SE - Sea Limited ADR

[valueinvestor]

Any reason why? What’s your insight on Kingsoft? I understand the business, but I don’t understand their competitive advantages.

[arcube]

Sorry Bud. No insight on KC at all. I just bought a tiny tracker position. On SE, I believe a GS upgrade might be coming as well as a digital banking license. Will dig more.

Any reason why? What’s your insight on Kingsoft? I understand the business, but I don’t understand their competitive advantages.

[valueinvestor]

No worries! If I find out anything, I’ll be sure to give you a pm.

[arcube]

KC reported, street likes.

First Quarter 2020 Financial Highlights

    Total revenues were RMB1,391.0 million (US$1196.4 million) in the first quarter of 2020, representing an increase of 64.5 % year-over-year.

    Gross profit was RMB70.8 million (US$10.0 million) or 5.1% gross margin in the first quarter of 2020, compared with gross loss of RMB45.1million or -5.3% gross margin in the first quarter of 2019.

    Non-GAAP gross profit2, was RMB74.2 million (US$10.5 million) or 5.3% Non-GAAP gross margin in the first quarter of 2020, compared with Non-GAAP gross loss of RMB44.6 million or -5.3% Non-GAAP gross margin in the first quarter of 2019.

    Net loss was RMB331.6 million (US$46.8 million) or -23.8% net margin in the first quarter of 2020, compared with net loss of RMB201.4 million or net margin of -23.8% in the first quarter of 2019.

    Non-GAAP EBITDA3, was RMB-39.4 million (US$-5.6 million) or -2.8% Non-GAAP EBITDA margin, compared with RMB-108.8million or -12.9% Non-GAAP EBITDA margin in the first quarter of 2019.

No worries! If I find out anything, I’ll be sure to give you a pm.

[valueinvestor]

SEA downgraded by BofA today to $164 and yet up 9%?

Just an unfounded guess, but they'll have a breakout quarter, stock rises and they will raise unsecured capital cheaply to invest in their moat, even though they are cash-flow positive, but optically cash-flow negative.

Valuation is quite frothy and bubble-worthy, but comparing it to other bubble stocks in countries with low GDP growth - it still cheap (i.e. Shopify).

Absolute terms, it makes me super skittish. The downside is high from here.

Here's the napkin math:

Market Cap: 83B

Free Fire, if using Fornite as a comparable is worth $22B. In fact, I believe Free Fire has more active users than Fortnite.

Shopee - $2B at 5x (althought some are at 10x) multiple = $10B

Cash around $1.5B

Remaining value for the company such as Digital Bank/Payments? $50B

Downside -40%+

[Simba]

valueinvestor:

Shopee - multiple at 5x looks low for the growth it has. Unless growth slows down materially in 2021... always a possibility. Also I have $631.3M revenue for 1H2020 for e-Commerce, if they grow at 100% for 2H20 they'll be at about $1.6B for FY2020.

Digital Finance services - Revenue of $16M, $13M and $11M of revenue in 2017, 2018, 2019 respectively. 1H2020 was $22.6M revenue ($45M annualized).. As for quick dirty valuation- $SQ is 10x trailing sales.... $STNE is 77x TTM sales. Pick your poison on the multiple. (Using 77x of $STNE nets you $3.4B for digital payments for $45M annualized 1H2020 revenue). I know I know Back of the envelope math here.

Garena - How did you compare Fortnite to Freefire? On the P/S Multiple? Also if you look at other gaming companies ($ATVI 7.6x ttm sales, $TTWO 5x ttm sales, $EA 6x ttm sales, $ZNGA 5x ttm sales) they are not trading like relatively crazy "tech" multiples. So I'm not sure why Mr. Market is applying a premium to Garena (T12M revenue was $1.5B so at your $22B valuation your assuming 14.6x ttm sales)

[valueinvestor]

Free Fire is a different beast and comparables should be towards Fortnite and Epic Games.

Economics of the business is different from Call of Duty and other console/PC games, hence $220 per user.

As for Shoppe  revenue, I just rounded. It’s “only” a 2B dollar difference.

Either way we slice it, we have a tens of billions in excess in overvaluation. 

[Gregmal]

Yea, agree on the above. Grossly expensive but in the sweet spot in an area I love the outlook of and rather than be another dork with a calculator griping about the euphoria, I'll take a small flyer here, ~$170, and if were get a 50% drawdown I'll play ball. Wouldn't be the first time. If it keeps ripping, I like that too. These are the types of companies you either have to buy at horrible valuations or come to terms with never owning.

[Xerxes]

Gregmal
How about light speed LSPD at $5 billion market cap than Sea at $83 billion.

If I am going to go with a high market cap on an absolute basis it would be Mercaodolibre, given its entrenchment.

[Gregmal]

I dont know much at all about LSPD. MELI I was a dork with a calculator for too long and missed it. Its a gem though.