Sea Earnings: Raise Fair Value by 65% as Outlook Improves Due to Robust Growth and Profitability

We are raising our fair value estimate for Sea by 65% to $109 per share from $66 after it posted impressive third-quarter 2024 revenue of $4.3 billion, representing a 31% increase year over year. Adjusted operating margin also increased 760 basis points to 4.9% during the same period as Sea finally showed the ability to achieve gross merchandise volume growth concurrently with increasing profitability. We believe this reflects an inflection point and structural change for Sea as it appears to have addressed the underlying issue that tempered our outlook, where the company was unable to achieve robust growth without compromising profitability on its platform and vice versa. We think Sea has partially resolved the issue by increasing monetization rates from the sellers on the platform, as well as increasing the ad load and charging higher fees for advertising on the platform. GMV grew 25% year on year, while e-commerce revenue increased by 41%. Profitability was driven by lower sales and marketing expenses, which declined 4% year over year, and an increase in monetization rate of 160 basis points at the same time to 12.7%.