Sea Limited: From Shopee to Monee; Initiate BUY

Key Points

• Sea Limited is a Singapore-domiciled consumer internet holding company operating three interconnected businesses: Shopee, the largest e-commerce marketplace in Southeast Asia by gross merchandise value; Garena, the publisher and operator of Free Fire, one of the world's most widely played mobile battle royale games; and Monee (formerly SeaMoney), a digital financial services platform offering consumer and SME lending, digital payments, and licensed deposit banking.
• Advertising monetisation flywheel could help improve margin for its e-commerce segment, Monee - high margin business segment is also showing strong growth, coupled with easing near-term margin headwinds are the investment case for Sea Limited.
• We initiate a BUY rating for Sea Limited with a target price of USD 135, representing close to 28% upside potential based on current price.

Table 2: Margin profile for each business segment

From FY2025 reported financials: For the full year 2025, Sea Limited delivered record financial results across all key metrics, marking its third consecutive year of GAAP profitability and the first year in which profitability scaled materially rather than incrementally. Total GAAP revenue reached US$22.9 billion, up 36.4% year-on-year from US$16.8 billion in FY2024, with growth accelerating rather than decelerating relative to the prior year's growth rate of 28.8%. Gross profit increased 42.2% to US$10.2 billion, while gross margin expanded by 170 basis points to 44.5%, as higher-margin advertising and fintech revenue grew faster than the logistics-intensive e-commerce cost base. Net income more than tripled to US$1.58 billion from US$447.8 million in FY2024, while total adjusted EBITDA grew 73.5% to US$3.4 billion — an EBITDA growth rate nearly double that of revenue growth, demonstrating meaningful operating leverage across the consolidated platform.

At the segment level, the most significant development was Shopee's adjusted EBITDA reaching US$881 million, up 465% from US$156 million in FY2024, confirming that the e-commerce segment's profitability inflection, first observed in FY2024, was structural rather than temporary. Monee surpassed the US$1.0 billion adjusted EBITDA threshold on revenue of US$3.8 billion (+60.3%), supported by a consumer and SME loan book that reached US$9.2 billion at year-end (+80% year-on-year), while maintaining a 90-day NPL ratio of 1.1% — stable to improving relative to the 1.2% recorded at the end of FY2024. Garena generated US$1.7 billion in adjusted EBITDA, equivalent to approximately 56% of bookings, with full-year bookings of US$2.9 billion rising 37% year-on-year, driven by the NARUTO and Squid Game IP collaboration events and a recovery in both the quarterly active user base and the paying-user ratio.

Trailing twelve-month free cash flow reached US$4.67 billion, representing an FCF margin of 18.5%, and the company ended the year with US$6.96 billion in net cash. This enabled the announcement of Sea's first-ever US$1 billion share buyback programme in November 2025 — a signal that management believes the business has durably crossed into a self-funding, capital-return-capable phase of its development.

Figure 1: Revenue growth by segment

3.      Industry Overview

Sea Limited operates at the intersection of three discrete but interconnected industries — e-commerce, digital financial services, and mobile gaming — within Southeast Asia and Brazil. Sea operates in structurally underpenetrated digital markets, which creates a multi-year runway for digital penetration growth independent of competitive dynamics.

Table 3: TAM for overall industry

Sources: Google/Temasek/Bain e-Conomy SEA 2024 and 2025 reports; Momentum Works E-commerce in Southeast Asia 2025; Statista; ASEAN Exchanges analysis (April 2026); Singapore Ministry of Trade and Industry statement at Monee rebranding event (May 2025)

E-Commerce: Competitive Landscape

Southeast Asia's platform e-commerce market is an oligopoly that is increasingly trending towards a duopoly. Shopee, TikTok Shop/Tokopedia, and Lazada collectively account for more than 84% of the region's platform e-commerce market share. The primary competitive contest is between Shopee and the TikTok Shop/Tokopedia combination. Lazada has strategically retreated towards a premium, brand-led positioning and achieved its first month of EBITDA profitability in July 2024, signalling a rational competitive strategy rather than a volume-at-all-costs approach.

Digital Financial Services: A Structurally Underpenetrated Market

Digital financial services represent the fastest-growing component of Southeast Asia's digital economy, driven by three structural factors: (1) more than 70% of the adult population remains underbanked or unbanked, with limited access to traditional financial services as of 2025; (2) rising smartphone penetration has created a mobile-first consumer base that is more comfortable with app-based financial products than branch-based banking; and (3) digital payment transaction data has become sufficiently extensive to serve as a substitute for conventional credit bureau histories in loan underwriting.

Embedded finance — the integration of financial products directly into non-financial platforms such as Shopee — is the highest-growth sub-segment. It is projected to account for 40% of the total digital finance market by 2030, representing a US$72 billion opportunity growing at a CAGR of 57.7% from US$9.5 billion in 2024. Monee is structurally positioned as an embedded finance provider, with SPayLater integrated directly into Shopee's checkout flow. This positioning provides Monee with both a customer acquisition cost advantage — as there is effectively no incremental cost to serve an existing Shopee buyer — and a data-driven underwriting advantage over standalone lenders.

Figure 2: More than 70% of Southeast Asia’s population is either underbanked or unbanked

Note: Population of individuals above age 18. Sources: Euromonitor; World Bank; Bain and Temasek

Mobile Gaming: A Durable but increasingly fragile Niche Within a Competitive Global Industry

Southeast Asia's gaming consumer spending reached approximately US$6.2 billion in 2024, with mobile games accounting for approximately 73% (around US$4.5 billion) of total spending. Garena's Free Fire is the dominant title within the budget-smartphone, mobile-first gaming segment — a niche characterised by low system requirements, free-to-play mechanics, and social multiplayer engagement tailored to lower-income demographics. Garena's FY2025 bookings of US$2.9 billion represent approximately 47% of the Southeast Asian mobile gaming addressable market, reflecting a position of market leadership.

The key structural risk facing Garena is the rising quality threshold within the mobile gaming industry. As newer titles are increasingly optimised for mid-range devices rather than only flagship smartphones, the technical barrier that has historically protected Free Fire's user base from higher-specification competitors continues to narrow.

Read more: AI Gaming…

Management has partially addressed this challenge through IP collaboration events, including NARUTO, Squid Game, and FIFA 2026, rather than by launching a comparable new title. While this strategy supports near-term bookings, it does not reduce the company's dependence on a single flagship title.

4.      Investment Thesis

Shopee Advertising Take Rate Expansion

Sea Limited discloses that its advertising take rate has been expanding by more than 0.9% year-on-year, outpacing GMV growth, a faster pace compared to previous quarter (Q4 2025: 0.8% y/y Both the number of advertising-paying sellers and average advertising spend per seller increased by approximately 35% year-on-year, which management attributed to AI-driven personalisation and targeting capabilities.

While the company did not disclose its current advertising take rate, we estimate that the advertising take rate for the latest financial year was approximately 2% of GMV. This is particularly significant because advertising revenue carries near-zero incremental costs; once the platform and advertising auction infrastructure are in place, each additional dollar of advertising revenue flows almost entirely to EBITDA. By contrast, logistics revenue — another component of Shopee's overall take rate — carries substantial direct costs, including sorting-centre operations, last-mile delivery, and rider expenses.

Using Amazon as a benchmark, Amazon's advertising take rate is estimated at approximately 8–10% of GMV. While Amazon is not a perfect comparable given its greater advertising maturity, its ecosystem illustrates the long-term monetisation potential should Shopee continue increasing advertising penetration.

If Shopee's advertising take rate were to approach 4% in FY2026, we estimate an incremental advertising revenue opportunity of approximately US$3 billion, assuming management's guided FY2026 GMV growth of 25%. Given the high-margin nature of advertising revenue, the majority of this incremental revenue would be expected to translate into EBITDA.

Table 4: Ad revenue growth trend and details

Sources: Sea Limited Q2 2025 Earnings Call Transcript; Sea Limited Q4 2025 Earnings Release (March 3, 2026); Q1 2026 Earnings Call Transcript (May 12, 2026). n/d = not disclosed for that period.

Geographic Expansion: Brazil and SEA Deepening

Sea's geographic strategy has two dimensions: deepening penetration within its six core Southeast Asian markets and replicating its Southeast Asian playbook in Brazil.

Brazil (Latin America): FY2025 marked the year in which Brazil transitioned from a loss-making expansion investment into a proven and profitable operating market. Revenue from Latin America grew 69% year-on-year in FY2025 and now accounts for approximately 24% of Sea's total group revenue, up from approximately 19% in FY2024. Shopee achieved adjusted EBITDA profitability in Brazil during 2024 and sustained this profitability throughout FY2025. This outcome supports the view that Sea's Southeast Asian operating model can be replicated in selected emerging markets.

Brazil is a market of approximately 215 million people, characterised by structurally low e-commerce penetration, a large unbanked population, and strong consumer credit demand — conditions that closely resemble Sea's core Southeast Asian opportunity. Monee's operations in Brazil remain at an earlier stage of development. Off-Shopee SPayLater usage in Brazil was highlighted by management as a key growth area during Q4 2025, representing the next phase of value creation in the market and mirroring Monee's trajectory in Southeast Asia during 2021–2022.

Southeast Asia Deepening — VIP Programme: Shopee's VIP membership programme surpassed 10 million members by Q1 2026, representing growth of more than 40% from the previous quarter, while retention rates remained strong at above 80%. Across all markets, Shopee VIP members have consistently demonstrated double-digit spending uplift after subscribing, reaching as much as 30–40% in certain markets. VIP members now contribute approximately 20% of GMV across Asia.

Building on this success, the company launched the Shopee VIP programme in Brazil in April 2026. Management identified the scaling of VIP membership as a key strategic priority for FY2026. As VIP penetration within Shopee's 400 million active buyer base increases from its current sub-1% level, it is expected to create a high-ARPU, high-loyalty customer cohort that is structurally less sensitive to promotional subsidies offered by TikTok Shop.

Table 5: E-commerce growth details 

Sources: Sea Limited Q2 2025 Earnings Call Transcript; Sea Limited Q4 2025 Earnings Release (March 3, 2026); Q1 2026 Earnings Call Transcript (May 12, 2026). n/d = not disclosed for that period.、

Monee: A key earnings contributor

Monee has been one of the fastest-growing segments for Sea Limited. The segment’s revenue contribution has increased from 0.4% in 2019 to 16% in 2025. At the current growth trajectory, we expect its contribution to continue rising in the coming years, reaching close to 20% by FY2027.

Monee’s revenue stream is primarily derived from risk-based pricing on credit products. Although specific interest rates and fee structures are not disclosed in granular detail in earnings releases, loan tenures of 3–12 months imply a relatively high annualised yield on short-duration consumer credit (inferred). Other revenue streams include payment processing fees on ShopeePay transactions, as well as banking deposit and service fees from MariBank and SeaBank.

The loan book has grown from zero in 2019 to US$9.2 billion at end-FY2025 — an 80% year-on-year increase — and further to US$9.9 billion at end-Q1 2026 (+71% year-on-year). Throughout this expansion, the 90-day NPL ratio has remained stable at 1.1% as of Q1 2026, a credit quality outcome that remains notably resilient given the pace of loan growth. FY2025 also marked Monee crossing the US$1.0 billion adjusted EBITDA threshold, with revenue growing 60.3% to US$3.8 billion.

The structural driver of Monee’s performance is Shopee’s data underwriting advantage. By analysing users’ Shopee purchase histories and merchants’ verified Shopee sales records, Monee is able to construct more accurate borrower risk profiles than traditional lenders. This proprietary data moat strengthens as Shopee GMV expands — the larger the transaction base, the more granular and predictive the underwriting model becomes.

Furthermore, the company has expanded credit use cases beyond Shopee into broader consumer spending scenarios, enabling penetration of a significantly larger addressable market. Off-Shopee SPayLater has evolved from a nascent offering into a meaningful contributor to the overall loan portfolio. The company reported US$8.2 billion in on-book loans and US$1.0 billion in off-book loans in outstanding principal for consumer and SME credit, indicating that the credit brand is gaining independent recognition beyond Shopee’s ecosystem. Notably, off-Shopee SPayLater loans grew more than 300% year-on-year.

Therefore, we expect strong double-digit growth for Monee in the coming years, positioning it as a long-term major revenue contributor for the group.

Table 6: Monee key metrics

Sources: Sea Limited Q2 2025 Earnings Call Transcript; Sea Limited Q4 2025 Earnings Release (March 3, 2026); Q1 2026 Earnings Call Transcript (May 12, 2026). n/d = not disclosed for that period.

Figure 3: Monee’s loan growth remain robust

Near-term catalyst-Margin Stability

In Q1, despite strong revenue growth, the company missed EPS estimates as gross margin declined, driven by a 51% increase in cost of revenue. Shopee’s adjusted EBITDA declined by 15.6% year-on-year to US$223.2 million (down from US$264.4 million in Q1 2025), partly due to a 52% year-on-year increase in marketing expenses as the company defends its position in Southeast Asia against heavily subsidised competitors such as TikTok Shop/Tokopedia and Lazada. This competitive intensity has required sustained shipping subsidies and promotional spending, which has capped near-term profitability.

Monee’s rapid growth also comes with higher risk. Provisions for credit losses increased by 65.1% to US$465.5 million in Q1 2026. While the non-performing loan (NPL) ratio remains relatively healthy at 1.1%, the sharp rise in provisions has acted as a direct drag on net income.

We expect margins to stabilise in the near term as management guided Shopee’s annual GMV growth of around 25% year-on-year, with full-year adjusted EBITDA expected to be no lower than in 2025, implying a potential turnaround in EBITDA margins over the coming quarters. Excluding elevated marketing expenses, underlying unit economics appear broadly stable, suggesting that recent margin pressure is largely investment-driven rather than structural.

The increase in Monee’s provisions for credit losses, while not explicitly disclosed in detail, is likely attributable to aggressive expansion into new user segments, off-Shopee use cases, and early-stage markets such as Brazil. As Monee gains more experience in these newer segments, we expect provisioning levels to stabilise over time.

5.      Valuation

Sea Limited’s share price is down 28% year-to-date, largely driven by concerns over margin stability, including gross margin compression from rising marketing expenses and higher provisions for credit losses. The stock currently trades at 24x P/E, below global peers such as MercadoLibre (50x) and Coupang (35x), but above Alibaba (9x), although these are not strictly like-for-like comparisons.

Despite trading below its historical growth-adjusted valuation, we expect earnings to continue compounding at above 20%, supporting our fair multiple assumption.

Based on the current forward P/E, we believe the stock is undervalued. We derive a target price of US$135, implying an upside potential of 28.6% from the current price, based on a fair P/E multiple of 21x.

Table 7: Valuation 

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.