Does SE's Heavy Free Fire Dependence Pose a Risk to Garena's Growth?

Sea Limited’s SE digital entertainment arm, Garena, continues to deliver strong financial results, but its growth profile is becoming increasingly concentrated around select titles. A significant portion of Garena’s revenue momentum remains tied to Free Fire, exposing the business to potential long-term risk if player engagement weakens.

In the third quarter of 2025, Digital Entertainment bookings surged 51% year over year, marking Garena’s best performance since 2021. Management clearly attributed this strength to Free Fire, which benefited from blockbuster in-game collaborations such as Squid Game and NARUTO SHIPPUDEN Chapter 2. These events generated engagement, with the Squid Game “Red Light, Green Light” challenge being played over 300 million times, making it clear that event-led monetization is now at the foundation of revenue growth.

However, there are risks to this approach. Revenue growth is coming mainly from higher spending per user, as player growth remains limited. At the same time, Digital Entertainment's cost of revenues jumped nearly 44% year over year, driven by higher payment fees and IP-related royalties from Free Fire’s live-operations strategy.

Garena has also struggled to create or release an internal hit that matches the scale of Free Fire, especially when compared to peers like Tencent and NetEase with deeper title pipelines. Recent publishing launches such as EA SPORTS FC Mobile, Digimon Adventure and the upcoming Jujutsu Kaisen collaboration in January 2026 support diversification, but Free Fire still dominates the revenue base, limiting growth diversification.

SE Battles Major Players in Gaming Market

Sea Limited faces intensifying gaming-sector competition from major publishers such as Take-Two Interactive TTWO and platform leaders like Roblox RBLX.

Take-Two Interactive is one of the industry’s most established and diversified game publishers, competing with Sea Limited through its powerful portfolio spanning Grand Theft Auto, Red Dead Redemption, NBA 2K, Borderlands and Civilization. TTWO’s strong console and PC presence, reinforced by Zynga’s growing mobile contribution, gives it a broad multi-platform reach. With major AAA titles ahead — most notably GTA VI — and expanding live-service ambitions, Take-Two poses a significant competitive threat. In second-quarter fiscal 2026, game revenues rose 33% year over year to $1.64 billion.

Roblox competes with Sea Limited by leveraging its platform-first, user-generated content model, which consistently draws younger audiences seeking creativity and variety. Roblox's freemium structure and massive scale — 50 million DAUs and record-breaking concurrent player counts — strengthen its appeal. Supported by advanced AI-powered safety systems that enhance trust and retention, Roblox continues to scale rapidly. These strengths collectively make Roblox a significant competitive force against Sea Limited in the gaming landscape.

SE’s Price Performance, Valuation & Estimates

Sea Limited shares have risen 17.4% in the past year compared with the broader Zacks Computer & Technology sector’s growth of 26.9% and the Zacks Internet - Software industry’s return of 3.4%.

SE’s One-Year Price Performance

From a valuation perspective, SE stock is currently trading at a forward 12-month price-to-earnings ratio of 24.35, lower than the sector’s 29.07X. SE carries a Value Score of F.

SE’s Valuation

The Zacks Consensus Estimate for SE’s 2025 earnings is pegged at $3.60 per share, which decreased by 6.2% over the past 30 days. This marks a strong 114.29% surge in earnings compared to 2024.

SE stock currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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