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Sea Ltd. A Controversial Situation

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For all the “cash grab”  accusations that have been directed at the thousands of Initial Coin Offerings (ICOs), they represent chump change compared to Sea Ltd. (NYSE:SE) The Singapore based company went public just last October raising $880 million.  That placed a value on the total company of almost $2.6 billion by our calculations.  That is a huge valuation for a company that was losing $200+ million at the time.

Sea Ltd. was fortunate in convincing top underwriters to do their offering. The list included no less than Goldman Sachs, Morgan Stanley and Credit Suisse.  The opportunities for Sea Ltd. look pretty awesome as we describe below.  The financials reports of Sea Ltd reveal a different story.

On February 28, Sea Ltd. reported full year 2017 revenue of $414 million, up 19.8% year over year.  The company racked up a whopping $561 million loss, a 149% increase over the previous year.  Not many companies can afford to lose more money than they generate in revenues.  Sea Ltd. is one of those rare few, and that has investors nervous.  Is Sea Ltd simply misunderstood or is the stock a ripe target for short sellers?

How They Generate Revenues

Sea claims to be the leading internet company in Greater Southeast Asia, or GSEA, based on their number one market share by revenue in the region’s online game market, their number one market share in the region’s e-commerce market, and their position as a leader in the region’s digital payments market by e-wallet.

That is a lot of market leadership when Sea revenues were less the $400 million annually.  It appears everywhere we read the company claims market leadership but qualifies this by limiting the time period such as “June 2017” or in small regions.  That sort of language always makes me wince.

Huge Addressable Market

It is not difficult to appreciate the enormity of the GSEA market. Here are a few stats from the October prospectus.  GSEA contains 585.3 million population generating $3 trillion in GDP.  If that were not enough, there are 315.4 million Internet users and 237.1 million smartphone users.

That is the overview, here is what made Sea Ltd. appealing to initial investors back in October.  The size of the online game market is $3.5 billion growing at 19.6%.  The e-commerce market is placed at $23 billion growing just under 30% followed by the $6.5 billion electronic payment business showing a 30+% expansion.  That is pretty impressive stuff.

The Business Model

Sea has created  an integrated platform consisting of digital entertainment (focused on online games), e-commerce, and digital financial services (focused on e-wallet services), each localized to meet the unique characteristics of GSEA.

Sea operates with three main platforms that also serve as consumer brand names. These include Garena (Video Games), Shopee (e-commerce) and AirPay (financial services).

Garena

The Garena platform is a gaming network where Sea creates exclusive licenses with developers.  Online gaming licenses typically run three to seven years.  During this period fees are charged to platform members of which Sea retains 65%-80% of gross billings.  Other related services include video content such as live streaming of online gameplay, chat and online forums. Finally, Garena claims they are the GSEA leader in eSports.

All in all there is little doubt the markets that address are large and growing. Eventually we will come to how Sea makes money.

Shopee

Think of Shopee as a small but rapidly growing Amazon, Ebay or Alibaba wannabe. Shopee is a third-party marketplace that connects buyers and sellers.  They do not hold inventory.  Management believes buyers choose Shopee because they trust the brand to
provide easy access to a wide range of products coupled with strong customer service.

AirPay  

The AirPay platform provides digital financial services.  Through the AirPay e-wallet, consumers use either the AirPay App or one of 177.9 thousand registered retail partners,
to make payments to a wide variety of product and service providers.

During the first half of 2017, transactions for AirPay e-wallet totaled nearly $475 million. The AirPay App is available in Thailand, Vietnam and Taiwan, and AirPay counters are operating in Thailand, Vietnam, Indonesia and the Philippines. This leaves considerable territorial expansion opportunities for the future.

Management is in the process of integrating AirPay with Garena where it recently processed 40% of aggregate gross billings.  AirPay provides payment services to Shopee as well.

Use Of Proceeds

The IPO raised gross proceeds of $880 million for approximately 32% of the Class A shares. Based solely on this, underwriters placed roughly a $2.6 billion valuation on Sea Ltd. This excludes 151.5 million Class B issued and outstanding shares.  The value is not determinable at this time.  Accepting the vast market potential for the company’s services, what did investors get in return.  Let’s dig into the financials starting with the Use of Proceeds statement taken directly from the October prospectus.

“The primary purposes of this offering are to create a public market for our Class A ordinary shares in the form of ADSs for the benefit of all shareholders, retain talented employees by providing them with equity incentives and obtain additional capital. We plan to use the net proceeds of this offering primarily for growing our business, including user acquisition, content procurement and research and development, as well as for working capital and other general corporate purposes.”

What would have been nice is if there was some mention of how a huge chunk of the proceeds would be used to pay down a mountain of debt: about $674 million of long term debt. Little wonder investors are nervous.

There is absolutely nothing wrong with paying off debt especially if it results in a benefit to equity shareholders.  However, with the company losing money at nearly $561 million, it is a bit challenging to find how shareholders come out ahead.  Based on analyst projections, Sea Ltd. is not likely to make a profit until at least 2020 and that means they will be in a negative cash flow position for quite a while.  

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 106 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Stellar Acquires Blockchain Startup Chain to Form Interstellar

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The commercial arm of the Stellar Development Corporation has acquired a promising blockchain startup by the name of Chain, paving the way for possibly higher enterprise adoption of distributed ledger technology. The deal adds to Stellar’s credibility as one of the world’s leading blockchain companies.

Chain Acquired

Chain, a San Francisco-based startup pursuing enterprise grade adoption of blockchain technology in finance, has sold to Lightyear in an undisclosed cash agreement. Lightyear, the subsidiary of the Stellar Development Corporation, will be re-named Interstellar, according to official reports. Jed McCaleb, Stellar’s founder, will be the chief technology officer of the newly formed company, which he said should help companies build on the Stellar network. He adds:

“Chain’s team has led the market for enterprise adoption of blockchain technology, which is a critical component of building a future where money and digital assets move over open protocols.”

Interstellar’s new CEO Adam Ludwin explained how the newly merged company will work together:

“Chain has worked from inside the enterprise while Stellar has focused on the network between organizations. As a single team we will have a complete view and set of capabilities to make value-over-IP a reality.”

Chain is said to be a leader in the world of fin-tech, having built enterprise-grade blockchain solutions for Visa, Citigroup and Nasdaq, among others. With the merger, Interstellar will have access to Sequence, Chain’s powerful cloud solution that enables companies to monitor assets moving between private ledgers and the Stellar network.

Previously, Chain had raised more than $43 million across multiple deals. Financiers included Capital One, Citigroup, Pantera Capital and Blockchain Capital.

XLM Price Update

Although the merger between Chain and Lightyear has not had a demonstrably positive effect on XLM’s price, the cryptocurrency continues to outperform leading assets such as Ethereum and bitcoin cash. The XLM price was down 4.4% on Tuesday but has gained 3.2% over the past seven days. By comparison, bitcoin has declined nearly 1% over that period while Cardano has lost more than 10%. Ethereum is trading in positive territory over seven days as prices recovered from 16-month lows.

XLM, which is currently valued at $0.197, has declined roughly 12% over the past month. At current values, it has a market capitalization of $3.7 billion, placing it sixth among active cryptocurrencies. Bitbox is the most active market for XLM traders, accounting for more than 54% of daily transactions.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 610 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Nvidia Pulls Out of Cryptocurrency Business amid Declining Profit

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California chipmaker Nvidia Corp (NVDA) has officially pulled out of the cryptocurrency mining business over declining GPU sales and dwindling profits. However, a closer look at the mining landscape reveals that competition, and not declining demand, is at the root of Nvidia’s decision to exit the industry.

Nvidia Quits Crypto Mining Business

Colette Kress, Nvidia’s CFO, announced the decision last week in a report that was published by The Wall Street Journal.

“We believe we’ve reached a normal period as we’re looking forward to essentially no cryptocurrency as we move forward,” Kress said. “Our revenue outlook had anticipated cryptocurrency-specific products declining to approximately $100 million, while actual crypto-specific product revenue was $18 million, and we now expect a negligible contribution going forward.”

The company, which is best known for developing chips for supercomputers and video game systems, experienced an upsurge in GPU sales last year as miners rushed to capitalize on the crypto boom. Earlier this year, Nvidia revealed for the first time how much revenue it generated from crypto market sales. As Hacked reported back in May, Nividia’s first-quarter chip sales to cryptocurrency miners hit $289 million, far exceeding forecasts of $200 million.

Despite better than expected results, the company warned of a steep fall in subsequent quarters as mining profitability plummeted.

“Crypto miners bought a lot of our GPUs in the quarter and it drove prices up,” Nvidia CEO Jensen Huang said on a Q1 earnings call back in May.

Nvidia may be exiting the crypto mining business, but its overall profitability is as good as ever. For the quarter ending July 29, profits nearly doubled to $1.1 billion, or $1.76 a share. Revenues surged 40% to $3.12 billion. Both results beat analysts’ forecast.

Bitmain’s Growing Dominance

Following a series of acquisitions and funding rounds, China’s Bitmain has emerged as the world’s biggest blockchain conglomerate. The company, which is valued at $19 billion, generated $1.1 billion in profits during the first quarter. As CCN reports, Bitmain’s crypto venture earned 65 times more profit than Nvidia during the quarter.

Bitmain’s profitability suggests that demand for mining equipment remains strong despite the seven-month downturn in cryptocurrency prices. What’s more, bitcoin’s hash rate has increased significantly this year, offering further evidence of continued growth. As Hacked reported last month, bitcoin’s hash rate has risen 100% amid the downturn. What’s more, the hash power that has come online since the end of last year is equivalent to more than 2 million SHA-256 ASIC. Each of these units is valued at roughly $1,800.

The real issue for Nvidia isn’t that crypto mining is on the decline but that demand for GPU-specific equipment has fallen.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 610 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Overstock.com Shares Spike 17% After Chinese Private Equity Firm Pledges $270 Million for tZERO

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Shares of Overstock.com (OSTK) surged in after-hour trading Thursday after a major Chinese equity firm agreed to invest in tZERO, the blockchain subsidiary vying to reshape the investment world through a SEC-regulated alternative trading system (ATS).

GSR Capital to Invest Heavily in tZERO

CNBC confirmed on Thursday that Hong Kong-based GSR Capital will invest up to $270 million in tZero. The investment is based on a valuation of $1.5 billion, giving GSR an 18% stake in the new blockchain startup. GSR will also buy $30 million worth of tZERO security tokens.

“We are honored to have GSR Capital as a strategic investor,” said tZERO CEO Saum Noursalehi in a statement, as quoted by CNBC. “The tokenization of securities has the potential to disrupt global capital markets responsible for moving hundreds of trillions of dollars. Together with our partners, we will globalize our blockchain-based platform, bringing more efficiency, liquidity, and trust to capital markets.”

The announcement came less than six weeks after GSR Capital signed a letter of intent with Overstock to purchase $160 million worth of security tokens.

Launched in December, tZERO’s initial coin offering (ICO) has raised $134 million to finance its ATS infrastructure, which will provide a regulated venue for securities trading. The company plans to build similar systems around the world.

Despite a highly successful crowdraise, documents submitted to the SEC earlier this year revealed a target of $250 million. Independent valuations had placed tZERO’s ICO anywhere between $200 million and $500 million.

Overstock.com Spikes

Overstock.com’s share price was up by as much as 21% after-hours. It would eventually settle at $45.40 for a gain of 17.6%.

As the following chart illustrates, the OSTK price rose 4.5% in regular trading on Thursday to settle at $38.60.

Despite the gain, OSTK has been a dismal performer this year. Share prices are down 40% year-to-date, vastly under-performing the Nasdaq Composite Index, which has returned more than 14%.  What’s more, the stock is trading at less than half of its 52-week high.

Overstock’s share price has been rocked by disappointing quarterly results and the cancellation of a proposed public stock offering. Last March, the company offered four million shares of common stocks before abruptly cancelling those plans. Noursalehi said the decision to pull the offering was due to “market volatility and price.” To be sure, OSTK had declined 20% following the initial announcement to issue common stock.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 610 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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