Sea Limited (SE) reported Q4 2025 earnings on March 3rd. Revenue of $6.85B beat Wall Street's $6.45B estimate by 6.2%. Full-year revenue hit $22.9B - up 36% year-over-year. Net income tripled to $1.6B.

The stock dropped 20%. About $13 billion in market cap, gone in a session.

Why? Earnings per share came in at $0.63 against a consensus of ~$0.80. A 21% miss. And management guided for flat EBITDA in FY2026, signaling more competitive spending ahead.

But here's the thing - this is a cost problem, not a demand problem. And that distinction matters enormously for what the stock is actually worth.

The Numbers That Matter

Before we dig into what went wrong (and what went very right), here's the Q4 scorecard:

Revenue grew 38.4% YoY in Q4 - accelerating from Q3's 38.3%. On a full-year basis, SE grew revenue from $16.8B to $22.9B, operating income tripled from $662M to $1.99B, and free cash flow hit $4.5B.

So why the selloff? Two things: the EPS miss (driven by aggressive competitive spending and higher credit provisions), and cautious FY2026 guidance where management signaled EBITDA would be "no lower than" FY2025 - code for: we're going to keep spending.

Three Businesses, One Company

SE runs three distinct segments, and for the first time in company history, all three are profitable on an operating income basis.

Shopee (E-Commerce) - 72% of Revenue

The crown jewel. Shopee generated $16.6B in revenue (+33.4%) on $127.4B in GMV (+26.8%). The key metric: core marketplace revenue (transaction fees + advertising) grew 50.2% YoY in Q4, with ad revenue alone up >70%.

Take rate expanded from 12.4% to 13.0% for the full year - SE is extracting more value per dollar of GMV through advertising monetization. Shopee turned profitable at $581M operating income (vs a $139M loss in FY2024).

The concern: Shopee is spending aggressively to defend market share against TikTok Shop, Lazada, and JD.com. S&M expenses grew 25.4% in Q4, and VAS (logistics) revenue actually declined 7.5% as SE subsidizes shipping to match competitors. EBITDA margin on GMV was only 0.6% - thin.

Garena (Gaming) - 10.5% of Revenue

The turnaround story. Garena was written off 18 months ago as Free Fire faded. It's now firmly back to growth: bookings up 37.3% to $2.95B, with 100M+ daily active users.

Quarterly paying users hit 58M (+15% YoY) while the paying ratio rose to 9.2%. EBITDA margin on bookings held at 56.1% - Garena remains the high-margin cash cow funding Shopee's competitive investment.

Q4 bookings did dip 20% QoQ from $841M to $672M, likely normalizing after the Squid Game and Naruto collaborations in Q3. Worth watching, but the YoY trend is undeniably strong.

SeaMoney (Fintech) - 16.5% of Revenue

The fastest grower. Revenue surged 60.1% to $3.8B as the loan book expanded 80% to $9.2B. The critical number: NPL ratio at 1.1% - improved despite the loan book nearly doubling. Credit quality is pristine.

Active credit users reached 37M+ (+40% YoY). Off-Shopee SPayLater loans grew >300% YoY, expanding into higher-ticket categories like electronics and two-wheelers. This is a fintech business growing into a standalone franchise.

The risk: A regional economic downturn could cause rapid credit deterioration. Provisions grew 76.7% to $1.37B - growing in absolute terms, though declining as a percentage of the loan book.

Notice something? Garena generates 46.6% of total segment EBITDA despite being only 10.5% of revenue. It's the profit engine subsidizing Shopee's competitive fight.

The Valuation Puzzle

Here's where most analysis of SE goes wrong: they treat it like a single operating company. It's not. SE has an embedded lending business, and that distorts every traditional metric.

The Free Cash Flow Illusion

SE reported $4.5B in free cash flow. At a ~$57B market cap, that's a 12.7x P/FCF - sounds cheap for a 36% grower.

But $2.7B of that "free" cash flow went straight back into growing SeaMoney's loan book. You can't distribute cash that's tied up in consumer loans. Adjusted for the net corporate cash deployed into lending, distributable FCF is closer to ~$1.8B - a 31.3x P/FCF.

The truth is somewhere in between. But anyone quoting the headline 12.7x is being misleading.

The Net Cash Illusion

Same problem with the balance sheet. Headline net cash is $8.7B. But:

• $3.8B is customer deposits (SeaBank depositors' money - funds lending, not corporate cash)

• $3.1B is escrow & advances (money held in trust for Shopee buyers/sellers during transactions)

• $1.8B is debt (borrowings + remaining convertible notes)

Adjusted net cash: ~$1.9B. Still positive, but a very different picture from $8.7B.

The Right Way to Value SE: Sum-of-Parts

Since traditional metrics are distorted by the lending business, the cleanest approach is to value each segment using the appropriate framework:

1. Shopee + Garena (platform businesses): Valued on EV/EBITDA. Combined EBITDA of $2.54B at 15-25x = $38B-$63B.

2. SeaMoney (lending business): Valued on Price/Book of the loan portfolio. $8B book at 1.5-3.0x = $12B-$24B.

3. Adjusted net cash: $1.9B.

At ~$90 per share, SE is sitting between the bear and base case. The market is pricing in near-worst-case competitive outcomes while giving SeaMoney almost no credit and compressing Shopee + Garena's multiple.

The base case implies ~$108 per share - roughly 20% upside from here. Even the bear case ($81) only implies ~10% downside. That's an asymmetric setup for a company growing revenue at 36% with all three segments profitable.

The Margin Story

The bears will point to Q4 margin compression. They're not wrong - but they're missing the forest for the trees.

Every margin expanded on a full-year basis. The Q4 dip (EBITDA margin fell to 11.5% vs 11.9% YoY) reflects a deliberate choice to invest into competitive positioning, not a structural deterioration. SBC actually declined 12.7% to $625M - earnings quality is improving.

What I'm Watching

This isn't a blind bullish take. There are real risks, and the following will determine whether the thesis holds:

1. Q1 2026 margins - Does competitive spending moderate? Watch adj. EBITDA margin recovery above 15%.

2. SeaMoney NPL trend - Any deterioration above 1.5% is a warning sign. The loan book nearly doubled; a credit cycle would hit hard.

3. Shopee take rate - Must hold at 13%+ to support revenue growth above GMV growth.

4. TikTok Shop market share - Watch Indonesia, Thailand, Vietnam for competitive data.

5. Garena bookings trajectory - Do Q4's $672M stabilize, or is the QoQ decline a trend?

Bottom Line

SE dropped 20% on what is fundamentally a cost problem, not a demand problem. Revenue execution across all three segments is strong. The EPS miss was driven by a conscious decision to spend aggressively on competitive positioning - the same playbook that made Shopee #1 in Southeast Asia in the first place.

At ~$90, SE sits between the bear ($81) and base ($108) case of our sum-of-parts framework - with 36% revenue growth, all segments profitable, $4.5B in operating cash flow, and a fintech arm with pristine credit quality growing 60% annually.

The sum-of-parts base case implies ~$108 per share - roughly 20% upside. The market is pricing in near-worst-case outcomes. That's usually when the best opportunities emerge.

This is not investment advice. Do your own research.

Sources: SE Q4 & FY2025 Press Release, SE Q4 & FY2025 Earnings Deck