Jump to content

Recommended Posts

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.

Link to post
Share on other sites
  • Replies 68
  • Created
  • Last Reply

Top Posters In This Topic

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.

 

 

Link to post
Share on other sites

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.

 

 

 

Link to post
Share on other sites

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.

Link to post
Share on other sites

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.

Link to post
Share on other sites

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

 

 

Link to post
Share on other sites

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

Link to post
Share on other sites

I don't want to muck up the Sea thread any more than I already have, but another strategy is to go long $100 of say the Prosus ADR in an IRA and then short $20-$100 of 700HK in your taxable (depending on your desired exposure). I've done this to be net long the company while using the general growth in value of the company to generate tax losses from a highly correlated (but importantly, not substantially identical) security.

 

Example:

Long $100 of PROSY in IRA

Short $40 of 700HK in taxable.

 

both stocks go up 30%, you have $30 gain in IRA (ideally a roth) and $12 loss in taxable and you're now $130 / $52, you can then collapse the trade and gain $30 in your tax advantaged, lose $12 in your taxable, then sell something else with $12 of gains in your taxable and re-buy it. the result is no taxable gains and a higher basis in the re-bought security.

 

in general being long something in your IRA and short highly correlated similar things in the taxable is a good way to generate losses in an up market. you obviously want to do it with actual investing in mind.

 

Link to post
Share on other sites

I don't want to muck up the Sea thread any more than I already have, but another strategy is to go long $100 of say the Prosus ADR in an IRA and then short $20-$100 of 700HK in your taxable (depending on your desired exposure). I've done this to be net long the company while using the general growth in value of the company to generate tax losses from a highly correlated (but importantly, not substantially identical) security.

 

Example:

Long $100 of PROSY in IRA

Short $40 of 700HK in taxable.

 

both stocks go up 30%, you have $30 gain in IRA (ideally a roth) and $12 loss in taxable and you're now $130 / $52, you can then collapse the trade and gain $30 in your tax advantaged, lose $12 in your taxable, then sell something else with $12 of gains in your taxable and re-buy it. the result is no taxable gains and a higher basis in the re-bought security.

 

in general being long something in your IRA and short highly correlated similar things in the taxable is a good way to generate losses in an up market. you obviously want to do it with actual investing in mind.

 

Hey if your posts are like this - muck it up more.

Link to post
Share on other sites

First Quarter 2020 Highlights

Total adjusted revenue was US$913.9 million, up 57.9% year-on-year from US$578.8 million for the first quarter of 2019.

Total gross profit was US$206.8 million, up 424.1% year-on-year from US$39.5 million for the first quarter of 2019.

Total adjusted EBITDA was US$(69.9) million compared to US$(32.0) million for the first quarter of 2019.

 

Digital Entertainment

Adjusted revenue was US$512.4 million, up 30.3% year-on-year from US$393.3 million for the first quarter of 2019.

Adjusted EBITDA was US$298.4 million, up 32.2% year-on-year from US$225.8 million for the first quarter of 2019.

Adjusted EBITDA margin increased to 58.2% for the first quarter of 2020 from 57.4% for the first quarter of 2019.

Quarterly active users (“QAUs”) reached 402.1 million, an increase of 48.0% year-on-year from 271.6 million for the first quarter of 2019.

Quarterly paying users grew by 72.5% year-on-year to 35.7 million, accounting for 8.9% of QAUs for the first quarter of 2020, increasing from 7.6% for the same period in 2019.

Average revenue per user was US$1.3 compared to US$1.4 for the first quarter of 2019.

Our self-developed global hit game, Free Fire, recently hit a new record high of over 80 million peak daily active users and, according to App Annie1, was the highest grossing mobile game in Latin America and in Southeast Asia in the first quarter of 2020. Free Fire was also ranked third globally by downloads for Google Play in the mobile games category in the first quarter of 2020, according to App Annie1.

In April 2020, Free Fire hit another record high in monthly paying users, which more than doubled year-on-year, and in India, monthly paying users already accounted for over 10% of monthly active users.

We continue to focus on esports and community building activities to engage with our rapidly expanding user base. In the first quarter of 2020, we organized more than double the number of esports tournaments online for Free Fire compared to the first quarter of 2019, with these tournaments accumulating over 90 million views.

 

E-commerce

Gross merchandise value (“GMV”) growth accelerated to 74.3% year-on-year to reach US$6.2 billion for the first quarter, compared to 64.8% year-on-year in the fourth quarter of 2019.

Gross orders totaled 429.8 million, an increase of 111.2% year-on-year from 203.5 million for the first quarter of 2019.

Gross orders growth further accelerated to more than 140% year-on-year in April 2020.

Adjusted revenue was US$314.0 million, up 110.5% year-on-year from US$149.2 million for the first quarter of 2019.

Adjusted revenue included US$236.7 million of marketplace revenue2, up 132.1% year-on-year from US$102.0 million for the first quarter of 2019, and US$77.3 million of product revenue3, up 63.6% year-on-year from US$47.2 million for the first quarter of 2019.

Adjusted revenue as a percentage of total GMV increased to 5.1% in the first quarter of 2020, up from 4.2% for the same period a year ago. Adjusted marketplace revenue as a percentage of total GMV was 3.8 % in the first quarter of 2020.

Sales and marketing expenses were US$206.0 million, compared to US$147.9 million for the first quarter of 2019.

Adjusted EBITDA was US$(260.0) million compared to US$(235.3) million for the first quarter of 2019. Adjusted EBITDA loss per order decreased by 48.3% to US$0.60, compared to US$1.16 for the first quarter of 2019.

In Indonesia, where Shopee is the largest e-commerce platform by orders, it registered over 185 million orders for the market in the first quarter, or a daily average of over 2 million orders, an increase of 122.6% year-on-year. Shopee also ranked first in Indonesia by average monthly active users, downloads, and total time spent in app on Android, in the Shopping category in the first quarter of 2020, according to App Annie1.

Both in Southeast Asia and in Taiwan, Shopee ranked number one in the Shopping category by average monthly active users, and total time spent in app on Android, for first quarter of 2020, according to App Annie1.

Shopee also ranked number one in the Shopping category by downloads in Southeast Asia, and was among the top three worldwide by downloads in the same category for first quarter of 2020, according to App Annie1.

Link to post
Share on other sites
  • 4 weeks later...

Any reason why SE is up 8%? Due to the run-up, it's hard not to escape the thought of trimming, but I don't really have any better ideas.

 

It doesn't seem fundamental, as many "Chinese" stocks are up today, such as Kingsoft Cloud, maybe investors are more comfortable owning these securities.

Link to post
Share on other sites

SE is not Chinese.

 

Any reason why SE is up 8%? Due to the run-up, it's hard not to escape the thought of trimming, but I don't really have any better ideas.

 

It doesn't seem fundamental, as many "Chinese" stocks are up today, such as Kingsoft Cloud, maybe investors are more comfortable owning these securities.

Link to post
Share on other sites

SE is not Chinese.

 

Any reason why SE is up 8%? Due to the run-up, it's hard not to escape the thought of trimming, but I don't really have any better ideas.

 

It doesn't seem fundamental, as many "Chinese" stocks are up today, such as Kingsoft Cloud, maybe investors are more comfortable owning these securities.

 

Hence “Chinese” in quotes.

 

Tencent backs Sea

Link to post
Share on other sites

True - As a diversification play for SE Asia.

 

Glad to see some positive action on KC as well.

 

SE is not Chinese.

 

Any reason why SE is up 8%? Due to the run-up, it's hard not to escape the thought of trimming, but I don't really have any better ideas.

 

It doesn't seem fundamental, as many "Chinese" stocks are up today, such as Kingsoft Cloud, maybe investors are more comfortable owning these securities.

 

Hence “Chinese” in quotes.

 

Tencent backs Sea

Link to post
Share on other sites

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.

Link to post
Share on other sites

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.

Link to post
Share on other sites
  • 4 months later...

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%+

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.




×
×
  • Create New...