Singapore start-up Sea initially modelled itself on Chinese Internet colossus Tencent Holdings and is often called the Tencent of South-east Asia. Now that Sea has filed for an initial public offering (IPO) and given a peek at its financials, the resemblance is starting to break down.
The company, seeking to raise about US$700 million (S$948.9 million) as it goes public in New York, does offer games and digital entertainment like Tencent. In fact, Tencent licenses hit games like League of Legends to Sea, and owns about 40 per cent of the smaller firm's stock.
But where Tencent is immensely profitable, Sea is immensely unprofitable - with signs that losses may grow deeper.
Tencent's net profit margin in the first half of the year was 31 per cent, with net income of US$4.76 billion on revenue of US$15.5 billion. Sea has a negative net margin of 84 per cent, with a loss of US$165.2 million on revenue of US$195.5 million.
Of course, start-ups often lose money before they hammer out lucrative business models. But Sea is losing more money as it grows. In 2015, the company lost 37 US cents for each US dollar of revenue. That rose to 65 US cents in 2016 and 84 US cents in the first six months of this year.
All that spending isn't buying faster growth: Revenue growth slowed from more than 80 per cent in 2015 to 17 per cent in the first half of this year.
That may make it a stretch for Sea to hit the US$4.45 billion valuation it is seeking at the top of the IPO range, up from US$3.75 billion in its 2016 fundraising. The offering will be a test case for start-ups in the region looking to go public.
"This is one of the challenges of these big, high-profile private companies, including Grab and Uber," said Mr Nicholas Teo, trading strategist at KGI Securities Singapore. "Once they are subject to public market scrutiny, it's possible they will be sold down below their private market valuations."
Sea was founded by Mr Forrest Li as an online gaming company in 2009 and originally named Garena. He rebranded the company to reflect its regional ambition and diversification. Sea branched out with a digital payment service called AirPay in 2014 and the mobile shopping business Shopee in 2015.
Sea's games business, which retained the Garena name, still accounts for more than 90 per cent of total revenue.
Like Tencent, the company offers games for free, then collects money when players buy virtual items such as armour, weapons or special skills. It makes money in e-commerce from commissions and advertising, while collecting fees from payments.
With Tencent's support, the start-up has attracted marquee backers. They include the Ontario Teachers' Pension Plan, Malaysia's sovereign wealth fund and several Asian billionaires. Goldman Sachs Group, Morgan Stanley and Credit Suisse Group are leading the public offering.
"You don't buy a company like this because of its financials; you're buying the dream of what it can become," said Mr Keith Pogson, global assurance leader for banking and capital markets in Hong Kong at consultant EY.
The company's market value could rise to about US$5.5 billion if options, restricted stock and convertible securities are included.
Sea has some ways to go before it looks anything like its role model. Mr Li is aiming to reignite Sea's growth with its expansion in e-commerce and payments.
The online gaming business - generating 92 per cent of total revenue in the first half of this year - slowed to a 12 per cent increase in the first half of the year.
The still-nascent e-commerce business is growing faster, but the company's sales and marketing expenses consumed 71 per cent of total revenue.
BLOOMBERG
