Sea Limited (NYSE:SE) is often called the "Amazon (NASDAQ:AMZN) of Southeast Asia" because it owns Shopee, the region's largest e-commerce platform. However, Sea is still a lot smaller than Amazon.
Analysts expect Amazon to generate nearly 50 times more revenue than Sea this year. Amazon's market cap of $1.76 trillion also dwarfs Sea's market cap of $123 billion. Shrewd investors will also likely realize that the two companies operate very different business models.
But over the next decade, could Sea leverage its e-commerce strengths to become a multinational tech titan like Amazon? Let's compare their similarities, differences, and long-term growth trajectories to decide.
The differences and similarities
Sea generates most of its revenue from Shopee and its mobile game publisher Garena. A smaller silver of its revenue comes from Sea Money, its online payments platform, which is gradually evolving into a digital bank.
Shopee and Sea Money aren't profitable yet. Garena is profitable, but its profits only partly offset Sea's losses across its other two divisions.
Amazon generates most of its revenue from its retail business, which includes its online marketplaces and brick-and-mortar stores. But it generates most of its profits from Amazon Web Services (AWS), the world's largest cloud infrastructure platform.
Therefore, the growth of AWS enables Amazon to expand its retail ecosystem with lower-margin and loss-leading strategies. That's why it can continuously expand its Prime ecosystem with aggressive discounts, free shipping options, streaming media services, and other perks.
Sea's Garena and Amazon's AWS both operate at higher margins than their respective e-commerce businesses. However, Garena's growth is entirely supported by a single mobile game, Free Fire, which was launched over four years ago. If Garena can't follow up Free Fire with new hit games, Sea's losses could widen significantly as Shopee and Sea Money rack up more losses.
But what about Sea's future?
Shopee is the e-commerce leader in Southeast Asia and Taiwan, but it's also been expanding into Latin America and Europe. That bold expansion will pit it against regional leaders like MercadoLibre (NASDAQ:MELI), Amazon, Allegro, and Alibaba's (NYSE:BABA) AliExpress.
Shopee already serves more than 30 million monthly active users in Latin America, according to Apptopia. MercadoLibre served 78.7 million unique active users in its latest quarter. Shopee might replicate that success in Europe with aggressive marketing tactics and steep discounts.
However, those efforts will also prevent Shopee from generating profits anytime soon. It will also ramp up the pressure on Garena to launch new hit games to reduce Sea's dependence on Free Fire.
But if Shopee captures meaningful shares of the Latin American and European e-commerce markets over the next few years, it could gradually reduce its subsidies and discounts, as it's currently doing in Southeast Asia and Taiwan. That shift might put Sea on a path toward generating slim but stable profits.
Amazon was unprofitable for five years as a public company before generating its first full-year profit in 2003. That was a year after it launched its first web services (not cloud) version of AWS. Sea, which went public four years ago, could need a lot more time to break even.
Sea isn't the next Amazon (yet)
I own shares of both companies, but Sea faces two fundamental challenges.
First, Sea is stacking two deeply unprofitable businesses (Shopee and Sea Money) on top of a slightly profitable one (Garena). This balancing act, which requires the aging Free Fire to keep chugging along, is much riskier than Amazon's dependence on AWS to support its retail business.
If Garena launches more hit games and generates higher profits, then I'd consider it a more stable foundation for Sea's unprofitable businesses. But until then, I can't consider Garena to be a game-changing profit engine like AWS.
Second, Sea lacks Amazon's early-mover's advantage in the e-commerce market. As a result, Shopee needs to rely heavily on aggressive subsidies and discounts to pull shoppers away from entrenched leaders -- but those shoppers could drift away once it dials back those loss-leading strategies.
Sea is still a solid growth stock, and it isn't expensive at nine times next year's sales. However, I definitely wouldn't call it the "next Amazon" yet.