Prospectus Summary
PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors,” before deciding whether to buy the ADSs. This prospectus contains certain estimates and information from four industry reports commissioned by us and prepared respectively by Frost & Sullivan (S) Pte Ltd, or Frost & Sullivan; International Data Corporation, or IDC; Newzoo International B.V., or Newzoo; and LMH Enterprises, Inc., DBA Niko Partners, or Niko Partners; each an independent market research firm, regarding our industries and our market positions in Greater Southeast Asia. This prospectus also contains certain estimates and information from the International Monetary Fund World Economic Outlook published in April 2017, or the IMF Outlook.Our Mission
Our mission is to better the lives of the consumers and small businesses of Greater Southeast Asia with technology.
Our Business
We believe we are the leading internet company in Greater Southeast Asia, or GSEA, based on our number one market share by revenue in the region’s online game market, our number one market share by GMV and total orders in the region’s e-commerce market, and our position as a leader in the region’s digital payments market by e-wallet GTV, each in the first half of 2017.
We have developed an integrated platform consisting of digital entertainment (focused on online games), e-commerce, and digital financial services (focused on e-wallet services), each localized to meet the unique characteristics of GSEA. We define GSEA as the combined region of Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore. This region had 585.3 million people and gross domestic product, or GDP, of US$3.0 trillion in 2016, according to the IMF Outlook. It is also one of the world’s fastest growing regions in terms of per capita GDP and at the early stages of internet penetration. GSEA’s markets are increasingly interdependent, particularly for internet business models. From a consumer behavior perspective, these markets exhibit distinct characteristics from North Asia and South Asia, and consequently require dedicated focus and local market knowledge, which gives us a “home court advantage.”
We operate three key platforms—Garena, Shopee, and AirPay:
had 64.2 million QAUs, of whom 6.6 million were QPUs. During the month of June 2017, our games had 40.1 million MAUs. In the same month, our games had on average 12.9 million DAUs, each of whom spent an average of 2.3 hours per day playing our games.
Each of our platforms provides a distinct and compelling value proposition to our users, and each also exhibits strong virtuous cycle dynamics, which we believe supports our leadership position and provides a strong foundation for continued growth while creating barriers to entry for our competitors. See “Our Market Opportunity” for a detailed discussion.
Our scale, regional breadth and substantial home court advantage provide a strong foundation on which we are able to rapidly scale new businesses. Our digital entertainment business grew its revenue at a 45.4% compounded annual growth rate, or CAGR, from 2014 to 2016. Our AirPay platform, which we launched in early 2014, has grown its e-wallet GTV at a 26.1% compounded quarterly growth rate, or CQGR, from the first quarter of 2015 to the second quarter of 2017. Our Shopee platform, which we launched in mid-2015, has grown its GMV at a 81.0% CQGR from the third quarter of 2015 to the second quarter of 2017.
We curate and localize the content and services on our platforms to serve a highly diverse population across multiple markets and regulatory regimes. We believe our local knowledge, presence and focus provide us with a home court advantage in addressing the specific and unique opportunities and challenges in our region. Our platforms are operated by our local entities held or controlled by Sea Limited, which is a holding company without substantive operations. As of June 30, 2017, we had approximately 5,400 employees across the region, including over 1,240 in Indonesia, 540 in Taiwan, 1,040 in Vietnam and 1,070 in Thailand. We have a network of on-the-ground partners comprising approximately 196.1 thousand physical locations functioning as AirPay counters, cybercafés or both, and 12 data centers, as of June 30, 2017. This home court advantage is a key factor to our success as well as a significant barrier to entry against international competitors and single-market local players.
We have forged long-term collaborative relationships with global industry leaders as well as local partners that have supported our success and growth. Tencent Holdings Limited and its affiliates, or Tencent, is one of our key game developer-partners and also a shareholder. This long-term relationship is based on aligned interests, and allows us to benefit from Tencent’s wealth of experience as a leading global industry player. In addition, many of GSEA’s most respected and established family investors and sovereign wealth funds are our shareholders.
We have achieved significant scale and growth since our founding. Our total revenue increased from US$160.8 million in 2014 to US$345.7 million in 2016, a CAGR of 46.6%. Our total revenue increased by 17.3% from US$166.7 million in the six months ended June 30, 2016 to US$195.5 million in the same period in 2017. As our business grew, our gross profit increased from US$36.2 million in 2014 to US$113.1 million in 2016, a CAGR of 76.8%. Our gross profit decreased by 5.5% from US$56.0 million in the six months ended June 30, 2016 to US$52.9 million in the same period in 2017. We incurred net losses of US$90.9 million, US$107.3 million, and US$225.0 million in 2014, 2015, and 2016, respectively, and US$87.1 million and US$165.2 million in the six months ended June 30, 2016 and 2017, respectively, due to our investments in expanding our businesses, in particular our e-commerce business.
Our Market Opportunity
Our three key businesses of digital entertainment, e-commerce and digital financial services operate in market segments with substantial size and growth potential in GSEA. The GSEA online game market was US$3.5 billion in 2016 and is forecasted to grow at a CAGR of 19.6% to US$8.6 billion in 2021, according to Newzoo and Niko Partners. The GSEA e-commerce market was US$23.0 billion in 2016 and is forecasted to grow at a 29.2% CAGR to US$82.8 billion in 2021, according to Frost & Sullivan. Finally, GSEA total e-wallet payment volume was US$6.5 billion in 2016 and is forecasted to grow at a 30.1% CAGR to US$24.4 billion in 2021, according to IDC.
There are multiple thematic drivers of our growth. The drivers are broadly similar across each of our three key businesses and fall into three main categories:
For our digital entertainment business, we believe that entertainment in GSEA, both its forms and how it is distributed, is changing dramatically. Due to the combination of a young population, rising living standards, and historically underpenetrated traditional media, many of our consumers are leapfrogging directly to online forms of entertainment using both mobile and PC internet. Within online entertainment in GSEA, the majority of spending is expected to be interactive content, in the form of mobile and PC online games as opposed to online video and audio, according to Frost & Sullivan. Additional drivers for GSEA’s online game industry include the rising number of game players and, in particular, paying game players; the growth of mobile games as a complement to PC online games; the increasing preference of consumers and game developers for integrated ecosystems; the importance of long-term game franchises; and the rise of eSports.
For our e-commerce business, we believe that the growth of online retail in GSEA will be driven by the affordability of smartphones, growth in the number of online shoppers, underdeveloped offline retail driving a leapfrogging to e-commerce, offline merchants embracing e-commerce, and improving and expanding payments infrastructure.
For our digital financial services business, a distinguishing characteristic of GSEA compared to the United States is the substantially lower percentage of the population with bank accounts, credit cards, or debit cards. This creates the need for alternative payment methods, specifically e-wallets. GSEA is poised for its own payments transformation in much the same way that China has shifted to online payments, according to IDC. Online payments in GSEA is divided into four broad payment modes: e-wallets, such as our AirPay platform, credit cards, debit cards and online banking. Of these, the e-wallet mode is expected to grow the fastest over the next five years, according to IDC. Drivers for GSEA’s e-wallet industry include the mismatch between internet penetration and banking penetration, which creates a structural opportunity for e-wallets; the increasing integration of e-wallets with use cases such as online games and e-commerce; and the opportunity to offer broader digital financial services using e-wallets as a foundation.
Our Strengths
We believe that the following strengths contribute to our success and set us apart from our peers:
Our Strategies
We intend to pursue the following strategies to further grow our business:
Our Challenges
We believe some of the major risks and uncertainties that may materially and adversely affect us include the following:
In addition, we face risks and uncertainties related to our compliance with applicable regulations and policies in our principal markets and operations, particularly those risks and uncertainties associated with our control over the variable interest entities, or VIEs, and their subsidiaries based on contractual and other arrangements rather than direct equity ownership in Taiwan and Vietnam, as well as our ownership structure in Thailand.
See “Risk Factors” and other information included in this prospectus for a detailed discussion of the above and other challenges and risks.
Corporate History and Structure
On May 8, 2009, we incorporated Garena Interactive Holding Limited, our holding company, as a limited liability company in the Cayman Islands. On April 8, 2017, we changed our company name from Garena Interactive Holding Limited to Sea Limited.
We began our digital entertainment business at our inception in May 2009, and by September 2012, we had expanded the business to cover all of GSEA, including Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore.
We launched our e-commerce platform, Shopee, in all seven markets in GSEA in June and early July 2015.
We launched our digital financial services platform, AirPay, in Vietnam in April 2014. The AirPay App is available in Thailand, Vietnam and Taiwan, and AirPay counters are operating in Thailand, Vietnam, Indonesia and the Philippines.
Sea Limited is a holding company that does not have substantive operations. We conduct our businesses in GSEA through our subsidiaries and VIEs and their subsidiaries, or consolidated affiliated entities. The laws and regulations in many markets in GSEA, including Taiwan and Vietnam, place restrictions on foreign investment in and ownership of entities engaged in a number of business activities. For a discussion of these restrictions, see “Regulation.” We have entered into contractual arrangements with our VIEs, including four material VIEs established and operating in Taiwan and Vietnam, and their shareholders. These arrangements allow us to exercise effective control over our VIEs, receive substantially all of the economic benefits and absorb the losses of our VIEs, and have an exclusive call option to purchase all or part of the equity interests in and/or assets of our VIEs when and to the extent permitted by the applicable laws. As a result of these contractual arrangements, we are the primary beneficiary of these VIEs and have consolidated their financial results in our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
As of the date of this prospectus, we conduct our business operations across 60 subsidiaries and 21 consolidated affiliated entities.
The chart below summarizes our corporate structure and identifies the principal subsidiaries and consolidated affiliated entities described above as of the date of this prospectus:
Corporate Information
Our principal executive offices are located at 1 Fusionopolis Place, #17-10, Galaxis, Singapore 138522. Our telephone number at this address is +65 6270-8100. Our registered office in the Cayman Islands is at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc., located at 10 East 40th Street, 10th Floor, New York, N.Y. 10016.
Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our website is www.seagroup.com. The information contained on our website is not a part of this prospectus.
Implications of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenue of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than US$1.07 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of the ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Conventions Which Apply to this Prospectus
Unless we indicate otherwise, all share and per share data in this prospectus have given effect to the 1-to-10 share split effected on April 8, 2017, following which each of our previously issued voting and non-voting ordinary shares, seed preferred shares, series A preference shares and series B preference shares was subdivided into ten voting and non-voting ordinary shares, seed preferred shares, series A preference shares and series B preference shares, respectively. In addition, all information in this prospectus reflects no exercise by the underwriters of their option to purchase up to additional ADSs representing ordinary shares from us.
Except where the context otherwise requires:
Our reporting and functional currency is the U.S. Dollar. This prospectus contains translations of certain foreign currency amounts into U.S. Dollars for the convenience of the reader. Unless otherwise stated, all translations from Indonesian Rupiah into U.S. Dollars have been made at the rate of IDR13,319 to US$1.00, being the foreign exchange reference rate and the Jakarta interbank spot dollar rate published by Bank Indonesia in effect as of June 30, 2017, all translations of New Taiwan Dollars, Thai Baht and Singapore Dollars into U.S. Dollars have been made at the rates of NT$30.3800 to US$1.00, THB33.9200 to US$1.00 or S$1.3765 to US$1.00, respectively, being the noon buying rates in The City of New York for cable transfers in New Taiwan Dollars, Thai Baht and Singapore Dollars as certified for customs purposes by the Federal Reserve Bank of New York in effect as of June 30, 2017 set forth in the H.10 statistical release of the U.S. Federal Reserve Board for translation into U.S. Dollars, and all translations from Vietnamese Dong into U.S. Dollars have been made at the rate of VND22,431 to US$1.00, being the central rate published by The State Bank of Vietnam in effect as of June 30, 2017. We make no representation that the Indonesian Rupiah, New Taiwan Dollars, Vietnamese Dong, Thai Baht or Singapore Dollars amounts referred to in this prospectus could have been or could be converted into U.S. Dollars, Indonesian Rupiah, New Taiwan Dollars, Vietnamese Dong, Thai Baht or Singapore Dollars as the case may be, at any particular rate or at all. On September 15, 2017, the Jakarta interbank spot dollar rate for Indonesian Rupiah was IDR13,261 to US$1.00, the noon buying rate for New Taiwan Dollars was NT$30.0600 to US$1.00, the central rate for Vietnamese Dong was VND22,441 to US$1.00, the noon buying rate for Thai Baht was THB33.0700 to US$1.00 and the noon buying rate for Singapore Dollars was S$1.3453 to US$1.00, respectively.