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  • 3Q21 ecommerce – GMV of US$16.8bn (+12 q-o-q, 81% y-o-y) and revenue of US$1450m (+26% q-o-q, +134% y-o-y%) are in line with our estimate
  • 3Q21 Gaming – EBITDA of US$715m (-3.5% q-o-q) and slow paying user growth of 1.1% q-o-q show some signs of slowdown; near-term muted growth, will be bolstered by Free Fire MAX and Forte acquisition over the next 2-3 years
  • BUY with unchanged TP of US$390 per share. 
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Shopee’s 9M21 – GMV of US$44,382m & revenue of US$3528m comprised 70% each of our FY21F estimates.  . Sea Ltd’s (SE) Shopee reported gross merchandise value (GMV) of US$44,382m (+89% y-o-y) during 9M21, accounting for 70% of our FY21F forecast of US$63083m , in line with 9M trend over the past two years. The GMV growth was supported by a 132% y-o-y growth in gross orders recording 4,143m in 9M21. GAAP (Generally Accepted Accounting Principle) revenue of Shopee stood at US$3,528m, displaying a 166% y-o-y growth during 9M21 comprising 70% of our FY21F forecast of US$5047m. 9M21 GAAP take rate for Shopee was 7.9% (vs 5.6% in 9M20). GAAP take rate in 3Q21 stood at 8.6% compared to the 7.7% reported in 2Q21, exhibiting further improvement from more value added services. Shopee’s adjusted EBITDA loss was at US$1,677m (+92% y-o-y) in 9M21; however, adjusted EBITDA loss per order improved from US$0.49 in 9M20 to US$0.40 in 9M21. Adjusted EBITDA loss per order for Shopee has reduced across Southeast Asia, Taiwan and other markets on a q-o-q and y-o-y basis.
Quarterly GAAP GMV take rates continues to rise, recording 8.6% in 3Q21


Source: Company, DBS Bank
 
Globally, according to App Annie, Shopee was the most popular app in the Shopping category on Google Play in 3Q21, with the total time spent in the app and the second most downloads and average monthly active users. According to App Annie, Shopee ranked top in the Shopping category in Southeast Asia and Taiwan in 3Q21, based on average monthly active users and total time spent in the app. Shopee was also ranked first in these criteria in Indonesia. In Brazil, where Shopee started in late 2019, it ranked top in the Shopping category in terms of downloads and total time spent in the app for 3Q21, and second in terms of average monthly active users.

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Garena’s adjusted 9M21 EBITDA was inline but paying user base growth has slowed down in 3Q21. SE’s digital entertainment (DE) segment, primarily led by the self-developed game Free-Fire reported quarterly paying users of 93.2m, growing by 1.1% q-o-q (+43% y-o-y) much slower than expectations.  Garena’s quarterly active users stood at 729.0m (+0.5% q-o-q, +27% y-o-y) in 3Q21, also witnessing a slowdown in the active user base growth (61.8m on average over 1Q20-2Q21). Garena’s 9M21 adjusted EBITDA was at US$2,173m (+65% y-o-y), resulting in the adjusted EBITDA margin for 9M21 improving to 61.8% (vs 60.7% in 9M20) although 3Q21 adjusted EBITDA margin shrank to 58.6% leading 3.5% q-o-q drop in adjusted EBITDA to US$715m. 

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Quarterly paying users grew by 1.1% q-o-q while sequential active user growth remained flat in 3Q21


Source: Company, DBS Bank
According to App Annie, Free Fire was ranked second globally based on average monthly active users in 3Q21 for all mobile games on Google Play and continued to hold the leadership position on highest-grossing mobile games in Southeast Asia (ninth consecutive quarter), Latin America (ninth successive quarter) and India (fourth successive quarter). For the third consecutive quarter, Free Fire held the leadership on the highest grossing mobile battle royale game in the US. On 28th September 2021, SE launched Free Fire MAX, a standalone mobile application offering players the same Free Fire gameplay with enhanced specifications and interoperability. Players can enjoy Free Fire MAX-exclusive features, more realistic maps, and a more immersive gameplay experience, among other features.

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Digital Financial Services take rate improves to 2.3% in 9M21. SeaMoney’s Total Payment Volume (TPV) during 9M21 stood at US$11,931m (+154% y-o-y) while adjusted revenue grew by 6.5x y-o-y to US$272.2m, resulting in a take rate of 2.3% (vs 0.8% in 9M20 and 2.2% in 2Q21). The quarterly paying users of the e-wallet grew 20% q-o-q (+121% y-o-y) to 39.3m in 3Q21.
Quarterly paying users grew by 1.1% q-o-q while sequential active user growth remained flat in 3Q21


Source: Company, DBS Bank

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Sea Ltd co-leads US$725m Series B funding in Forte to expand its gaming pipeline. In November 2021, Sea Capital (SE’s investment arm) and Kora Management co-led the US$725m Series B funding in Forte, a blockchain gaming platform. Sea Capital is the investment arm of SE with an estimated fund base of US$1bn and, earlier in October 2021, joined the US$420m Series B funding for FTX, a Bahamas-based cryptocurrency exchange. Gaming publishers utilize Forte’s platform to integrate blockchain technology into their games while allowing NFTs (non-fungible tokens) to be minted and sold. Presently, Forte boasts more than 40 game developers with a combined player base of over 15m. The Series B funding is expected to be used for products and services expansion and the accelerated onboarding of game and content publishers. SE management confirmed Forte to begin contributing to the growth of the DE segment over the next 2-3 years.
 
Maintain BUY with an unchanged TP of US$390. Sea Ltd has US$12bn in cash while gamings’s 3Q21 adjusted EBITDA of US$715m partially offsets adjusted EBITDA loss of (a) US$684m from ecommerce and (b) US$159m from digital financial services.