Sea (SE)

E-commerce and gaming company Sea (NYSE:SE) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 36.5% year on year to $5.99 billion. Its GAAP profit of $0.59 per share was 20.6% below analysts’ consensus estimates.

Company Overview

Founded in 2009 and a publicly traded company since 2017, Sea (NYSE:SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Competitors offering e-commerce platforms include Amazon.com (NASDAQ:AMZN) and Alibaba (NYSE:BABA), and competitors offering digital gaming include Sony (TSE:6758) and Nintendo (TSE:7974).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Sea grew its sales at an impressive 20.4% compounded annual growth rate. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, Sea reported wonderful year-on-year revenue growth of 36.5%, and its $5.99 billion of revenue exceeded Wall Street’s estimates by 6.1%.

Looking ahead, sell-side analysts expect revenue to grow 18.8% over the next 12 months, a slight deceleration versus the last three years. We still think its growth trajectory is attractive given its scale and suggests the market is forecasting success for its products and services.

User Growth

As an online marketplace, Sea generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, Sea’s paying users, a key performance metric for the company, increased by 21.9% annually to 65.9 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q3, Sea added 15.7 million paying users, leading to 31.3% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and Sea’s take rate, or "cut", on each order.

Sea’s ARPU growth has been strong over the last two years, averaging 6.3%. Its ability to increase monetization while quickly growing its paying users reflects the strength of its platform, as its users continue to spend more each year.

This quarter, Sea’s ARPU clocked in at $90.83. It grew by 3.9% year on year, slower than its user growth.

For online marketplaces like Sea, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.

Sea’s gross margin is below the broader consumer internet industry, giving it less room to hire engineering talent that can develop new products and services. As you can see below, it averaged a 44.6% gross margin over the last two years. That means Sea paid its providers a lot of money ($55.38 for every $100 in revenue) to run its business.

Sea produced a 43.4% gross profit margin in Q3, in line with the same quarter last year. Zooming out, Sea’s full-year margin has been trending up over the past 12 months, increasing by 2.6 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Consumer internet businesses like Sea grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Sea does a decent job acquiring new users, spending 42.5% of its gross profit on sales and marketing expenses over the last year. This decent efficiency indicates relatively solid competitive positioning, giving Sea the freedom to invest its resources into new growth initiatives.

Sea has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer internet sector, boasting an average EBITDA margin of 12.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Sea’s EBITDA margin rose by 30.5 percentage points over the last few years, as its sales growth gave it immense operating leverage.

This quarter, Sea generated an EBITDA margin profit margin of 14.6%, up 2.7 percentage points year on year. The increase was encouraging, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Sea reported EPS of $0.59, up from $0.25 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Sea’s full-year EPS of $2.25 to grow 60.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Sea has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 19.1% over the last two years, quite impressive for a consumer internet business.

Taking a step back, we can see that Sea’s margin expanded by 38.8 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Sea is a profitable, well-capitalized company with $9.90 billion of cash and $4.24 billion of debt on its balance sheet. This $5.66 billion net cash position is 6.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Sea beat analysts’ EBITDA expectations this quarter. We were also glad it expanded its number of users. Zooming out, we think this was a good print with some key areas of upside. Investors were likely hoping for more, and shares traded down 7.6% to $143.35 immediately following the results.

Updated: December 3, 2025 at 9:45 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Sea.

There is a lot to like about Sea. For starters, its revenue growth was impressive over the last three years. And while its gross margins make it more difficult to reach positive operating profits compared to other consumer internet businesses, its rising cash profitability gives it more optionality. On top of that, Sea’s expanding EBITDA margin shows the business has become more efficient.

Sea’s EV/EBITDA ratio based on the next 12 months is 22.5x. Analyzing the consumer internet landscape today, Sea’s positive attributes shine bright. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $192.17 on the company (compared to the current share price of $135.38), implying they see 41.9% upside in buying Sea in the short term.