Trouble in SEA Ltd 2022?

Once a priced unicorn of ASEAN especially in Singapore, despite its 2022 headwinds the company is still one of the region’s biggest players in the e-commerce, digital payment, and game development space.

The value of the company has fallen from USD$364 at its peak to its current price of $56. That’s a destruction of 84.6% of shareholder value.  In this blog post, we are going to find out if SEA LTD is a value trap or undervalued stock.

Disclaimer: I don’t have any active position on SEA LTD stock as of 28 Nov 2022.

SEA LTD Core business health.

The above bar graph shows Cash Flow from Operations(blue) & Net income from continuing operations(orange).

Based on the Cash flow from operations, we can assume that the core business is still highly unprofitable. The company only saw positive cash flow during the 2020 Covid lockdown. During this time, many people are only able to spend through digital platforms only.

As seen from the historical result, Q3 and Q4 were the company’s highest revenue months. This is probably due to seasonal events like singles sales, cyber-Monday, black Friday, and the Christmas season.

However, Net income from continuing operations also went deeper in the red during Q3 & Q4. This is probably due to the increase in COGS, Marketing expenses, etc….

2022, Q3 & Q4 has experienced very bad result. This can be due to:

  1. Inflation and economic uncertainty.
  2. Consumers are catching on to the fake discount gimmick.
  3. People are tired of cheap & low-quality China goods.
  4. Intense competition from Lazada, Qo10, ShopBack, TikTok etc…
  5. The aftereffect of Over hiring and aggressively expanding from 2020.

Problem with SEA ltd.

In terms of revenue, SEA’s e-commerce arm is the largest contributor to the Group revenue stream, followed by Digital entertainment then, Digital finance services.

Q3 2022 Total GAAP revenue
Ecommerce Entertainment Digital Finance
1.9 billion 892.9 million 326.9 million

However, if we were to look at its EBITDA, we would have:

Q3 2022 EBITDA
Ecommerce Entertainment Digital Finance
(495.7 million) 289.9 million (67.7) million


Based on this SEA Ltd is a Digital entertainment company since only this business arm is running a profit.

Major red flag

If we were to dig a little deeper, SEA ltd digital entertainment’s revenue is being carried by free fire… a battle royal game

As stated in their 2021 annual report,

“In 2021, our top five games, comprising Free Fire and games licensed to us by thirdparty game developers, contributed 97.4% of our digital entertainment revenue, among which Free Fire contributed a significant portion”.

The astronomical problem here is

  1. Their digital entertainment is basically a single app called “Free fire.”
  2. Their most successful games are all licensed from 3 party developers. The IP doesn’t belong to them.
  3. They have consistently failed at becoming an in-house game developer studio.

At this point, I wouldn’t consider this a digital entertainment company. I would consider this a company that got lucky with one licensing deal….

Another issue with Free fire is that its most popular among developing nations in ASEAN and Latin America… If there are going to be more global headwinds, I am afraid that the financial result would suffer even more. This decline in revenue has already been felt by the Group’s digital entertainment arm as the number of bookings, paying users and active users saw a continuous decline since 2021.

Comparing SEA with Amazon

Its common knowledge that Amazon’s E-commerce business was hemorrhaging money for many years of its existence. It was AWS and cheap debt and Venture capitalist funds that made the company where it is today. In early 2017 most retail investors bought into the idea that SEA Ltd was going to be the amazon of ASEAN, and investing in the company would mean double-digit growth. However, what most retail investors failed to consider is,

  1. Amazon has a highly profitable business arm known as AWS. A cash cow for them to expand and grow at all costs. SEA LTD does not.
  2. The USA is just one huge market with mostly the same laws governing all its territories. Whereas ASEAN is a very fragmented market, that requires a more complex logistics system to operate as they are all different nations and unlike the EU, ASEAN doesn’t operate on a single market model.
  3. ASEAN is still poor, unlike the US which is the largest consumer market in the world. Many of the items sold on the e-commerce arm are cheap and made in China. Hence the price power of SEA LTD’s Shopee is inferior compared with amazon. Thus fees chargeable would be lower too.


I am not buying SEA ltd as buying the group is essentially buying the Licencing deal to Free Fire only. The rest of the operation is bleeding an insane amount of money in a high-interest-rate environment. Plus, the market the SEA ltd is serving is not as developed. Unlike the richer western market where these business model(e-commerce, digital financing, and entertainment) has proven to be viable.