SE - Sea Limited ADR

[valueinvestor]

This is my flight to quality.

Sea Limited is a Tencent/Alibaba for all of South East Asia. A combination of Paypal/Venmo, Epic Games/Activision/EA, Amazon business in relatively stable economies growing at twice the rate of US.

It's expensive, trading at 50x earnings not factoring the cash on hand and their 100%+ revenue y-o-y growth.

I've spoken to people about the product, and they are really entrenched. The only competitors are backed by Alibaba, but essentially it's an oligopoly. Hopefully, I do not need to go through the economics of the business, because it's really a playbook straight from Tencent.

The reason, why I wanted to share, is because this investment is predicated that I do not want to be invested in cruise, airlines, hotels, subprime lenders and essentially the travel industry. Although I believe the long term they will be great investments, the recent ballooning from March lows made me want to trim those positions and not have them be a large part of my portfolio. 

In my eyes,

Downside - market tanks, values rerate, but business grows at a phenomenal rate into the valuation.

or

Upside - Market is released from all overhangs, and business grows at a ludicrous rate. 


Why invest now, as opposed to when they were $10-$15? There was a lot of uncertainty with their gaming platform and growth was plateauing, and there were execution risks. However, they are essentially at an inflection point, where mobile games are a new part of their business and they are migrating towards in-house titles, which will contribute nicely to their growth.

I think they are at a point, where they just need to literally bag the money being printed by their businesses.

Update:

Feel free to ask questions, if there are any parts of the business you do not understand, I'm at your service. I've been looking at the name for quite a while and decided to pull the trigger considering how well it performed during the dips and rallies. Earnings date will be on May 18, 2020 - and I do not think markets are fully appreciating the growth they will experience, considering COVID is not much of an issue as it is in the West.

[jhcap]

Recently heard about this company in the Aquirers Podcast about Esports with Will Hershey. Their online gaming platform is growing tremendously. Interview here: https://www.youtube.com/watch?v=oSxqf4j3Xm4

[keerthiprasad]

Great company, Tencent's proxy in their SE asia battle. How do you decide what a fair price for this business is?  I keep watching the price go up...

[Xerxes]

i have Tencent + Alibaba and need to add SEA + Mercadolibre + Grab to complete my non-U.S. e-commerce/gaming/ride-hailing portfolio.

I got Grab through Uber.
SEA + Mercadolibre keep escaping me.
Both are at around $30B, with plenty room to grow to +$200B powerhouses.

[valueinvestor]

Great company, Tencent's proxy in their SE asia battle. How do you decide what a fair price for this business is?  I keep watching the price go up...

I've basically run several DCF and thought this was an attractive entry point from a risk-reward standpoint. As mentioned they are at an inflection point, where they fixed most of the issues that made them not solid, and therefore at the stage to print money.

Assumed growth rates at 25%, 50%, 100%, which is all lower than what they are currently growing at and everyone is discounting that COVID-19 is a plus in their business. Not to mention, COVID-19 is less of an issue in that part of the world, where their GDP is growing at twice the rate.

However, if I had to make a bet, I would bet on SEA.

[valueinvestor]

i have Tencent + Alibaba and need to add SEA + Mercadolibre + Grab to complete my non-U.S. e-commerce/gaming/ride-hailing portfolio.

I got Grab through Uber.
SEA + Mercadolibre keep escaping me.
Both are at around $30B, with plenty room to grow to +$200B powerhouses.

Maybe take some SHOP? Kidding.

I feel Mercadolibre is a well-run company but the upside relative to SEA is lower, and the geographies covered are less solid than the countries SEA serves.

[rogermunibond]

Thoughts on Prosus? 

[thepupil]

Thoughts on Prosus?

this is a helpful intro to Prosus / discount reasons

https://seekingalpha.com/article/4336263-why-prosus-is-selling-hefty-discount

I like to buy it when the discount blows out AND 700HK is selling off. Prosus is a nice backdoor into 700HK and I think wearing the discount/capital allocation risk is positively skewed when the discount is very high (many stock pickers hate this though and go straight to the pure company). Naspers is usually cheaper but when I looked at it last Prosus was like 35-45% discount and Naspers was 50-60%. I'll take the lower but still ginormous discount without the South African overlay.

right now $140 billion of Prosus buys you $160 billion of 700HK (both in USD) if my quick calc is right. like a CEF the discount tends to be pro cyclical (this is an anecdote not backed by data) so when 700HK/market go down PRX goes down more and vice versa.

700HK is 10% off all time highs and appears to be doing well. with volatile opaque chinese internet companies, I take the approach of having a small position and trading around it. in my 5+ years of hearing people talk about 700HK/BABA/whatever sentiment as to who is winning whatever the topic of the day changes a lot and i don't really pretend to have a view beyond "China! The Internet! Social Media! Gaming!"

I've always counted everything else Prosus does at $0 and just prefer to view it as a 700HK trading vehicle; others think their investments will destroy value.

[Xerxes]

My view is that if you want exposure to Tencent, than just buy Tencent.
Don't buy Prosus to get Tencent, or Nasper before it.
Don't buy SoftBank to get AliBaba.

i understand the large discount, but unless your bet is specifically aimed on the discount narrowing, in which case the trade should be long SoftBank / short Alibaba or long prosus / short Tencent, than don't bother.

Just buying Prosus or just buying SoftBank (as Alibaba proxy) would mean in my opinion a double bet, one on the underlying business and also on the narrowing discount. The reality is that the discount is there for a reason and unlikely to close for tax reasons and whatever.

just my opinion

 

[valueinvestor]

My view is that if you want exposure to Tencent, than just buy Tencent.
Don't buy Prosus to get Tencent, or Nasper before it.
Don't buy SoftBank to get AliBaba.

i understand the large discount, but unless your bet is specifically aimed on the discount narrowing, in which case the trade should be long SoftBank / short Alibaba or long prosus / short Tencent, than don't bother.

Just buying Prosus or just buying SoftBank (as Alibaba proxy) would mean in my opinion a double bet, one on the underlying business and also on the narrowing discount. The reality is that the discount is there for a reason and unlikely to close for tax reasons and whatever.

just my opinion

+1