banks don't have
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this problem. If you want to learn more about the massive investing opportunities in Fintech,
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check out my episode on that. I'll link it in the top right corner of your screen right now
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and in the description below as well. The reason I'm talking about that now is that 3 in 4 people
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in Southeast Asia have insufficient access to financial services. Literally almost half of
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them are completely unbanked. Sea's third business unit is called SeaMoney, which used to be called
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AirPay until a couple years ago. Here's where things start coming together. AirPay started in
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2014 to make it easier for underbanked customers who wanted to make game purchases on the Garena
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platform. Sea built the solution themselves so they didn't have to pay commissions on
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these transactions but now it's a serious piece of financial infrastructure. SeaMoney has e-wallets,
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payment processing solutions, micro-lending and other digital financial services. The AirPay app
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has a dynamic home screen that is populated with a wide variety of services including promotions for
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Garena and Shopee, as well as other third-party providers. One of the big draws of Square,
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ticker symbol S Q, is that it's a combination of two ecosystems – the merchant ecosystem with point
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of sale solutions and the customer ecosystem with CashApp. Well, this is also true for Sea
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with the combination of Shopee and SeaMoney. In fact, all three of Sea's business units
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share a wide variety of resources, including data centers and data science capabilities,
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so a win in one of these areas affects all 3 businesses. Again, you can see the importance
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of localization across all three, because when a customer feels like an app is built just for them,
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they tend to stick to it longer. When Sea Limited expands into a new country and learns to localize
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for it, all three of these business units win. I also want to call out their deep relationship with
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Tencent again here, who makes use of all three of Sea's business units, localization knowledge,
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and infrastructure because this is a real benefit if you like Tencent and a real risk
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if you're concerned about the continued Chinese regulatory crackdowns affecting these stocks.
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The reason that doesn't worry me is because Sea is focused outside of China and business is booming.
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They just reported earnings in the middle of August, so now's a perfect time to cover
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their financials. Let's take a look at just how fast they're growing. Taken together, Sea
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had a whopping 159% percent revenue growth year over year. DE stands for digital entertainment,
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EC stands for e-commerce, and DFS stands for digital financial services. So that's Garena,
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Shopee, and SeaMoney, respectively. If we look at their growth individually, Garena's revenue grew
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by 167% 167% percent, Shopee's revenue grew by 161% 161% percent, and SeaMoney's revenue grew by
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a whopping 658% 658% percent, from $11.7 million dollars last year to $88.7 million dollars today.
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It's the very early innings for SeaMoney. This is all healthy growth, too. Garena's quarterly active
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users are up 45% percent year over year and their quarterly paying users are up 85% percent year
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over year. I saw a lot of concerns in the comments of my deep dives on Draftkings and Skillz focusing
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on the issues of these gaming companies spending tons of money to either acquire new customers
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or to incentivize their existing customers spend more. Garena clearly doesn't have this
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issue because it's a distribution platform for some of the most popular games on the planet
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including Free Fire, a game they developed themselves. Shopee is also growing in very healthy
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ways. I was the head data analyst at a high-end e-commerce design firm for a little bit before I
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took YouTube full time, so let me give you some insight here. The total number of orders placed
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on Shopee is up by a whopping 127% 127% percent year over year while the gross merchandise volume,
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or the total amount of dollars spent, is up by 88% percent. Why the big difference? This is
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because Shopee is expanding into new markets and when you have a lot of new first-time shoppers,
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they tend to make test purchases with low dollar amounts. As these first time customers turn into
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repeat customers, their average order value will go up. The bigger the difference between
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these two numbers, the more new customers Shopee probably acquired, which is a pretty bullish sign
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of their future exponential growth in this business unit. And SeaMoney is seeing the
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same type of growth as well – total payment volume and number of quarterly paying users
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are both up triple digits from this time last year. As a result, Sea's leadership raised their
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guidance by about 5% percent for the second half of the year for both Garena and Shopee.
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The last thing I want to point out about this insane amount of growth is it's pretty standard
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for Sea. I bumped into this tweet by David Marlin that shows their year over year total revenue and
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gross profit growth over the last 5 quarters and it's frankly pretty mind-blowing. In my opinion,
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these are the early innings for Sea, so I'm really surprised to see ARK Invest selling this stock at
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all. And speaking of which, here's one last thing I think ARK Invest doesn't see in Sea, yet.
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Between Garena's games and digital currency, Shopee's e-commerce solutions,
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and SeaMoney's digital finance offerings, Sea could end up being a leader in the metaverse.
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Garena is doing the same thing that games like Fortnite and Roblox do, where it hosts digital
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events in online lobbies and lounges for people to hang out, listen to music, and play mini-games.
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Also, earlier this year, Shopee rolled out the first virtual mall in coordination with IMM,
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which is Singapore's largest physical mall. The idea behind virtual malls today
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is that when physical malls are closed because of things like pandemics or natural disasters,
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you can still experience the mall online. People can log in and see product presentations,
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buy something, and have the mall ship it to their home. This even applies to food and drinks;
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you can go to a virtual cafe, hang out, and have that meal delivered in real life. And of course,
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SeaMoney can get hooked in to monetize online shopping in games, or online gaming in shops,
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however Sea wants it to, for example if a mall wants to run an interactive virtual event to
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incentivize real world purchases. I know the metaverse is probably a decade away still, but
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these are the seeds being planted today with the blending of physical and virtual experiences and
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Sea IS planting these seeds in each one of their offerings. Comment below or tweet me
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at ticker symbol you with your thoughts on Sea Limited. Do you think they can continue
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to dominate the quickly growing digital markets of Southeast Asia? Or do you think I'm missing
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something and agree with Cathie Wood's decision to slowly sell ARK Invest's shares in the company?
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My goal isn't to always assume I'm right, it's to become a better investor by sharing my research
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and my ideas with you. Until next time, this is ticker symbol you.
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My name is Alex, reminding you, that the best investment you can make, is in you.