This article was first posted in Outperforming the Market.

Investment thesis

For fundamentally driven investors, every selloff presents an opportunity. This is especially so when you’re comfortable with the fundamentals of the company. The relatively cheap valuation of the company makes it even more attractive as an investment.

While we have seen a drastic selloff in Sea over the past year or so, I think that part of the selloff is warranted given that they have been pulling out of certain e-commerce markets that they were testing in, and Free Fire has resulted in headwinds for the gaming business in the near-term.

That said, I think that during times like these, investors looking to invest for the long-term needs to look at the big picture, dive deeper into the company and be fundamentally driven rather than be driven by sentiment. This article will dive deeper into Sea’s gaming segment, Garena, to gain further confidence in the business fundamentals of Sea.

Deep dive into digital entertainment (Garena)

As mentioned earlier, Garena is Sea Limited’s digital entertainment business, which mainly offers mobile and PC online games. As part of its business, Garena does game development, localization, operation, distribution, monetization and payments, as well as activities like esports and user community building.

Its games comprise of either self-developed games or games that are licensed from third party developers. Its games have a…