Garena’s Recovery Signals Potential for Future Growth at Sea Limited

Once the flagship business of Sea Limited (NYSE: SE), Garena has shifted into the background as Shopee has taken center stage as the company’s leading revenue driver. Nevertheless, Garena continues to play a vital role in Sea’s long-term strategic vision. Its promising recovery in 2024 indicates that it possesses the key elements necessary to grow in the upcoming quarters.

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2024: A Year of Impressive Recovery

The past five years have been tumultuous for Garena. Initially thriving during the COVID-19 pandemic in 2020, it reached a peak of 729 million quarterly active users (QAU) in Q3 2021 — around 1 in every 7 people on the planet. However, as global conditions normalized, Garena’s performance swiftly declined.

By the end of 2023, the situation had stabilized. QAU increased from 529 million to 618 million in Q4 2024. Bookings climbed by 19%, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 30% in 2024.

Despite being below its peak, Garena’s user base remains substantial, with over 600 million users engaging with its platform quarterly. More impressive is its daily engagement, boasting over 100 million active users. Consequently, Garena continues to be a highly profitable entity, generating $1.2 billion in adjusted EBITDA in 2024.

Overdependence on a Single Game

Garena’s commendable performance in 2024 is largely attributable to the success of its flagship title, Freefire. This game alone accounts for over 100 million daily active users (DAUs), making it the largest mobile game worldwide by this metric. Remarkably, Freefire grew DAUs by 28% in 2024 due to expanding user bases across Asia, the Americas, and Africa.

However, relying heavily on a single franchise introduces risks. Should user interest in Freefire diminish or if a more appealing game emerges, users could abandon the platform en masse. Garena’s focus on just one title may lead to significant drops in revenue and profits.

Additionally, the absence of a second blockbuster title raises concerns about Garena’s game development potential. Unlike successful Asian competitors like Tencent and Netease, Garena has struggled to launch new titles consistently. While partnerships with developers help mitigate some risks, the lack of fresh in-house games presents questions regarding the company’s long-term growth sustainability.

Garena’s Growth Outlook Remains Positive

Garena faces challenges in maintaining its growth momentum; nonetheless, its outlook remains promising, largely driven by Freefire’s enduring appeal.

With a vast user base spanning 160 markets, Freefire minimizes reliance on any particular region. Its growth trajectory continues, especially in emerging markets like Africa. In Nigeria, for example, active users skyrocketed by 90% following investments to enhance connection speeds.

Beyond Africa, the Indian market offers immense potential for Freefire, especially after the Indian government lifted its ban on the game last year. Though Garena has yet to announce its return to India, it seems foreseeable.

The management at Garena is actively working to localize the gaming experience, implementing elements of local culture and trends to sustain user engagement. Recent initiatives include allowing in-game donations to renovate an orphanage in Indonesia and hosting an esports event in Brazil last November.

Looking ahead, Garena projects to achieve double-digit growth year-over-year in user base and bookings by 2025.

Implications for Investors

Garena has emerged from a challenging period of underperformance, aided by Freefire’s resurgence. However, its dependence on a single game presents vulnerability, despite its status as one of the top mobile games globally.

As a Sea investor, I will monitor Garena’s performance closely in the coming quarters to assess the sustainability of its growth trajectory.

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Lawrence Nga holds positions in Sea Limited. The Motley Fool holds positions in and recommends Sea Limited and Tencent, and recommends NetEase. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the author’s and do not necessarily reflect those of Nasdaq, Inc.