Friday File: Buys on the Edge, plus a look at Dividend Growth and Compounding

Updated buys and sells in the Real Money Portfolio, plus notes on SE, CCI, NVDA, MPW, FSLY, NET, ROKU, BAM and more...


Sea Ltd (SE) is the stock I spent most of my time writing to you about last week, and they reported strong first quarter earnings on Monday. As expected, they saw some acceleration in users and revenue as the coronavirus began to impact Southeast Asia in March… and some indications that April represented even stronger growth in some of their key metrics (Shopee transactions and merchandise volume, and Garena active users and paid users, including hitting a peak daily active user record of 80 million for their hit Free Fire video game). They had roughly the same net cash loss on the quarter as they did a year ago, but the business is a lot larger now.

Shopee’s largest local competitor is Lazada, which is owned by Alibaba (BABA) and, from everything I read, holds a “strong second place” position in regional e-commerce after being overtaken by Shopee in recent years… and while the strong competition is a little worrisome, given Alibaba’s huge resources, we should also note that Sea has partnered with Tencent so they’ve got a little heft behind them as well (Tencent owns about a quarter of the company).

So far, it appears to me that Shopee’s tactic of subsidizing sellers has paid off very well in recent years, fueling growth and getting them a leading market share, and that kind of market share and “mind share” in a business that has very strong network effects and relatively high switching costs is almost incalculably valuable (high switching costs for the sellers, at least, not necessarily for the buyers).

And like all good growth stocks, Sea did a new fundraising after their strong quarter — they announced a $1 billion convertible bond offering, which is inexpensive at 2.375% and has the added bonus of not showing up in the share count immediately, so it doesn’t feel as much like dilution.

The most interesting tidbit from the call, I thought, was the note that Free Fire is becoming really big in India — which is not a historically huge gaming market but obviously has a huge population and, thanks to dramatic competition in cellular data services in recent years, a huge new audience of folks who are using relatively inexpensive phones with pretty good internet service, and a lot of that audience — much of it quite young, since India is a young country — perfectly slots ...

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