SEA Ltd: Sea Cloud - the silver lining is years away
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- We cut our FY27F/28F group adj EBITDA by 4%/2% to USD4.5bn/USD5.8bn on Sea Cloud losses
- Monetising in-house infrastructure could build a ~USD1.2bn revenue business by 2030 but comes at a near-term earnings cost
- Maintain HOLD with a lower TP of USD85. Key catalysts are 3Q26 capex disclosure and Monee IPO timing
Sea Cloud: monetising a decade of in-house infrastructure. Sea Ltd (SE) surprised the market by announcing that it will offer cloud services to enterprises under a new arm, Sea Cloud, positioned as an AI-first platform that competes with AWS and Alibaba Cloud. Founder Forrest Li disclosed the plan in an employee memo on 20th October 2026, marking the ninth anniversary of SE’s listing, alongside a planned IPO of Monee. The platform has run Shopee, Garena and Monee for about a decade, and SE has spent the past two years rebuilding it for AI workloads, with ~500 staff involved. Management has given no timeline, capex budget, pricing or revenue target. The stock fell 9.4% on the day, to close near its 52-week low of USD77.05.
We see the strategic logic as sound, but acknowledge the payback is distant and the costs are open-ended. Selling surplus infrastructure capacity to outside customers is a well-trodden path, and SE starts with proven scale, in-house demand and a captive base of Shopee merchants and Monee partners. However, SE enters a market where the global hyperscalers are already committing billions of dollars to Southeast Asian data centres. Building an enterprise sales capability is also new for a consumer-internet company. Alibaba Cloud took about 12 years to post its first adj EBITA profit, in 4Q20. SE’s existing infrastructure should shorten that path, but we still expect Sea Cloud to take 3–4 years to reach breakeven. More broadly, Sea Cloud follows the push into quick commerce earlier this year.
A ~4% share of a fast-growing market supports the opportunity, but not near-term earnings. Southeast Asia’s public cloud market could grow from ~USD6bn to ~USD30bn by 2030, a ~38% CAGR, according to L.E.K. A 4% share would imply ~USD1.2bn of Sea Cloud revenue by 2030, still below 3% of SE’s group revenue. At 3–4x sales, such a business could be worth ~USD6–7 per share in 2030 terms. That value is several years away and comes only after significant investment, so we do not include it in our TP.
We raise our Other Services losses to reflect Sea Cloud start-up costs. We assume Sea Cloud breaks even at the EBITDA level in FY29F and at the operating level in FY30F, faster than Alibaba Cloud’s ~12 years given SE’s existing infrastructure and in-house demand. On revenue, we assume SE wins a 0.5% share of Southeast Asia’s public cloud market in FY27F, rising to 4% by 2030. That is a modest position behind the global hyperscalers and Chinese incumbents, anchored by captive demand from Shopee merchants and Monee partners. Applied to L.E.K.’s market forecast, it implies revenue of ~USD60mn in FY27F, ~USD240mn in FY28F and ~USD1.2bn in FY30F. On costs, we estimate cost of revenue at 30% of revenue, well below the margins mature hyperscalers earn, to reflect SE’s smaller scale and its reliance on third-party power and compute in the early years. We base staff costs on the ~500 employees disclosed in the memo circulated by the management on 20th October 2026, growing to ~600 by FY30F at a fully loaded ~USD155k per head, a blend of Singapore and regional engineering salaries, consistent with senior cloud engineering pay in Singapore (Morgan McKinley 2026 Salary Guide: SGD150k–200k for 10–15 years’ experience), plus employer contributions and benefits. We also assume SE leases rather than builds data-centre capacity, given the speed-to-market advantage of colocation, which adds USD100–130mn a year of fixed costs. Sales and marketing of USD30mn a year plus 10% of revenue reflects the cost of building an enterprise sales team from scratch, a new capability for a consumer-internet company. Together, these imply EBITDA losses of ~USD190mn in FY27F and ~USD100mn in FY28F, which drive our Other Services revisions. We estimate AI infrastructure capex of USD450mn a year in FY27–28F, easing to USD300mn thereafter, roughly doubles SE’s FY25 group capex of USD525mn. Depreciating it over five years, in line with typical useful lives for servers and GPUs, takes the operating loss to ~USD290mn in both years. Cumulative capex of ~USD1.55bn by FY30F and peak cash burn of ~USD1.45bn remain manageable against SE’s ~USD4.5bn of FY25 free cash flow. We conservatively assume no tax relief on these losses.
We estimate Sea Cloud to incur incremental EBITDA losses in FY27F/28F before reaching breakeven in FY29F
| Sea Cloud – incremental to group | FY26F | FY27F | FY28F | FY29F | FY30F |
| Revenue | - | 57 | 237 | 598 | 1,201 |
| Cash cost of revenue | - | (17) | (71) | (180) | (360) |
| Staff costs | - | (70) | (80) | (90) | (102) |
| Fixed infra opex | - | (100) | (110) | (120) | (130) |
| Sales & marketing | - | (36) | (54) | (90) | (150) |
| Other opex | - | (25) | (25) | (25) | (25) |
| EBITDA | - | (190) | (103) | 94 | 434 |
| Depreciation | (10) | (100) | (190) | (250) | (310) |
| EBIT | (10) | (290) | (293) | (156) | 124 |
| Tax (charge)/relief | - | - | - | - | - |
| Net profit impact | (10) | (290) | (293) | (156) | 124 |
| Capex | (50) | (450) | (450) | (300) | (300) |
Source: DBS Analysis
Scenario Analysis of Sea Cloud Losses, FY27F
| Scenario | Operating loss (USDmn) | EBITDA loss (USDmn) | EBITDA loss as a % of FY27F adj EBITDA |
|---|---|---|---|
| Low | ~200 | ~130 | ~3% |
| Base | ~300 | ~190 | ~4% |
| High | ~400 | ~250 | ~6% |
Source: DBS
We cut our TP to USD85 and now value SE on an average of SOTP and PE. In our SOTP approach (i) We value E-commerce business (Shopee) at 20x FY27F EV/adj EBITDA, ~40% above the peer average of 14.5x due to its adj EBITDA CAGR of 44% over FY26F-28F, much higher than its peer average of 10%. (ii) We value SE’s Gaming business (Garena) at a FY27F EV/adj EBITDA of 8x at a 25% discount to its peer average of 11x, as we expect Garena’s adj EBITDA to growth at lower CAGR of 5% due to its heavy reliance on Free Fire vs peer’s 12% over FY26F-28F. (iii) We value SE’s Fintech segment (Monee) at 12x FY27F EV/adj EBITDA, at a 20% discount to peer’s 15x due to Monee’s higher exposure to riskier markets like Brazil (~15-16% of total loans) and rising provisions. We factored in USD4.1bn in net cash. We have also applied a 10% holding company discount to the resulting equity value to reflect uncertainty surrounding Sea Cloud investments and potential cloud losses. We value SE using PE approach as an alternate method and we lower our target PE to 16x (PEG of 0.7x) from previous 21x on FY27F non-GAAP EPS of USD4.79 (previous USD5.09) as SE offers non-GAAP EPS CAGR of 21% over FY26F-28F (prev 24% CAGR). This leads to a PE based fair value of USD77. The average of the two gives our TP of USD85 and we maintain HOLD. Key catalysts are 3Q26 capex disclosure and Monee IPO timing. SE reports 3Q26 results in mid-November, and we look for the first disclosure of Sea Cloud’s capex budget, launch markets and loss trajectory. Upside risks include a capex budget below our estimates, early anchor customers, and a Monee IPO valuation that crystallises a premium for the fintech business. Downside risks include higher-than-expected capex, further new ventures, and continued competitive pressure on Shopee from TikTok Shop and Lazada.
SOTP Valuation
| FY Dec | FY27F Adj EBITDA (USDmn) | EV/EBITDA (x) | Value (USDmn) |
|---|---|---|---|
| Digital Financial Services | 1,472 | 12.0 | 17,669 |
| Digital Entertainment | 2,065 | 8.0 | 16,519 |
| E-commerce | 1,452 | 20.0 | 29,043 |
| Total Enterprise Value |
|
| 63,231 |
| Net cash/(debt) |
|
| 4,100 |
| Equity Value |
|
| 67,331 |
| Less: HoldCo discount (10%) |
|
| (6,733) |
| Equity Value after HoldCo discount |
|
| 60,598 |
| Number of shares (m) |
|
| 643 |
| SOTP Fair Value (USD) |
|
| 94 |
Source: DBS
Target Price Derivation
| Method | Target Price (USD) |
|---|---|
| SOTP (FY27F EV/EBITDA, 10% HoldCo discount) | 94 |
| PE (16x FY27F non-GAAP EPS of USD4.79) | 77 |
| Average Target Price | 85 |
Source: DBS
Peers for each segment in Sea Ltd
Peers | FY27 EV/EBITDA (x) | EBITDA (USDmn) | |||
| Pure Ecommerce |
| FY26F | FY27F | FY28F | CAGR FY26F-28F |
| eBay Inc | 15.0 | 3,691 | 3,996 | 4,411 | 9% |
| Allegro.eu SA | 14.0 | 841 | 900 | 958 | 14% |
| Peer Average | 14.5 | 4,735 | 5,183 | 5,772 | 10% |
| Gaming Developers and Publishers |
|
|
|
| |
| Nintendo Co Ltd | 17.6 | 2,369 | 2,903 | 3,072 | 14% |
| Take Two Interactive Software | 21.8 | 1,172 | 1,820 | 2,654 | 50% |
| NetEase Inc | 7.1 | 7,285 | 7,867 | 8,516 | 8% |
| Tencent Holdings Ltd | 7.8 | 54,983 | 60,187 | 68,294 | 11% |
| Square Enix | 12.3 | 400 | 424 | 450 | 6% |
| NCSoft | 4.2 | 428 | 454 | 483 | 6% |
| Nexon | 9.1 | 893 | 923 | 949 | 3% |
| Netmarble | 5.8 | 337 | 346 | 351 | 2% |
| Peer Average | 11 | 67,866 | 74,924 | 84,770 | 12% |
| Digital Financial Services |
|
|
|
| |
| PayPal Holdings Inc | 7.3 | 6,828 | 6,766 | 6,915 | 1% |
| Mastercard Inc | 20.9 | 23,631 | 26,692 | 30,052 | 13% |
| Visa Inc | 21.3 | 32,213 | 35,844 | 39,614 | 11% |
| Sofi Technolgies Inc | 9.2 | 1,626 | 2,110 | 2,632 | 27% |
| Peer Average | 15 | 64,298 | 71,413 | 79,214 | 11% |
Source: Visible Alpha, DBS
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