Thread by @ProtagorasTO

1/ Finally bought some Sea ($SE) after months of due diligence. Current price is $177, here is my expected value:

Bear - $49 * 15%
Base - $140 * 60%
Bull - $377 * 25%

Price Target = $185

For a great summary checkout @juliey4’s substack. Instead, below is a thread on risks 👇

1/ Still Building its Moat - right now SEA’s entire strategic focus is on creating their flywheel which Free Fire (FF) is at the heart of. It generates the CF that is reinvested into Shopee and SeaMoney to drive growth and build their moats (free deliveries, R&D, etc.).

2/ Gaming Inconsistency - specific titles tend to ebb and flow as hits eventually lose their appeal to new games. Pre-covid, rev growth was expected to slow to <12%. Can Garena sustain FF’s growth, consistently create new hits, and renew it’s exclusive Tencent contract in 2023?

3/ Shopee TAM / Growth - current share price implies that Shopee needs to hit ~$1 TRILLION in GMV by 2035. For context, $AMZN is *only* at $330B GMV. GSEA ecommerce needs to grow faster than China. Not all of this is under SEA’s control (ie GDP growth), so it’s a material risk

4/ Geo-political / Regs - GSEA is politically unstable vs. more developed markets. The risk of expropriation (ie Russia, Venezuela, etc.) is low. Periodically you do see major disruptions such as the attempted coup in Thailand in 2014 but I think the more likely risk are regs..

5/ The 1st kind of reg creates complexity and higher operating costs (ie $FB content moderation). This may surface in various ways such as banking regs for SeaMoney (ie KYOC), content moderation of games for Garena, or authenticating fake or fraudulent goods on Shopee.

6/ The 2nd reg is controls on foreign ownership. Ie. Philippines, ride-hailing foreign ownership must be <40%, Vietnam limits ownership of gaming / payments, and Taiwan doesn’t allow for Chinese ownership >30% (Tencent does own ~30%). Worst case; SEA has to divest or set up JVs

7/ Competition - Shopee and SeaMoney marker leaders but large TAMs + fast growing + VC money = still at risk to upstarts. Lazada, Tokopedia, and Bukalapak in Indonesia continue to raise $, expect at least two to merge and create a more formidable player

Source: @AndrewNutter1

8/ Concentration Risk - 95% of rev from 5 games, 50% from Free Fire. Risk of price increases from devs / publishers during licensing negotiations. >70% of Shopee GMV from Taiwan and Indonesia. Competitive or political pressure in these markets would materially impact growth.

9/ OK that's a lot. IMO the two most important things to watch for during quarterly earnings are 1) growing new and active users on Garena, especially Free Fire and 2) Shopee market share gains while decreasing S&M / promo spend