Sea Limited (NYSE:SE)

By: Jacob Mermelstein  |  November 25, 2020

By Jacob Mermelstein

Sea limited is a holding company that conducts business through its subsidiaries which are: Garena, Shopee and SeaMoney. Garena’s inception occurred in 2009 as a digital entertainment business focused on offering mobile and PC online games through partnerships and licensing agreements while also self-developing mobile games for the global markets. Their self-developed game free-fire has been their source of virality expanding its reach to over 130 markets. In 2014, Sea Limited launched a financial services platform, SeaMoney. As of 2019, it offers e-wallet services, payment processing, and credit related digital financial offerings. These products are branded under the names AirPay, ShopeePay, and ShopeePayLater. In 2015, it launched its ecommerce platform, Shopee. A Marketplace that adopts a mobile first approach in connecting buyers and sellers. It offers sellers integrated payment, logistics, fulfillment, and other value-added services. Shopee’s user platform has a social nature, allowing users to follow, rate, and play micro-games with one another. Its marketplace offers a vast selection of products provided by third party vendors and sold directly to buyers.

All three businesses operate together like a feedback loop, each helping the others business. Garena provides Shopee with the games necessary to attract more customer engagement. SeaMoney provides the digital financial services offered on Shopee. Shopee increases customer usage to both other companies’ services thereby successfully scaling all three businesses. The integration is brilliant and has increased scalability and revenue of each business.

Garena — Digital Entertainment

Garena is a digital entertainment business focused on developing and publishing games in-house. It is also expanding its offering to its users through licensing third party games. Within its games, it has entrenched longer engagement through entertainment content, such as livestreaming of online gameplay, as well as social features, like user chat and online forums. The business is a leading catalyst in Esports hosting events, competitions, and professional teams that garner the interest of thousands of spectators. Its business has a global presence with users from Southeast Asia, Taiwan and Latin America.

 Game offerings:

Garena supplies its gamers with multiple genres of gaming modes. Here are some categories of Garena games: MOBA — a multiplayer online battle arenas are games like battle royal,  RPG — an action role-playing are games like call of duty, MMORPG — a massively multiplayer online role-playing games like GKART, a racing game.

Garena has catered to the increasingly popular mobile gaming market with its wide selection of popular games. Most importantly its partnership with Tencent has provided additional selections for its gaming community. To name a few: League of Legends, Arena of Valor, and Speed Drifters are owned by Tencent Holdings Limited. Garena has obtained the right of first refusal to games it selects from Tencent.


The one game that provides a majority of revenue for Garena is its home-made game Free-fire. It has 100 million active daily users. The most downloaded mobile game globally for the full year of 2019 across the Google Play and iOS App Stores combined, according to App Annie. Most recently in Q2 2020 management announced a doubling in paying users for the month of July. The app is remaining popular and conversion rates to paid users are increasing.

 Garena’s Audience:

“QAU’s” quarterly active users was 500 million with a CAGR of 61% Y/Y.  “QPU’s” quarterly paying users were 50 million with a CAGR of 91% Y/Y. A 2019 research report from Newzoo and Niko Partners stated that it was number one in market share in southeast Asia by revenue in the combined PC and mobile game market in 2019 (Seen in 10-k).

Monetization: How does Garena make money?

All downloads of its games begin with the “freemium” model that allows users to download and play fully functional games for free. Revenue is gained by selling game players in-game items such as clothing, weaponry or equipment and season passes for their characters. The incentive for in game items is progress, better social interaction and more personalized experience.

 Shopee – Ecommerce

Shopee is a mobile centric ecommerce platform that cleverly integrates social media, gaming, logistical infrastructure, and comprehensive buyer/seller services. Shopee’s hosts mainly small to midsize businesses in addition to its own products purchased from third parties to fill demand. Shopee provides its services to Indonesia, Taiwan, Vietnam, Thailand, Philippines, Malaysia, Singapore, and Brazil. Its buyers mainly purchase from sellers within their market. However, buyers can purchase from different markets in other countries. Its strategy has been fruitful in growing GMV (gross merchandise volume) and monetizing its customer base.


Shopee maintains its brand name through cultivating trustworthy relationships with its buyers and sellers.

Buyer protection:

Seller verification — Sellers undergo a verification process and agree to terms and conditions.

Listing screen—  Listings are screened for illegal goods and sellers deemed risky are not visible on the platform until manually cleared by compliance. Violations result in permanent removal from the platform.

Shopee guarantee — Payments made by buyers are held from the seller until the product is confirmed to have been received.

Dispute resolution — Support teams help buyers with disputes and any compensation they seek from a seller.

Seller Support:

Shopee Platform provides operational, technological, logistical and payment solutions in addition to a support team with local knowledge of their market.

Value added services, “Service by Shopee” – offers inventory and revenue management, online store setup, delivery and payment collection, and fulfillment.

Social + Gamification = Network effects

Shopee uses social media and in-app mini-games to increase user engagement and expand network effects. This strategy is broken down into four segments:

“Shopee Games” — In app mini-games that encourage interactions between users by rewarding Shopee coins. Recruiting friends proves most rewarding monetarily for players within games.

“Shopee Coins” — Users win coins and purchase items at a discount when participating in mini-games and campaign activities promoting the Shopee platform.  

“Shopee Live” — Real time engagement for sellers to interact with buyers on a livestream and promote sales and brand awareness.

“Shopee Feed” — Multi-media feature providing buyers with a scroll down feed. Features include likes, comments, trending products, “followed” sellers’ products, and previous browsing categories.

These four strategies are critical to improving network effects. Shopee is expanding its reach by creating a reliable ecosystem and one stop shop for sellers and buyers. Buyers recruiting friends provides sellers with a larger audience and more sales. The value of a game increases for buyers playing it when there are more participants since increases in competition garners larger rewards for winners. Network effects are most important on Buyers “social media” where they can scroll through their feed, interact with friends and sellers, and buy products at a discount for playing games. Sellers will flock to the platform that has the best audience and user engagement. Overall, network effects are critical for all participants of Shopee’s platform since more participants increases value for all.

Monetization —  How does Shopee make money?

Advertising services — Paid by sellers promoting their product.

Transaction basedfees —  Each transaction allocates revenue to Shopee as a fee for its platform service.

Valueadded services — Inventory management, online store operations, and fulfillment services.

Service by Shopee” — Shopee’s store purchases products from third-party sellers to reselling on its own store called “Service by Shopee”.

SeaMoney — Digital Financial Services (DFS)

SeaMoney is a digital financial service that completes the feedback loop of Sea Limited’s businesses. Its three services are e-wallet services, payment processing, credit related. These services are found under the names AirPay, ShopeePay and ShopeePayLater. Sea limited’s revenue is impacted the least by SeaMoney. The company is in an early developmental stage trying to break away from its original purpose as only an integration for Shopee and join its competitive industry on a global level. Currently a majority of SeaMoney revenue is from servicing Shopee’s customer transactions. Its operations have reduced payment friction and operational efficiency. Striving for a larger market to service it has been able to expand its customer list beyond Shopee and into several industries in southeast Asia. Those include telecommunications companies, entertainment service providers, movie theaters, amusement parks, utility service providers, food delivery service providers, credit card issuers, banks, insurance companies, and car leasing companies. Its wide range of customers is a testament to its applicability to an increasing number of industries and was ranked the leading financial services provider in southeast Asia. As of its recent annual filing, It has obtained licensing to Vietnam, Thailand, Indonesia, the Philippines and Malaysia, and to provide loans in Thailand and Indonesia.

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