Margin compression was driven by fulfilment centre ramp-up costs, elevated festive promotions and continued logistics investments to defend market share, explains CGS International (CGSI) analyst Jacquelyn Yow. She emphasises that these pressures are short-term and investment-led rather than structural.
“Shopee remains the dominant e-commerce platform in Southeast Asia by GMV, with its in-house logistics network widening its moat. We understand the current competitive landscape is unchanged and stable across its core markets,” says Yow.
Following growth across all segments, Sea posted revenue of US$22.9 billion for its FY2025, up 36% y-o-y. Core net profit also rose sharply to US$1.6 billion, although this is 11% below consensus estimates, mainly due to higher credit provisioning and increased investments in digital financial services. Adjusted ebitda increased 75% y-o-y to US$3.4 billion, supported by margin expansion in Shopee and continued robust profitability in Garena and Monee.
Sea’s renewed focus on aggressive reinvestment is effectively resetting the stage of the earnings cycle, says Bernstein analyst Venugopal Garre. “The company is prioritising user growth and a broader product offering. It is therefore guiding conservatively — at least matching last year’s e-commerce ebitda — but on GMV growth of over 25%. This is driving the change in near-term earnings expectations, as the market had been baking in modest margin expansion,” he adds.
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This year, Sea shares started trading at US$131.49 apiece, down 40% from its 2025 peak of US$196.50 on Sept 11, 2025. It has since tumbled further, currently trading at US$78.31, down about 39% year to date.
The last time Sea traded at these levels, the company was reporting e-commerce losses, had an early-stage fintech venture and was facing a moderating gaming business. Today, with ebitda over three times higher, a healthier business mix and an increasingly asset-light model, the recent share price correction might appear puzzling, Garre notes.
While this does not materially alter Bernstein’s medium-term view, it does lead to a cut in e-commerce ebitda estimates and, in turn, reduce consolidated earnings by about 8%. To reflect the earnings downgrade, Garre has reduced his target price to US$150 from US$170, while keeping his “outperform” rating.
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PhillipCapital’s Helena Wang also remains positive on Sea. In her view, Sea’s guidance indicates sustained demand and healthy platform engagement, reflecting a deliberate choice to reinvest in key areas, such as logistics infrastructure, fulfilment capabilities and user growth initiatives. These investments should further strengthen Shopee’s competitive positioning and support long-term operating leverage as scale continues to build. The analyst maintains her “buy” call, with an unchanged target price of US$170.
Aside from seeing Sea as the market leader in the growing gaming, e-commerce and digital finance markets in Asia, analysts at Goldman Sachs Research also see further upside potential from its successful move into Latin America. Pang Vittayaamnuaykoon and Kelsey Santoso reiterate their “buy” call, with a target price of US$218.
Meanwhile, UOB Kay Hian’s John Cheong, Heidi Mo and Kai Jie Tang are keeping “buy” on Sea, with a lower target price of US$181.18 from US$200.18 previously, cutting their FY2026 and FY2027 earnings by 38% and 23% respectively. This is after factoring in lower e-commerce margins for platform improvements, among others.
Strong Shopee momentum to continue
In 4QFY2025, Sea’s e-commerce segment Shopee saw a sequential uptick of 33% y-o-y to US$202 million, although it is still below consensus estimates. This is due to reinvestments, including expanding Shopee Express, accelerating same-day delivery in key markets and increasing spending on user engagement and acquisition, such as its VIP programme.
Shopee has achieved various improvements in user acquisition and ad revenue growth over the past year, Yow points out. For one, ad-paying sellers have increased 20% y-o-y, with average ad spend rising 45% y-o-y. Its VIP programme has also doubled its subscriber count to 7 million q-o-q, led by early markets such as Indonesia. VIP now contributes more than 15% of 4QFY2025 GMV, with higher frequency and basket size. Shopee’s monthly active buyers in FY2025 rose 15% y-o-y, while purchase frequency climbed 10% y-o-y.
Competition-wise, the landscape is broadly stable across Asean, with the company noting no major structural changes compared with the previous quarter. While TikTok is continuing to grow faster in some markets, given heavier subsidies, Shopee remains disciplined, prioritising sustainable growth and ecosystem depth over GMV-driven discounting, says Yow.
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In Brazil, Shopee experienced the fastest growth among its markets while remaining profitable. The company also highlights improvements in delivery speed and the accelerated rollout of fulfilment to narrow the service gap with Nasdaq-listed competitor MercadoLibre. “Currently, Brazil fulfilment penetration is still at 2%–3% of gross orders, which is the key reason for further investment in fulfilment centres to double the penetration rate by the end of FY2026,” says Yow.
In Taiwan, Shopee delivered double-digit GMV growth in FY2025, continuing to defend leadership against New York Stock Exchange-listed Coupang. This is done by leveraging its over 2,800 collection points and improving logistics integration.
Sea is also in the midst of charting its agentic AI journey through the recently announced collaborations with OpenAI and Google, which allow it to avoid heavy capital expenditure on its own AI models. Sea has become a key commerce partner for OpenAI’s Operator, giving the agent a direct rail into Shopee for shopping tasks. With Google, Sea is developing an agentic shopping prototype that can be deployed across Shopee and Google surfaces, covering both search and transactions, including agent-managed payments with Shopee’s wallet.
While agentic AI aims to automate commerce, Bernstein’s Garre thinks the need for such a feature is not obvious, especially in emerging markets where abundant low-cost labour already creates time for leisure or work.
“Average time spent on commerce platforms is less than 10 minutes, so in that context, saving 10 minutes on shopping is marginal. Our view also is that even after long workdays in Asia, we would rather enjoy the shopping experience than outsource it to agents, and we are sceptical of ‘optimising away’ small pleasures that add meaning while delivering limited real utility,” he adds.
Garre estimates agentic AI-related annual costs of up to US$50 million, or about 35 basis points of GMV, which is manageable and can be monetised. On disruption risk, the analyst believes Sea is unlikely to be displaced purely by AI.
“Its competitive moat is the full stack — dense logistics and fulfilment that are very hard to replicate at similar cost, plus licensed fintech that reduces payment friction and supports credit at checkout. New or small platforms cannot easily ‘ride on AI’ to bypass that infrastructure in Southeast Asia. Sea and TikTok are the natural conduits for agentic AI and we do not see a credible incremental e-commerce disruptor emerging solely from AI rails,” he adds.
Moving forward, Sea’s digital financial services segment Monee is also expected to continue to grow meaningfully, with adjusted ebitda expanding q-o-q and y-o-y on a loan book exceeding US$9 billion as at December 2025. The growth is supported by borrower expansion, AI-driven underwriting enhancements, and rising adoption of ShopeePay and SPayLater across Southeast Asia and Brazil, CGSI highlights.
Garena stays durable and monetisable
Sea’s digital entertainment segment, Garena, recorded a strong year despite seasonal normalisation in the fourth quarter. Its 4QFY2025 bookings declined 20% q-o-q but improved 24% y-o-y to US$672 million, following a strong third-quarter content cycle. Revenue rose 35% y-o-y to US$701 million, while adjusted ebitda grew 26% y-o-y to US$364 million, maintaining a healthy 54% margin.
Quarterly active users of 633 million and paying users of 58 million, both up 2.5% and 15% y-o-y respectively, led to a paying-user ratio of 9.2%. For 2025, bookings climbed 37% y-o-y to US$2.9 billion while ebitda expanded 38% y-o-y to US$1.7 billion, marking the second consecutive year of an over 30% bookings growth, UOB Kay Hian analysts note.
“Garena entered 2026 with sustained momentum from Free Fire’s evergreen franchise. Management aims to drive continued engagement through new content, intellectual property collaborations and e-sports expansion. With ebitda margins consistently above 50% and strong cash generation, the segment should remain a stable earnings anchor while selectively investing in new titles and partnerships,” they add.
For FY2026, Sea is guiding Garena to deliver y-o-y growth, though it is likely to moderate from the above-30 % growth seen in FY2024–FY2025. While it maintains its target for double-digit revenue growth, Sea framed FY2026 as a “transition year ahead of the 10th anniversary in 2027”, with a focus on sustainable user engagement and a new content pipeline, Yow points out. This includes collaborations with Japanese IPs Jujutsu Kaisen in 1Q2026 and Naruto Phase 3 in 3Q2026.
Together with encouraging traction from newer titles such as EA Sports FC Mobile, these collaborations support the confidence that gaming can remain a meaningful profit pillar through FY2026, says PhillipCapital’s Wang. The analyst expects Garena’s revenue to grow 17% y-o-y in FY2026.
