Is it too late to get into this millionaire action?
2020 was a pivotal year for Limited sea (NYSE: SE). The stock went under the radar of most investors after it went public in the United States in late 2017, but e-commerce demand sent the company’s Shopee app into the stratosphere during the pandemic. As a result, with only a few weeks left in 2020, shares of Sea Limited rose nearly 400% on the year, valuing the company at a market cap of nearly $ 100 billion.
Sea has made early investors a lot of money, but it’s far from too late to get on board this millionaire stock if an investor sees the ultimate potential at least in a few years.
E-commerce is a breathtaking opportunity
Total retail purchases worldwide are expected to reach over $ 23 trillion this year and exceed some $ 26 trillion in 2022 by some estimates as the effects of COVID-19 abate. That’s a staggering dollar figure to understand, and it explains why ecommerce stocks are flying so high this year. Even after more than a decade of rapid expansion, digital retail still represents a minority share of consumer spending, even in the most technologically advanced economies. In emerging markets like Southeast Asia, e-commerce is a single-digit percentage of the total. Suffice to say that the opportunity is enormous.
Image source: Getty Images.
Speaking of Southeast Asia in particular, this is exactly the geography that Sea calls home. And while it’s a big business at this point, Sea and its Shopee app are far from a daily spending tool for the vast majority of the region’s nearly 700 million people. The same goes for almost as populated Latin America, the next market targeted by the sea (and where it will face the local favorite Free Mercado (NASDAQ: MELI)) and nearly 1.4 billion people in India. As big as Sea is, the fact remains that digital shopping remains the exception rather than the rule in emerging markets.
This is what has thrilled so many Sea investors. The adoption of its online buying and selling tools has accelerated this year. In the third quarter of 2020, the gross value of goods sold on the company’s platform was $ 9.3 billion – just over double the value of a year ago, but a small nonetheless. figure when the whole cake is measured in Billions. Add to that a top-notch esports and video game development platform that has also doubled in value from a year ago, and it’s no wonder the optimism is on the cards. . Add to that a digital payment service primarily aimed at helping the millions of consumers who do not have a banking relationship – including a recently awarded full-fledged service. digital banking license in Sea’s home country, Singapore – and it appears that the potential of this e-commerce stock is far from exhausted.
Far from being too late in the game for e-commerce
It’s not hard to imagine Sea growing up in the “next” Amazon (NASDAQ: AMZN) Where Ali Baba (NYSE: BABA) given its trajectory and the huge market opportunities available to it – if such comparisons are your thing. Granted, Sea is a very different type of business at this point and has yet to really hit a profitable scale (although profit margins aren’t static and Sea’s margins are improving rapidly). The company is also barely in free cash flow positive territory at just $ 68 million in the past 12 months. These metrics are lagging behind some of its digital commerce counterparts like MercadoLibre.
Data by YCharts.
I would also hesitate to say that this is simply a repeated opportunity on an Amazon or Alibaba story. Amazon had the advantage of operating in the richest economy in the world. Alibaba is potentially a closer approximation to Sea, as mainland China is also an emerging market – but Alibaba benefited from a centrally planned economy where massive funding was invested in technology development. Sea also doesn’t have the advantages of Amazon or Alibaba in the various Southeast Asian – and now Latin American – countries in which it operates.
Nonetheless, MercadoLibre has demonstrated just how successful e-commerce can be in an equally fragmented emerging market region like South and Central America. The sea appears to be on a similar course. And with the growing importance of online shopping during the COVID-19 pandemic, the potential is huge given how few people still use online shopping tools in Sea’s home markets on a daily basis. The sea is already a big business, but it still has a lot of potential in the coming decade and beyond for investors who have time to wait patiently.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.