Sea Earnings: Raising Fair Value 28% After Impressive Growth, but Long-Term Competitive Risks Linger

We raise our fair value estimate for Sea by 28% to $60 per share after better-than-expected first-quarter revenue, gross merchandise volume, or GMV, and operating margin. Our valuation increase is driven by a less gloomy outlook for the gaming business, Garena, as well as slightly higher monetization and lower marketing expense forecasts for the e-commerce business, Shopee. The company’s revenue of $3.7 billion was 8% higher than our estimate, but more importantly, Sea was able to increase GMV by 36% year on year while raising its monetization by 40 basis points sequentially, with marketing expenses being 13% less than our forecast. We lowered our marketing expenses by 17% on average for the next 10 years, which contributes most of the valuation change.