Executive Summary / Key Takeaways

• Sea Limited is demonstrating a compelling transformation, achieving robust, profitable growth across its diversified ecosystem of e-commerce (Shopee), digital financial services (Monee), and digital entertainment (Garena), with all three segments now consistently EBITDA positive.
• The company's strategic focus on operational excellence, particularly in integrated logistics and AI-driven enhancements, is deepening its competitive moats and driving significant improvements in monetization and cost efficiency.
• Shopee is reinforcing its market leadership in Asia and Brazil with strong GMV growth and improving profitability, fueled by advertising revenue and cost-efficient logistics.
• Monee is rapidly expanding its loan book and active user base while maintaining healthy asset quality through prudent risk management and leveraging the Shopee ecosystem for underwriting insights.
• Garena's Free Fire has staged a remarkable comeback, establishing itself as an evergreen franchise with sustained user engagement and bookings growth, further bolstered by strategic content updates and AI integration.

Forging a Digital Empire: Sea's Strategic Evolution and Technological Edge

Sea Limited, incorporated in 2009 and initially known as Garena Interactive Holding Limited, has strategically evolved into a diversified consumer internet powerhouse. Rebranded in 2017, the company now operates across three synergistic verticals: Garena (digital entertainment), Shopee (e-commerce), and Monee (digital financial services, formerly SeaMoney, rebranded in May 2025). This integrated ecosystem positions Sea as a formidable player in high-growth emerging markets across Southeast Asia and Latin America, regions characterized by low e-commerce penetration and significant underserved demand for digital financial services.

The company's overarching strategy prioritizes high-quality growth alongside improving profitability, a goal increasingly realized as all three businesses have been EBITDA positive since the second half of 2024. This disciplined approach, coupled with a strong balance sheet and accumulating cash, enables Sea to invest strategically in expanding its addressable market and deepening its competitive advantages.

A cornerstone of Sea's competitive differentiation lies in its pervasive adoption of Artificial Intelligence (AI) across its operations. This isn't merely a buzzword; AI is fundamentally enhancing efficiency, monetization, and user experience, creating tangible benefits. For instance, in Shopee, AI-powered algorithms have significantly improved advertising effectiveness. In the second quarter of 2025, the number of sellers utilizing ad products increased by approximately 20%, and their average quarterly ad spend grew by more than 40% year-on-year. These tech enhancements contributed to an 8% uplift in Shopee's purchase conversion rates and an almost 70 basis points improvement in ad take rate year-on-year.

Beyond monetization, AI streamlines operations and enhances service quality. Shopee's customer service chatbots, for example, now manage 80% of customer queries, leading to a nearly 30% year-on-year reduction in customer service cost per contact in Q4 2024. AI tools also empower sellers to create high-quality product descriptions, images, and videos, boosting conversion. In the digital financial services segment, Monee leverages AI to refine its credit models, enhancing underwriting capabilities and contributing to a healthy loan portfolio. For Garena, AI is being embraced for future game experiences, improving productivity in content development (e.g., generating original art for new maps like Solora) and exploring AI-enabled bots to enhance gamer engagement and retention. These technological differentiators are not just incremental improvements; they are foundational to Sea's ability to drive profitable growth and solidify its market position.

Shopee: Dominance in E-commerce and Operational Excellence

Shopee, Sea's e-commerce arm, continues to demonstrate stellar growth and a clear path to sustained profitability. In the first half of 2025, Shopee's Gross Merchandise Value (GMV) grew 25% year-on-year, with Q2 2025 alone seeing GMV increase by 28% to $29.8 billion and gross orders growing 29% to $3.3 billion. This robust performance translated into a significant financial turnaround, with Shopee reporting an adjusted EBITDA of $228 million in Q2 2025, a substantial improvement from an adjusted EBITDA loss of $9 million in Q2 2024. For the full year 2024, Shopee's GMV surpassed $100 billion, achieving positive adjusted EBITDA in both Asia and Brazil for the first time.

The operational priorities underpinning this success remain consistent: enhancing price competitiveness, improving service quality, and strengthening the content ecosystem. Shopee's "cheaper, faster at Shopee" campaign slogan, launched in Q2 2025, resonated well with buyers, leading to a more than 10% year-on-year uplift in overall purchase frequency. Buyers consistently rank Shopee as the most price-competitive e-commerce platform across its markets.

Logistics capabilities, particularly through SPX Express, serve as a critical differentiator. In Q2 2025, Shopee reduced its logistics cost per order and improved delivery speed across Asia and Brazil year-on-year. Innovations like instant delivery options, offering delivery within as little as four hours in dense urban areas (piloted in Indonesia and expanded to Vietnam and Thailand), and intelligent demand forecasting, which pre-ships popular products closer to anticipated demand, not only delight customers but also drive cost efficiency. In Brazil, a key growth market, Shopee celebrated its 5-year anniversary as a market leader, reducing logistics cost per order by 15% and average delivery time by over two days year-on-year in Q2 2025. This efficiency has allowed Shopee to expand into higher-value product categories, adding over 100 well-known brands and contributing to healthy increases in average basket sizes.

The content ecosystem, including live streaming and short-form videos, is a powerful engine for buyer engagement and conversion, accounting for over 20% of total physical goods order volume in Southeast Asia in Q2 2025. Collaborations, such as the partnership with YouTube, have also seen strong momentum, with over 7 million YouTube videos featuring Shopee product links across Southeast Asia by June 2025.

Monee: Expanding Financial Inclusion with Prudent Growth

Sea Limited's digital financial services arm, Monee (rebranded from SeaMoney in May 2025), is rapidly expanding its reach and profitability. In Q2 2025, Monee's GAAP revenue grew 70% year-on-year to $883 million, with adjusted EBITDA increasing 55% to $255 million. The loan book expanded over 90% year-on-year to reach $6.9 billion, driven by both an expanding user base and a wider range of products. Active users for consumer and SME loan products exceeded 30 million for the first time, representing over 45% year-on-year growth.

Crucially, this rapid growth is managed with a strong commitment to prudent risk management, as evidenced by a stable 90-day Non-Performing Loan (NPL) ratio of 1.0% in Q2 2025. Monee leverages its deep integration with the Shopee ecosystem, a large user base with growing credit track records, and increasing use of AI in credit models to enhance underwriting capabilities. This allows for effective growth across its three credit product lines: On-Shopee SPayLater, Off-Shopee SPayLater, and cash loans.

On-Shopee SPayLater has achieved mid-teens GMV penetration on a market-blended basis, with initiatives like a one-month interest-free option and tier-based pricing attracting prime user segments. Off-Shopee SPayLater is also growing healthily, with its integration into Malaysia's national QR network ("Do it now") leading to a 40% quarter-on-quarter portfolio growth in Malaysia, accounting for over 20% of the country's SPayLater portfolio by June 2025. Personal cash loans have almost doubled year-on-year by cross-selling to SPayLater users with good repayment trends. Monee's geographic diversification is also evident, with Malaysia's loan book surpassing $1 billion by the end of June 2025, following Indonesia and Thailand. Brazil is also delivering robust growth in digital finance, with Monee acquiring a license and initial approval for an SCFI license to enable better future funding sources.

Garena: An Evergreen Franchise and Future Innovations

Garena, Sea's digital entertainment segment, continues its strong resurgence. In Q2 2025, bookings were up 23% and adjusted EBITDA grew 22% year-on-year. This builds on a stellar Q1 2025, which saw bookings jump 51% and adjusted EBITDA rise 57% year-on-year, marking Garena's best quarter since 2021. The company has raised its full-year 2025 guidance for Garena, now expecting bookings to grow more than 30% year-on-year.

At the core of Garena's success is Free Fire, which maintains a massive global user base of over 100 million average daily active users. Despite being eight years old, Free Fire continues to grow, establishing itself as an "evergreen franchise" through a relentless user-centric approach. This includes frequent content updates, such as the high-profile launch of the new map, Solora, in Q2 2025, which became its best-performing new map. Strategic IP collaborations, like those with Netflix's Squid Game and Naruto Shippuden Chapter 2, have also driven significant user engagement and visibility. Garena is also expanding its reach into new markets, with North Africa showing meaningful growth after targeted efforts like setting up local servers.

Garena is actively embracing AI to test the boundaries of future game experiences. AI tools are already improving productivity in content development, such as generating original art for new maps, and enhancing gamer engagement through features like AI-enabled bots as teammates for solo players. Beyond Free Fire, Garena is expanding its portfolio with new games like Delta Force Mobile, a first-person tactical shooting game launched in April 2025 across Southeast Asia, MENA, and Latin America, which has garnered over 10 million downloads.

Competitive Landscape and Strategic Positioning

Sea Limited operates in a dynamic and competitive landscape, facing established giants and agile regional players across its segments. In e-commerce, Shopee competes with players like Alibaba Group (BABA) and JD.com (JD) in Asia, and MercadoLibre (MELI) in Latin America, alongside emerging social commerce platforms like TikTok Shop and cross-border players like Temu. Shopee differentiates itself through its hyper-local focus, strong price competitiveness, and superior logistics integration, which allows it to offer faster delivery speeds and lower costs per order compared to many rivals. While Alibaba Group and JD.com boast larger-scale infrastructure and established supply chains, Shopee's agility in adapting to diverse local market conditions and its integrated fintech offerings provide a distinct advantage in customer loyalty. In Brazil, Shopee has successfully gained market leadership despite competitive actions, leveraging its cost structure and delivery speed.

In digital financial services, Monee competes with traditional banks and emerging fintechs. Its deep integration with the Shopee ecosystem provides a unique funnel for user acquisition and proprietary data for robust risk underwriting, a significant advantage over standalone fintechs. The strategy to diversify funding sources through partnerships with external lenders also strengthens its competitive position.

Garena's Free Fire, while competing with global gaming behemoths like Tencent Holdings (TCEHY) and other mobile titles, has carved out a niche as the world's largest mobile game by average daily active users and downloads. Its focus on accessibility for a wide range of devices in emerging markets, hyper-local content, and strategic IP collaborations are key differentiators. While Tencent Holdings has a more established and integrated ecosystem, Garena's ability to consistently refresh content and engage its massive user base, coupled with its early adoption of AI in game development, positions it for continued growth.

Sea's integrated ecosystem, where Shopee, Monee, and Garena create powerful cross-selling opportunities and data synergies, forms a strong competitive moat. This allows for efficient user acquisition and retention across segments, driving higher customer lifetime value. The company's prudent approach to capital allocation, with investments in logistics and AI yielding positive returns, further reinforces its ability to compete effectively and expand profitably.

Outlook and Risks

Sea Limited's management is optimistic about its forward trajectory. For Shopee, the company expects full-year 2025 GMV growth to be around 20% with improving profitability. Management anticipates Q3 2025 momentum to be similar to the first half of the year, leading to better full-year growth than previously guided. The long-term trend for Shopee's EBITDA margin is expected to continue improving, with a target range of 2% to 3% of GMV, though management notes this is not a hard constraint and could be higher if market conditions allow. Ad take rates, currently around 2%, are expected to see meaningful improvement over the next few quarters due to ongoing technological enhancements.

Monee's loan book size is projected to grow "meaningfully faster" than Shopee's GMV annual growth rate in 2025, driven by increased SPayLater penetration and expansion of off-Shopee products. Garena's full-year 2025 bookings guidance has been raised to more than 30% year-on-year growth, with double-digit growth expected for both its user base and bookings.

While the outlook is strong, investors should consider potential risks. Foreign exchange fluctuations can impact reported numbers, though Sea's local marketplace focus mitigates operational impact. The competitive landscape, while currently stable, could intensify, particularly with new entrants like TikTok Shop in Brazil. However, Sea's strong cost structure, price competitiveness, and integrated logistics provide a robust defense. Credit risk, inherent in the digital financial services segment, is actively managed through prudent underwriting, real-time data, and diversification, maintaining a stable NPL ratio.

Conclusion

Sea Limited is executing a powerful strategy of profitable growth, transforming from a gaming company into a diversified digital leader in some of the world's most dynamic emerging markets. Its integrated ecosystem, spanning e-commerce, digital financial services, and digital entertainment, creates powerful synergies that drive user engagement and monetization. The company's relentless focus on operational excellence, particularly through advanced AI technologies and integrated logistics, is deepening its competitive moats and translating directly into improved financial performance and efficiency across all segments.

With Shopee reinforcing its market leadership, Monee rapidly expanding its financial inclusion efforts with sound risk management, and Garena's Free Fire re-establishing itself as a global gaming powerhouse, Sea Limited is well-positioned for sustained, high-quality growth. The company's strong balance sheet and disciplined capital allocation further bolster its ability to capture future opportunities and navigate competitive dynamics. For discerning investors, Sea Limited represents a compelling opportunity to participate in the digital transformation of emerging economies, driven by a company that has demonstrated both strategic vision and exceptional execution.