Is This Esports Company the Next Amazon?

For years I’ve argued that investors shouldn’t buy Amazon (Nasdaq: AMZN) simply for the growth of e-commerce.

The real moneymaker for the tech giant was – and continues to be – its cloud services segment, Amazon Web Services (AWS). I’ve stated that this is the most powerful tool in the company’s arsenal and that the earnings generated here would send shares to the moon.

Well, in the third quarter of 2020, Amazon reported earnings of $12.37 per share. This was a 192% year-over-year increase. And of the $3.15 billion in operating income the company posted, $2.26 billion came from AWS.

Amazon’s cloud services and web hosting arm currently accounts for 12.5% of the company’s total sales but represents more than 62% of its total profits.

This has been a major windfall for investors. Over the past five years, as Amazon’s dominance in the cloud space has grown, shares have soared more than 465% to over $3,300.

That performance is more than double the Nasdaq’s and almost five times better than the S&P 500’s!

Amazon vs Broader Markets

Now, all of those investors who complained Amazon shares were “overvalued” at $100, $200, $500 and even $1,000 are kicking themselves for the missed opportunity.

But there may be an opportunity to correct this costly mistake.

Six Stocks for the Price of One

Imagine you could combine the e-commerce platforms of Amazon and eBay (Nasdaq: EBAY) with the online gaming platforms of Electronic Arts (Nasdaq: EA) and Activision Blizzard (Nasdaq: ATVI).

Then, take it a step further and add the mobile payment capabilities of PayPal (Nasdaq: PYPL) and Square (NYSE: SQ).

Now, purchasing a single share of each of those companies would cost you a combined $4,075. And that’s to own just one share of each.

If all of those companies were combined, instead of owning shares of multiple companies, you’d have to purchase only one share.

And all that potential growth would be funneled into a single place.

Well, that’s what you get with Sea Limited (NYSE: SE).

The electronic gaming and multimedia company focuses on greater Southeast Asia. I’m talking about Indonesia, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.

Combined, these countries have a population of 585 million. And the area is home to 315 million internet users and 237 million smartphone users.

This is an enormous market opportunity, and the race is on for dominance.

When most investors think about global e-commerce, they tend to focus on two companies: Amazon and China’s Alibaba (NYSE: BABA).

Admittedly, these are both fantastic global powerhouses.

But Sea is Southeast Asia’s leading internet company and largest digital entertainment platform.

And I think its story is akin to Amazon’s from several years ago.

Retail Schmetail… Digital Content Is King!

Sea owns Southeast Asia’s largest e-commerce platform, Shopee.

In the third quarter, this was the No. 1 downloaded shopping app in Southeast Asia and Taiwan, as well as the second most downloaded app worldwide.

Sea’s e-commerce business receives a lot of attention. And it should. The company’s e-commerce revenue shot up 173% to $618.7 million in the third quarter.

But this isn’t the only reason shares of Sea are attractive. In fact, its e-commerce segment is posting a loss of $0.41 per order.

As with Amazon, the reason to like Sea is beyond e-commerce.

Now, one of the trends we’ve covered here for a couple of years is esports. And back in the fall of 2019, we listed this as one of the sectors to watch for 2025.

Esports is still nascent, in a sense. It’s projected to be worth approximately $3 billion by the end of 2025.

But in certain regions of the world, the outlook for esports is brighter. And this sector is an especially attractive opportunity in Southeast Asia, where its popularity is booming.

Sea is the largest esports operator in the region and livestreams its events.

Using the company’s Garena platform, players can access mobile and PC games. Sea also recently launched Free Fire, which is the highest-grossing game in Latin America and Southeast Asia.

And even though Sea’s digital entertainment growth was a “mere” 109% in the third quarter, it brought in $994.7 million in revenue. More importantly, this segment rang the register at $1.70 per user.

This is the moneymaker. And Sea is using this moment to expand into even more areas.

The company recently acquired Indonesia’s PT Bank Kesejahteraan Ekonomi. This is part of Sea’s push to become the most dominant fintech player in the region. The race is on to shore up digital banking assets, as the region is grossly underserved.

In an increasingly digital world, Sea is a multifaceted online powerhouse with a portfolio of assets that is difficult to beat. And its growth can’t be ignored.

In 2019, the company’s revenue jumped 178% to $2.9 billion.

When the books are closed on 2020, Sea is expected to report $5.14 billion in revenue. And for 2021, the Southeast Asian digital giant is projected to report $7.6 billion in revenue.

Sea is now Southeast Asia’s most valuable company, even though its market cap is less than 10% of Amazon’s and roughly a fifth of Alibaba’s.

But for the year ahead, emerging markets should outpace the developed world. And there are few areas that offer more attractive upside than Southeast Asia… and few companies that are more attractive than Sea.

Here’s to high returns,

Matthew

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