SE Sea's Revenue Grew 48%. Its Adjusted EBITDA Grew Just 11%

The Revenue-to-Profit Gap From Last Quarter Didn't Close

Sea's Q1 2026 post flagged a stark divergence: revenue growing 46.6% year-over-year while Total Adjusted EBITDA^» grew just 9.3%, anchored almost entirely in Shopee's own segment profit falling. A quarter later, the gap hasn't closed — it's essentially the same shape. GAAP revenue hit a new record $7.8 billion, up 48.1% year-over-year (see Trailing Quarters below), while Total Adjusted EBITDA grew just 10.6% to $917.2 million and net income grew 10.6% to $458.1 million — both still less than a quarter of the topline's growth rate. Shopee's own segment operating income, the exact metric that fell 28.8% year-over-year at Q1, this quarter merely stopped falling: it grew just 3.5% to $160.3 million even as Shopee's own revenue jumped 48.2% to $5.6 billion. That's not a reversal of Q1's problem — it's the same problem, one quarter further into it, just no longer getting worse. See Segment Comparison below for the full breakdown.

Forrest Li's framing this quarter dropped the "financial discipline" language flagged as a mismatch last quarter — instead he said Sea will "continue to invest prudently in serving more users and serving them better, broadening our foundation for profitable growth into the future." That's a more honest characterization of what the segment table actually shows: continued reinvestment, not yet convertible into proportional profit. On Garena, Li pointed to two newly announced mobile titles — Palworld Online and Monster Hunter Outlanders, both built on globally recognized IP — as evidence of diversification beyond Free Fire, which still anchors over 100 million average daily active users on its own. See The Prescription below for what that diversification is actually worth against Shopee's still-unresolved margin problem.

The ADS closed the quarter at $95.83, up 15.7% quarter-over-quarter from Q1's crash-level $82.81 — a real recovery, but one that still leaves the stock just below this series' own updated DCF bear case (see Target Valuation Range below). Zoomed out, the stock is still down 48.6% from its August 2025 peak of $186.54, even after this quarter's bounce.

The Prescription

Sea should keep hedging Garena's revenue base the way it just started to: Free Fire alone drove Garena's best bookings growth rate in a year (+15.5% year-over-year to $763.5 million), but a single-game dependency is a real concentration risk this series has flagged before, and licensing two more major IPs (Palworld Online, Monster Hunter Outlanders) onto Garena's platform this quarter is the correct response — diversify the hit-driven business while it's still working, not after Free Fire's engagement curve turns. The same logic applies to Monee's geographic expansion (Brazil, off-Shopee credit products in Malaysia, Thailand, and Indonesia): spreading loan-book growth across more markets reduces the single-market credit-cycle risk that would otherwise concentrate in Shopee's home Southeast Asian base.

What Sea should stop doing is treating Shopee's cost structure as a problem that resolves itself over time. This is now the second straight quarter Shopee's own segment operating income has badly lagged its own revenue growth — a 28.8% decline at Q1, essentially flat growth (+3.5%) at Q2, both against revenue growth above 45%. Segment cost of revenue grew 51.9% year-over-year this quarter, again outpacing the segment's own 48.9% service-revenue growth, on the same logistics-investment rationale management gave last quarter. If that investment doesn't start showing up as operating leverage by Q3 or Q4 — cost of revenue growing slower than revenue, not just at a similar pace — the "no lower than 2025 in absolute dollar terms" full-year Adjusted EBITDA guidance floor management reiterated this quarter becomes genuinely difficult to hit, since Shopee alone can't carry it while its own segment profit treads water.

Segment Comparison

Sea reports three segments plus Other Services and unallocated corporate expenses, using bookings for Digital Entertainment and GAAP revenue for the other two, per the metric set established in Q3 2020.

Segment	Q2 2026	Q2 2025	YoY	QoQ (vs Q1 2026)	Q2 2026 Op. Income	Q2 2026 Adj. EBITDA
Shopee	$5,587.6M revenue	$3,771.1M	✅ +48.2%	✅ +9.3%	⚠️ $160.3M (+3.5% YoY)	⚠️ $255.4M (+12.2% YoY)
Monee	$1,402.8M revenue	$882.8M	✅ +58.9%	✅ +13.0%	✅ $279.0M (+14.8% YoY)	⚠️ $288.0M (+12.8% YoY)
Garena	$763.5M bookings	$661.0M	✅ +15.5%	⚠️ -18.0%	✅ $404.2M (+46.7% YoY)	✅ $429.8M (+16.7% YoY)
Other Services	$50.8M revenue	$46.5M	✅ +9.2%	—	⚠️ -$51.5M (worse YoY)	⚠️ -$46.2M (worse YoY)
Unallocated expenses	—	—	—	—	-$141.7M (improved YoY)	-$9.7M
Total	$7,787.8M revenue	$5,259.5M	✅ +48.1%	✅ +9.7%	✅ $650.3M (+33.3% YoY)	⚠️ $917.2M (+10.6% YoY)

Garena is again the standout: the smallest segment by revenue delivered the fastest year-over-year operating income growth (+46.7%) of the three, even as its bookings fell 18.0% quarter-over-quarter from Q1's Jujutsu Kaisen-driven spike — a normal sequential normalization after a content peak, not a reversal of the underlying trend, given bookings are still up 15.5% year-over-year. Monee posted the fastest revenue growth of the three core segments (+58.9%) and grew operating income faster than Adjusted EBITDA, a healthier combination than the reverse. Shopee remains the outlier for a second straight quarter: the fastest headline revenue growth among the segments, but the slowest operating income growth by a wide margin — the segment that's supposed to be Sea's scale engine is still the one least converting growth into profit.

Shopee

GAAP revenue was $5,587.6 million, up 48.2% year-over-year, on Shopee's own record GMV^» ($38.3 billion, +28.4% YoY) and gross orders (4.2 billion, +27.5% YoY) — revenue again growing faster than volume, evidence of continued monetization gains (an implied marketplace take rate^» of roughly 12.9%, using the $4.9 billion of marketplace revenue against GMV). Segment operating income was $160.3 million, up just 3.5% year-over-year from $154.9 million — a marked improvement on Q1's outright 28.8% decline, but still badly lagging the segment's own revenue growth. The mechanism repeats from last quarter: segment cost of revenue grew 51.9% year-over-year to $3,220.9 million (Shopee-attributed cost of service alone), faster than Shopee's 48.9% service-revenue growth, on continued logistics investment. Within Shopee's own revenue mix, core marketplace revenue (transaction fees plus advertising) grew a strong 65.6% year-over-year to $4,255.5 million, while value-added services revenue (mostly logistics fees) fell 9.0% to $676.4 million — Sea's own explanation is "higher revenue net-off against shipping subsidies," meaning Shopee is absorbing more delivery cost itself rather than passing it through, the same dynamic flagged at Q1. Segment sales-and-marketing spend rose 56.6% year-over-year to $1,258.1 million, roughly in line with revenue growth this time rather than lagging it. Management reiterated the guidance floor first given at Q1: full-year Shopee GMV growth around 25%, with full-year Adjusted EBITDA no lower than 2025's absolute dollar level — a floor that gets harder to defend the longer segment operating income keeps growing in the low single digits against 48%+ revenue growth.

Monee

GAAP revenue was $1,402.8 million, up 58.9% year-over-year, the fastest of the three core segments — and, unlike Shopee, operating income (+14.8% to $279.0 million) grew faster than Adjusted EBITDA (+12.8% to $288.0 million), a genuinely healthier combination. Consumer and SME loans principal outstanding reached $11.1 billion as of June 30, 2026, up 62.5% year-over-year ($10.0 billion on-book, $1.1 billion off-book). The NPL^»90+ ratio held at 1.0%, stable quarter-over-quarter and continuing the streak of flat-to-improving delinquency this series has tracked since 2025. What's notable this quarter is the cost side: Monee's sales-and-marketing spend jumped 139.8% year-over-year to $293.9 million — more than double the pace of the segment's own 58.9% revenue growth — while provision for credit losses rose 71.5% to $555.2 million, also outpacing revenue growth. Both are funding the same geographic and product expansion flagged at Q1 (Brazil crossed $1 billion in loan book last quarter and kept growing; off-Shopee credit products continue scaling in Malaysia, Thailand, and Indonesia), and neither shows up yet as a deterioration in asset quality — but a marketing-spend growth rate more than double the segment's revenue growth rate is worth tracking into Q3, since it's the kind of gap that either resolves into new-market payoff or becomes a recurring drag on Monee's own margin. See Beyond the Usual below.

Garena

Bookings were $763.5 million, up 15.5% year-over-year but down 18.0% quarter-over-quarter from Q1's $931.4 million — the expected normalization after Q1's Jujutsu Kaisen collaboration spike, not a reversal of the underlying growth trend. GAAP revenue was $746.6 million (+33.5% YoY), and Adjusted EBITDA was $429.8 million, up 16.7% year-over-year, representing 56.3% of bookings, up modestly from 55.7% a year ago. Free Fire continues to anchor the segment with over 100 million average daily active users. Quarterly active users^» were 666.3 million, roughly flat year-over-year (664.8 million a year ago); quarterly paying users grew 10.2% to 68.1 million, lifting the paying-user ratio to 10.2% from 9.3% a year ago, and average bookings per paying user (ARPPU^») rose to $1.15 from $0.99 — deeper monetization of a roughly stable user base, the healthiest read of the three metrics together. The quarter's real news for Garena is forward-looking: Sea announced two new mobile titles, Palworld Online and Monster Hunter Outlanders, both built on major licensed IP, explicitly framed as diversifying the game portfolio beyond Free Fire's continued dominance. Garena also disclosed a methodology change taking effect next quarter — see Beyond the Usual below.

Key Financial Metrics

Q2 2026 vs. Q2 2025, all figures in USD as reported (Sea reports in US dollars)

Metric	Q2 2026	Q2 2025	YoY
Total GAAP revenue	$7,787.8M	$5,259.5M	✅ +48.1%
Total gross profit	$3,549.9M	$2,409.8M	✅ +47.3%
Operating income	$650.3M	$487.7M	✅ +33.3%
Total Adjusted EBITDA»	$917.2M	$829.2M	⚠️ +10.6%
Net income	$458.1M	$414.2M	⚠️ +10.6%
Free cash flow	Not separately disclosed this quarter — six-month operating cash flow ($2,563.9M) and six-month capex ($495.0M) are disclosed only on a cumulative H1 basis, with no standalone Q2 breakout	—	—
Cash and cash equivalents	$3,529.3M	$2,165.8M	✅ +63.0%
Total Sea Limited shareholders' equity	$12,911.3M	$9,676.8M	✅ +33.4%

Total Adjusted EBITDA growth has now decelerated for five straight quarters relative to revenue growth's own trajectory — Q1 2025's Adjusted EBITDA growth of +135.9% was more than triple that quarter's revenue growth; by Q2 2026, Adjusted EBITDA growth (+10.6%) is running at less than a quarter of revenue growth (+48.1%), the widest gap yet in this series' tracking (see Trailing Quarters below). Net income growth matched Adjusted EBITDA's +10.6% this quarter, a tighter relationship than Q1 (where net income growth badly lagged Adjusted EBITDA growth on a tax-rate spike) — but the effective tax rate kept climbing anyway: income tax expense grew 74.0% year-over-year to $250.6 million against pre-tax income growth of roughly 25.4%, pushing the effective tax rate to approximately 35.0% of pre-tax income from roughly 25.2% a year ago — a second straight quarter of a rising effective tax rate, with still no explanation disclosed. See Beyond the Usual.

Beyond the Usual

Sea's Q2 2026 quarterly report is the same unaudited press release furnished as a 6-K exhibit that this series has tracked for every non-fiscal-year-end quarter — no interim footnote package exists, since Sea, as a foreign private issuer, has no 10-Q-equivalent filing. No earnings-call transcript from Sea's own investor-relations materials was located for this quarter either, so what management said live beyond the prepared press-release quotes can't be directly confirmed here. The findings below come from the segment table, income statement, and balance sheet themselves.

Shopee's segment profit stopped falling, but it's still barely growing against 48% revenue growth

Shopee's segment operating income grew just 3.5% year-over-year to $160.3 million, an improvement on Q1 2026's outright 28.8% decline but still a fraction of the segment's own 48.2% revenue growth. The mechanism is the same as last quarter: segment cost of revenue (mostly logistics) grew 51.9% year-over-year, faster than the segment's 48.9% service-revenue growth. This is now two straight quarters where Shopee's headline growth metrics (GMV, gross orders, revenue) all hit new records while the segment's own profit line badly lagged — worth watching whether Q3 shows the operating leverage management's full-year Adjusted EBITDA guidance floor depends on, or a third consecutive quarter of the same gap.

The effective tax rate climbed for a second straight quarter, with no explanation given again

Sea's effective tax rate rose to roughly 35.0% of pre-tax income in Q2 2026, up from roughly 25.2% in Q2 2025 and up further from Q1 2026's already-elevated 32.7% — income tax expense grew 74.0% year-over-year to $250.6 million while pre-tax income grew only around 25.4%. As at Q1, no jurisdictional or one-time-item breakdown is available in this quarter's unaudited press release to explain the increase; that level of detail has historically only appeared in the annual 20-F's tax footnote. Two consecutive quarters of a rising effective tax rate with zero disclosed explanation is a pattern now, not a one-off — worth specifically checking against FY2026's eventual 20-F footnote once it's available.

Monee's marketing spend is growing more than twice as fast as its own revenue

Monee's sales-and-marketing expenses rose 139.8% year-over-year to $293.9 million, against the segment's own revenue growth of 58.9% — a gap wide enough that it's the main reason Monee's Adjusted EBITDA growth (+12.8%) trails its revenue growth by more than four-to-one, even though operating income still grew faster than Adjusted EBITDA. Provision for credit losses also outpaced revenue growth (+71.5%), continuing the pattern flagged at Q1, while the NPL90+ ratio held flat at 1.0%. None of this is alarming on its own — Monee is funding real geographic and product expansion (Brazil, off-Shopee credit in Southeast Asia) — but a marketing-spend growth rate more than double the segment's own revenue growth rate is worth tracking for whether it converts into proportional loan-book growth next quarter or becomes a recurring margin drag.

Garena is changing how it calculates Adjusted EBITDA starting next quarter

Sea disclosed that, beginning with its Q3 2026 earnings release, it will exclude the net effect of changes in Garena's deferred revenue from Adjusted EBITDA — a figure it has included up to and including this quarter (the Q2 2026 change in deferred revenue was $16.9 million, down sharply from $102.2 million a year ago, so the immediate impact this quarter was small). Sea says it will continue disclosing the deferred-revenue effect as supplemental information, so the underlying number won't disappear, but the headline Adjusted EBITDA figure itself will shift definitions between Q2 and Q3 2026 — a real comparability break worth flagging now, before it shows up as an unexplained-looking change in Garena's reported profitability next quarter.

Garena is licensing two major game IPs to diversify beyond Free Fire

Sea announced two new mobile titles this quarter — Palworld Online and Monster Hunter Outlanders — both built on globally recognized, licensed IP, explicitly framed by management as broadening Garena's portfolio beyond its continued reliance on Free Fire (which still draws over 100 million average daily active users on its own). Diversifying a hit-driven games business while the anchor title is still performing, rather than after it declines, is the harder and more useful time to do it.

Target Valuation Range

Still below the model's own bear case, but the gap narrowed sharply this quarter. An updated DCF, using an estimated trailing-twelve-month free cash flow of approximately $4.46 billion (down from Q1's ~$4.79 billion estimate, on higher disclosed capex — see note below), puts intrinsic value at roughly $99-$201 per share across bear/base/bull scenarios (base ~$149), while the ADS closed the quarter at $95.83 — about 3% below the bear case and 36% below the base case, a much narrower disconnect than Q1's 27%-below-bear reading.

Using 634,487,453 weighted-average diluted shares (the six-month figure disclosed this quarter — Sea's Q2-only diluted share count isn't separately broken out) and the June 30, 2026 close of $95.83, Sea's implied market capitalization rose roughly 15.4% quarter-over-quarter, broadly tracking the ADS's own 15.7% rally.

Market cap → enterprise value	Q2 2026
Share price (period-end)	$95.83
Shares outstanding (weighted-average diluted, six-month basis)	634,487,453
Market capitalization	~$60.80B
Plus: convertible notes (debt)	$996.3M
Less: cash and cash equivalents	$3,529.3M
Enterprise value	~$58.27B

Peer-multiple sanity check	Q1 2026 (TTM)	Q2 2026 (TTM)	Change
Market capitalization	~$52.68B	~$60.80B	✅ up 15.4%
Revenue (TTM)	~$25,190M	~$27,723M	✅ up 10.1%
Price/Sales	~2.09x	~2.19x	⚠️ up
Price/Book	~4.10x	~4.71x	⚠️ up
Total Adjusted EBITDA (TTM)	~$3,520M	~$3,613M	✅ up 2.6%
EV/EBITDA»	~14.1x	~16.1x	⚠️ up

Every multiple re-expanded this quarter as the price recovered faster than the underlying trailing fundamentals did — TTM Adjusted EBITDA grew only 2.6% quarter-over-quarter while market cap grew 15.4%, so some of the re-rating is genuinely just the stock catching back up from Q1's overshoot to the downside, not new fundamental strength.

Trailing-twelve-month operating cash flow comes to approximately $5.22 billion (FY2025's actual $5,024.5 million, less H1 2025's actual $2,372.7 million, plus H1 2026's actual $2,563.9 million — all three figures as disclosed). Capex is less precise: H1 2026's $495.0 million is disclosed exactly, but H1 2025's capex wasn't broken out separately in any filing this series has access to, so it's estimated at roughly $262 million (half of FY2025's disclosed annual capex of $524.5 million, assumed evenly spread) purely to complete the trailing-twelve-month calculation — flagged here as an estimate, not a filed number. That puts trailing-twelve-month free cash flow at approximately $4.46 billion, down from Q1's ~$4.79 billion estimate even though trailing operating cash flow held roughly flat — the estimate moved because actual H1 2026 capex ($495.0 million) came in far above the ~$262 million assumed for H1 2025, meaning capex intensity may genuinely be rising, not just an estimation artifact. Using that base and the same scenario framework as last quarter:

Scenario	Key assumption	WACC	Implied price
Current (period-end close)	— actual market price, for reference	—	$95.83
Bear	20% initial FCF growth decelerating to a 2% terminal rate	13%	~$99
Base	30% initial FCF growth decelerating to a 3% terminal rate over five years	11.7%	~$149
Bull	35% initial FCF growth decelerating to a 4% terminal rate	11%	~$201

The stock's recovery this quarter moved it from 27% below the bear case at Q1 to just 3% below it now — nearly closing the gap this series flagged as the sharpest price-fundamentals disconnect it had recorded. It's still below every scenario in the range, but this is the first quarter since Q4 2025 where "how far below the bear case" isn't the most interesting number in this section.

Sea's Stock Recovered Sharply, But Still Hasn't Cleared Its Own Bear Case

The ADS closed Q2 2026 at $95.83, up 15.7% from Q1's $82.81 — the first quarter-over-quarter gain in three quarters, after Q4 2025's 28.6% drop and Q1 2026's 35.1% drop. Even with the bounce, the stock remains 48.6% below its August 2025 peak of $186.54, and the two-year window this series tracks for every post still shows a much flatter picture than the headline recovery suggests: from $65.70 on July 31, 2024 to $95.83 on June 30, 2026 is up 45.9% over two years, but that's almost entirely a story of 2025's run-up and 2026's partial round-trip, not a steady climb. Sea's own materials don't identify a specific cause for either the Q1 crash or the Q2 recovery, and none is asserted here — what's verifiable is that this quarter's price move arrived alongside continued record revenue and a segment profit picture (Shopee specifically) that's still not proportionally improving, the same disconnect this series flagged last quarter, now moving in the opposite direction.

Trailing Quarters: Total GAAP Revenue and Total Adjusted EBITDA

Quarter	Total GAAP Revenue	Total Adjusted EBITDA
Q3 2024	$4,328.2M	+$521.3M
Q4 2024	$4,950.4M	+$590.9M
Q1 2025	$4,841.1M	+$946.5M
Q2 2025	$5,259.5M	+$829.2M
Q3 2025	$5,986.0M	+$874.3M
Q4 2025	$6,851.9M	+$787.1M
Q1 2026	$7,097.5M	+$1,034.3M
Q2 2026	$7,787.8M	+$917.2M

Revenue growth has now been positive for eighteen straight quarters in this window. Total Adjusted EBITDA's year-over-year growth rate has decelerated in five of the last six quarters shown (+135.9% at Q1 2025 down to +9.3% at Q1 2026), and while Q2 2026's +10.6% is a marginal uptick from Q1's own reading, it's still running at barely a fifth of Q2's own 48.1% revenue growth rate — the underlying gap this table has tracked since early 2025 hasn't meaningfully closed, even where the growth-rate trend has flattened out rather than kept worsening.

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