Cautious Optimism Towards Sea Limited's Gaming Venture: Here's the Rationale.
Rewritten Article:
Listen up, mate! It's all about Sea Limited's subsidiary, Garena, that was once the star performer but has been overshadowed by Shopee. However, it still plays a crucial role in Sea's long-term strategy, and 2024 marked a solid comeback for the gaming giant. Let's dive into the details!
A Comback Year in 2024
Garena's ride over the past five years has been like a rollercoaster, peaking when COVID-19 struck in 2020. At its height, it boasted 729 million quarterly active users (QAU), nearly one in every seven people on Earth! But things soured as the world opened up, and Garena hit rock bottom.
Fear not, though! The end of 2023 saw a recovery, with QAU improving from 529 million to 618 million by the fourth quarter of 2024. Plus, bookings jumped 19%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) skyrocketed by 30% in 2024.
While Garena's user base is below its 2021 high, it's still monumental - over 600 million users play the game quarterly! That makes it one of the heaviest hitters in the mobile gaming world and a profitable venture, generating over $1.2 billion in adjusted EBITDA in 2024.
A Single Title Dependence
Garena's success in 2024 is attributed primarily to its flagship title, Freefire. It alone contributed more than 100 million daily active users (DAUs), making it the largest mobile game worldwide by DAU. And even though Freefire is colossal, it expanded DAUs by 28% in 2024, thanks to growth in user bases in Asia, the Americas, and Africa.
Owning a hit like Freefire is fantastic, but it's not all sunshine and rainbows. If users lose interest or find something better, they could bail en masse, and Garena, still overly dependent on a single title, could take a huge financial hit.
The absence of a second blockbuster also raises questions about Garena's game development skills. While collaborating with industry titans like Tencent to publish games in local markets helps reduce risk, the lack of in-house blockbusters points to potential long-term sustainability issues.
The Road Ahead for Garena
Garena has its work cut out to maintain its growth in the coming years, but things look promising in the short term, all thanks to Freefire!
Freefire's global reach, with over 160 markets, makes it less reliant on any single market. Plus, it's still expanding its reach, both in existing and emerging markets, like Africa. For instance, active users in Nigeria surged 90% after investing in infrastructure to improve connections.
Beyond Africa, the Indian market is ripe for the picking, especially since the ban on Freefire was lifted last year. While there's no news on when it will return, it's only a matter of time.
Garena's management team is working hard to keep the game localized, leveraging local culture and trends to keep users hooked. For instance, in Indonesia, players can donate in-game currency to renovate an orphanage in West Java. Another example is hosting an esports event in Brazil last November.
In summary, Garena anticipates double-digit growth in both user base and bookings year over year in 2025.
What's in it for Investors?
Garena's performance has dipped for a few years, but Freefire brought it back onto the growth path. However, depending on a single title poses significant risks, even though it remains one of the best mobile games out there.
As an investor in Sea, I'll be keeping tabs on Garena's growth in the upcoming quarters for clues on its long-term sustainability. Stay tuned, and don't forget to play Freefire! 😉
Enrichment Data:
Garena is working diligently to diversify its game portfolio beyond Free Fire:
- Expanding Existing Games: By leveraging titles like League of Legends (in the SEA region), Call of Duty: Mobile (as a publishing partner), Arena of Valor, and Speed Drifters, Garena contributes significantly to its revenue and user base.
- Launching New Games: While specifics about new game launches aren't extensively discussed, Garena has plans to introduce new games. They typically focus on mobile gaming and esports, which are critical areas for expansion.
- Partnering with Third-Party Developers: Collaborating with third-party game developers helps Garena tap into various game genres and technologies, potentially attracting a broader audience.
- Geographic Expansion: Garena aims to extend its presence in new markets, such as Africa. Investing in local infrastructure, like setting up servers in countries like Nigeria, has resulted in significant growth in user bases, hinting at potential for further expansion in emerging markets.
- Capturing Local Trends and Engaging Users: By integrating local trends into its games, Garena strives to make them more inclusive and engaging, thus maintaining user interest and attracting new players, as seen with Free Fire becoming a cultural phenomenon. While Garena's primary focus remains on Free Fire, the company is actively working on expanding its offerings to remain competitive in the gaming market.
- The success of Garena in 2024 was primarily due to its flagship title,Freefire, which contributed over 100 million daily active users, making it the largest mobile game worldwide by daily active users.
- While Freefire is a significant contribution to Garena's revenue and user base, there are concerns about its over-reliance on a single title, and the potential risks if users lose interest or find something better.
- To counter potential risks, Garena is working diligently to diversify its game portfolio, by investing in local infrastructure, publishing partnerships with industry titans, and planning to launch new games, particularly focusing on mobile gaming and esports.
- The management team at Garena is also focusing on capturing local trends and engaging users by integrating local culture and trends into its games, making them more inclusive and engaging, as seen with Free Fire becoming a cultural phenomenon. This strategy is intended to maintain user interest and attract new players.
