Billionaire Howard Marks is one of the most respected value investors alive. He co-founded Oaktree Capital and is famous for his investor memos, the ones Warren Buffett says he reads first.
His fund recently disclosed a new position in Sea Limited (NYSE:SE) worth about $60.9 million.
Sea is a Southeast Asian tech company. It runs an online shopping platform, a fintech arm, and a video game business. The stock is down about 30% over the past year. Why is billionaire Marks buying? Let’s see.
What Sea Limited Does
Sea’s Shopee is an online shopping platform in Southeast Asia, and it’s also growing fast in Brazil. Sea makes money on Shopee by taking a cut of each sale, charging sellers for ads, and running the delivery network. Monee is the fintech arm. It lends money to shoppers and small businesses. Garena is the games business. It makes money selling in-game items and upgrades.
Howard Marks of Oaktree Capital
The Latest Earnings
Sea revenue rose 48% year over year and beat Wall Street estimates.
Shopee revenue rose 49%. The value of goods sold on the platform grew 28%, and its high-margin ad business grew more than 70%. Management now expects Shopee to clear $1 billion in adjusted profit for the full year, its biggest profitability milestone yet.
Monee revenue rose 59%. Its loan book grew about 62%, and bad loans stayed low at 1% of the total. Active credit users grew 34% to more than 40 million.
Garena bookings rose 15%, and its profit grew 17%.
However, earnings per share came in below what analysts wanted, even as revenue beat. The company is spending to grow. It also kept buying back its own stock during the quarter.
The Bull Case
Sea has three growth engines, which means any slowdown in a segment can be offset by growth in others. Shopee is scaling and making real money. Its ad business is growing much faster than the platform itself, and ads carry high margins. A paid membership program is making shoppers stickier and spend more.
Monee has a long runway. Only a small share of Sea’s users borrow through it today, so there is a lot of room to grow, and credit quality is holding up.
Garena keeps producing. Free Fire is still huge years after launch, and new games are on the way. The company is profitable, sits on a large cash pile, and is buying back shares.
The Bear Case
The stock trades near 33 times forward earnings, so a lot of good news is already priced in. Competition is increasing. TikTok Shop is taking share in some markets, and Amazon and MercadoLibre are strong rivals in Brazil.
Currency headwinds is also a problem. Sea earns in emerging-market currencies that keep falling against the dollar, and management flagged that as a headwind for the rest of the year.
Its money lending business could face risks amid bad loans. Sea is pushing into riskier markets like Brazil. A credit downturn would hurt.
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