One of the key aspects when it comes to investing in a stock is to ensure we understand what the particular company does and how it generates revenue.
On that note, let’s find out more about Singapore-headquartered business Sea Ltd (NYSE: SE) and how it makes money.
Sea Ltd’s Revenue Drivers
Sea has three main business segments, and they are:
- Digital entertainment (Garena)
- E-commerce (Shopee)
- Digital financial services (SeaMoney)
The following table shows Sea’s revenue breakdown for its financial year ended 31 December 2020:
|Revenue in 2020
|Digital entertainment revenue
|E-commerce and other services revenue
|Sales of goods revenue
We can see that the bulk of Sea’s sales last year came from its digital entertainment business, Garena. This segment represented 46% of total revenue.
This is followed by e-commerce and other services (which includes SeaMoney), and sales of goods (comes mainly from Shopee).
Sea’s businesses may seem disjointed, but they actually come together to form an ecosystem. That’s probably why Sea’s tagline is “connecting the dots”.
Sea’s digital entertainment business, Garena, is a global game developer and publisher.
On top of exclusively licensing and publishing games developed by third parties including Tencent (Sea’s shareholder), Garena also develops engaging mobile and PC online games localised for each market.
In December 2017, Garena launched its first in-house developed game, Free Fire, a battle royale mobile game. It became an instant hit.
The digital entertainment business segment makes money mainly by selling its game players in-game items, which include in-game virtual items like digital representations of functional or decorative items, as well as season passes.
Digital representation of functional or decorative items are things like clothing, weaponry or equipment, which players can purchase and use within the game environment to enhance their gameplay experience.
Garena offers many ways for users to purchase in-game items, including through its SeaMoney platform and its own prepaid cards, which are sold through agents.
Investors would probably recognise Shopee better as it’s the most consumer-facing business of Sea.
Sea’s Shopee e-commerce platform is a mobile-centric, social-focused marketplace. It competes with the likes of Amazon, Lazada, and Qoo10 in Singapore.
Although Shopee is predominantly a marketplace, it also purchases some products from manufacturers or third parties directly and sells them on the Shopee platform under its official store.
Shopee makes money largely by:
- Offering sellers paid advertising services
- Charging transaction-based fees
- Charging for certain value-added services
Shopee’s revenue also includes sales of products sold directly by the company. According to Sea, bulk purchasing and direct product sales for specific product categories enable the company to offer a better product assortment and more competitive prices to its buyers.
Buyers from Shopee are able to pay through regular means such as credit cards and also through its ShopeePay system (under the SeaMoney business).
SeaMoney is a digital financial services provider offering mobile wallet services, payment processing, credit-related digital financial offerings, and other financial products.
These services and products are offered in various markets in this region under AirPay, ShopeePay, SPayLater, and other digital financial services brands.
SeaMoney makes money by charging commissions to third-party merchants (with respect to its mobile wallet services) and by earning interests and fees from borrowers (with respect to its loans business).
The commission charged is either at a fixed rate or a certain percentage of the transaction value flowing through SeaMoney’s platform.
In December 2020, Sea’s wholly-owned subsidiary in Singapore was selected for the award of a digital full bank license here. The digital bank, which will be under SeaMoney, should start operating in 2022.
With the consumer data and analytics it has from its Shopee, Garena, and SeaMoney platforms, the new digital bank could provide innovative products and services to cater to the ever-changing needs of consumers.
What Are Your Thoughts on Sea Ltd?
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer owns shares in Sea Ltd.