Sea Limited (SE +7%) saw significant gains today following a strong Q4 performance with notable revenue growth and improved profitability. This Southeast Asian e-commerce, gaming, and financial services powerhouse has effectively enhanced Shopee's profitability and increased Free Fire users, while strengthening its financial services, contributing to its consistent quarterly growth.

• In Q4, Shopee's gross orders surged 20% year-over-year to $3.0 billion, with gross merchandise volume (GMV) rising faster to $28.6 billion. E-commerce adjusted EBITDA reached $152 million, reversing a $(225) million loss from the previous year. Livestreaming accounted for about 15% of Shopee's order volume, with management highlighting that improved live streaming unit economics will boost Shopee's profitability this year.
  • Live shopping streams, popular in China, have been led by e-commerce giant Pinduoduo (PDD, Financial), prompting competitors like JD.com (JD, Financial) and Alibaba (BABA, Financial) to develop similar offerings. This trend is expanding globally, including Bytedance's TikTok Shop.
• Digital Financial Services saw a 30% revenue increase year-over-year, with adjusted EBITDA exceeding $700 million. SE's loan book grew over 60% in Q4, surpassing $5.0 billion, making it a leading consumer lending business in Southeast Asia. Importantly, SE added 4 million first-time borrowers without increasing risk, maintaining a stable 90-day nonperforming loan ratio of 1.2%.
• In Digital Entertainment, Free Fire's resurgence in 2024 led to a 19% rise in bookings and a 33% increase in adjusted EBITDA to $290 million. SE credits Free Fire's rebound to user engagement strategies, emphasizing accessibility as the game runs smoothly on various devices across 160 markets, crucial for long-term growth.
• SE is optimistic about 2025, expecting growth across all sectors. Shopee's GMV is projected to grow around 20%, with profitability improvements. In Digital Financial Services, SE anticipates loan book growth outpacing Shopee's GMV growth. In Digital Entertainment, SE aims to expand its user base and content, driving a double-digit year-over-year increase in bookings and users.

SE's robust Q4 results highlight management's focus on profitable growth. Despite investor concerns in late 2023 over SE's shift back to growth after prioritizing profitability, the company demonstrated the necessity of expanding its top-line to counter competitive pressures. Following volatility, SE proved its strategic direction was sound, and we remain positive about its future amid potential economic challenges.