SEA Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 12 speakers on the call.

Operator

Good morning and good evening to all, and welcome to the Sea Limited First Quarter 20 24 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr.

Operator

M. C. Kaul to begin the conference. Please go ahead.

Speaker 1

Hello, everyone, and welcome to Sea's 2024 First Quarter Earnings Conference Call. I'm MC, Sea's Investor Relations Director. On this call, we may make forward looking statements, which are inherently subject to risks and uncertainties and may not be realized in the future for various reasons as stated in our press release. Also, this call includes a discussion of certain non GAAP financial measures, such as adjusted EBITDA. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures.

Speaker 1

For a discussion of the use of non GAAP financial measures and reconciliation with the closest GAAP measures, please refer to the section on non GAAP financial measures in our press release. I have with me Sea's Chairman and Chief Executive Officer, Forrest Li President, Chris Feng and Chief Financial Officer, Tony Ho. Our management will share strategy and business updates, operating highlights and financial performance for the Q1 of 2024. This will be followed by a Q and A session in which we welcome any questions you have. With that, let me turn the call over to Boris.

Speaker 2

Hello, everyone, and thank you for joining today's call. I'm pleased to share that we are kicking off 2024 with a strong quarter. All our three businesses have delivered solid growth with an improved profit profile. The macro environment in the past few years has been challenging. Many of you have been with us through this journey.

Speaker 2

Going through this period has made us leaner, fitter and savvier. While we will always face new challenges, we are now much more confident of our ability to weather headwinds well and adapt quickly to changing environment. With that, let me take you through each business performance. Starting with e commerce. We are pleased to report that Shopee delivered strong growth this quarter, achieving its highest ever quarterly orders, GMV and revenue.

Speaker 2

In the Q1, on a year on year basis, gross orders was up 57%, GMV was up 36% and revenue was up 33%. Unit economics has also improved. Our overall adjusted EBITDA loss narrowed to CAD22 1,000,000 and our Asian market achieved a positive adjusted EBITDA of $11,000,000 this quarter. Shorty's operational priorities for 2024 continue to be enhancing our price competitiveness, strengthening our content ecosystem and improving service quality for our buyers. We are making good progress on all these fronts.

Speaker 2

On enhancing our price competitiveness, we continue to help sellers with upstream supply chain access to sell more easily on Shopee. On strengthening our content ecosystem, Shopee has become the largest live streaming e commerce platform in Indonesia. Based on average daily live streaming orders in the Q1. Live streaming e commerce unit economics also continued to improve quarter on quarter. On improving service quality for buyers, our integrated logistics capability has become a key depreciating factor of our service quality.

Speaker 2

We have put a lot of hard work into XPX Express. And today, it is one of the fastest and the most intensive logistics operators in our market, greatly enhancing our customer experience. In the Q1, about 70% of XTX Express orders in Asia was delivered within 3 days of order placement. And because of the scale we have achieved in our market, we have managed to steadily reduce its cost. XPX Express cost per order decreased by 15% for Asia and 23% for Brazil year on year in the Q1.

Speaker 2

Having XPS Express in the Shopee ecosystem also allows us to efficiently roll out new features that benefit our buyers, such as the on time guarantee program that we launched in Southeast Asia. This program provides a guaranteed delivery time for orders and this certainty is well appreciated by our buyers. Another initiative we implemented is having Shopee directly manage the return and the refund process. This has resulted in a 30% year on year increase in resolution time. In the Q1, about 45% of cases were resolved within one day.

Speaker 2

So taken together, these efforts increase operational efficiency, improve customer experience and reinforce Shopee's reputation as a reliable shopping destination. We will continue to push more on these operational priorities in the coming quarter year. We expect these efforts to further differentiate Shopee from its competition and bring greater value to both our buyers and sellers. Next, turning to Digital Financial Services. We are pleased to report that SeaMoney has continued its strong growth momentum and profitability into 2024, while maintaining prudent risk management.

Speaker 2

Our efforts on user acquisition has produced significant growth in both user numbers and the loan book size. In the Q1, our digital financial services revenue grew 21% and adjusted EBITDA grew 50% year on year. Consumer and SME loan active users defined as those with loans outstanding by the end of the quarter increased 42% year on year to more than CNY18 1,000,000 this quarter. As of March 31, 2024, our consumer and SME loans principal outstanding reached CAD3.3 billion up 29% year on year and up 5% quarter on quarter. Credit business is currently the primary driver of SeaMoney's revenue and the profit growth.

Speaker 2

Our credit business benefits from Shopee's transaction volume and the user base. In addition, we are also seeing strong growth in offshopping loans, which include cash loans and Off Shopee as pay later consumption loans. By the end of the 1st quarter, offshopping loans accounted for over 40% of our total consumer and SME loans outstanding. Going forward, we see further upside to improve our offshoppy penetration across different markets as we continue to grow. As we fill up our credit business, we continue to maintain a prudent approach to risk management.

Speaker 2

We generally begin by granting low credit limit, short tenure loans to users to build their credit history. For users with good track record, we gradually increase the credit limit, loan tenure and the credit product offering. As we gain more users and more data, we continuously fine tune the risk model for each market. This allows us to grow our business while maintaining good risk control. Non performing loans passed due by more than 90 days as a percentage of total consumer and SME loans remained stable at 1.4%.

Speaker 2

We anticipate further growth for our digital financial services business throughout the year. As we helpfully grow our user base, we will be able to offer a broader set of financial services to meet our users' needs in the future. Finally, turning to our digital entertainment business. We are pleased to share that Garena is back to positive growth with bookings up 11% year on year. This was led by Free Fire's strong performance across markets.

Speaker 2

In the Q1, Free Fire's average MAU increased 24% year on year. Our operational priorities for Free Fire will remain consistent in 2024, improving user acquisition, engagement and retention. We continue to introduce play mode, redesign feature and launch new content at a high or at a high frequency, allowing Free Fire to sustain high player engagement with this huge user base. In January, we launched KA, a major version update allowing players to vote for key events in the game setting. This interactive feature has made Kia highly successful.

Speaker 2

And in April, we launched the McAdrift version update, allowing players to team up to combat the mechanical monster in addition to the Europe PvP gameplay. Our constant efforts to understand the users' needs, address key issues from a product perspective and frequently introduced fresh and exciting content are paying off. In its 7th year, Free Fire is still one of the largest mobile games in the world by user scale and remains highly effective in attracting new users. According to Center Tower, Free Fire was the most downloaded mobile game globally in the Q1. Given this track record of being able to sustain and grow Free Fire's massive global user base, We are confident of building Free Fire into an evergreen franchise.

Speaker 2

To conclude, we have a clear roadmap for profitable growth. Our results in the Q1 have given us a strong start to 2024, and we are well on track to deliver our full year guidance. With that, I will invite Tony to discuss our financials. Thank you, Forrest, and thanks to everyone for joining the call. For CE overall, total GAAP revenue increased 23% year on year to $3,700,000,000 This was primarily driven by GMV growth of our e commerce business and the growth of our credit business.

Speaker 2

Our total adjusted EBITDA was CAD401 1,000,000 in the Q1 of 2024 compared to an adjusted EBITDA of $507,000,000 in the Q1 of 2023. On e commerce, our Q1 GAAP revenue of CAD2.7 billion included GAAP marketplace revenue of $2,400,000,000 up 33% year on year and GAAP product revenue of $300,000,000 Within GAAP marketplace revenue, core marketplace revenue mainly consisting of transaction based fees and advertising revenues was $1,700,000 up 47% year on year. Value added services revenue mainly consisting of revenues related to logistic services was CAD 700,000,000 up 8% year on year. E commerce adjusted EBITDA loss was CAD22 1,000,000 in the Q1 of 2024 compared to an adjusted EBITDA of CAD208 1,000,000 in the Q1 of 2023. For our Asia markets, we had an adjusted EBITDA of CAD11 1,000,000 during the quarter compared to an adjusted EBITDA of CAD276 1,000,000 in the Q1 of 2023.

Speaker 2

In our other markets, the adjusted EBITDA loss was CAD33 1,000,000 narrowing meaningfully from last year when losses were $68,000,000 Contribution margin loss per order in Brazil improved by nearly 88% year on year to reach negative $0.04 Digital Financial Services GAAP revenue was up by 21% year on year to $499,000,000 Adjusted EBITDA was up by 50% year on year to $149,000,000 Digital Entertainment bookings were $512,000,000 GAAP revenue was $458,000,000 Adjusted EBITDA was $292,000,000 Returning to our consolidated numbers, we recognized

Speaker 3

a net non operating loss of $18,000,000

Speaker 2

in the Q1 of 2024 compared to a net non operating income of CAD23 1,000,000 in the Q1 of 2023. We had a net income tax expense of CAD79 1,000,000 in the Q1 of 2024 compared to net income tax expense of CAD62 1,000,000 in the Q1 of 2023. As a result, net loss was CAD23 1,000,000 in the Q1 of 2024 as compared to net income of $87,000,000 in the Q1 of 2023.

Speaker 1

Thank you, Forrest and Tony. We are now ready to open the call to questions. Operator?

Operator

Thank you. We will now begin the question and answer session. The first question comes from the line of Pang Viet of Goldman Sachs. Please go ahead.

Speaker 4

Hi, good morning. Good evening management team and congratulations for a solid set of results. Two questions from me. Number 1, how do you derive confidence that you will be able to drive sustainable growth, especially once you start to lower down subsidies and move toward profitability? If your competitor decide to turn more aggressive, is there a way for you to properly react towards that?

Speaker 4

That's question number 1. On number 2, on gaming, given very strong first quarter trends and results, how are you seeing trends towards Q2 and rest of the year? Can you provide color on what exactly you have done in order to derive growth? And any thought on the run rate of margin going forward as well?

Speaker 3

It's Chris here. I will take the first question on the e commerce side. I think for us, the most important thing is to work on the long term competitive modes for e commerce. I think to us, as I shared in the previous call, is number 1, the cost to serve to make sure that we can serve the transactions to our buyer and sellers in a lower cost. Number 2 is the price competitiveness of the product to make sure that the price for the same product on our platform is always better than the other platforms.

Speaker 3

To do that, we have to work closely with the sellers, especially offer the better chance to ensure that we can offer the lower price to the buyers always. Number 3 is the quality of services. As far as I mentioned quite a few times that this is one of the key areas we're focusing on to improve not only the delivery services to our consumers, but also the return services and the customer service experiences, etcetera. I think all the three things will contribute to our long term competitiveness for our e commerce businesses. As long as we can do this well, we believe that we can deliver the better value to our buyer and sellers, so we can grow better than the market that we operate in.

Speaker 3

At the same time, if you look at in the past few months, we do observe the overall market is in a stable more stable situations really regarding to the competition point that you mentioned. And if the competitor does get more aggressive, I think we have to evaluate exactly

Speaker 2

what they did and how they

Speaker 3

did it. We will look at market by market, category by category, to evaluate what's the best response we have. But all in all, in the long term, it's the 3 things I mentioned earlier. The long term company mode will create value for our market, to our consumers and our sellers. And we do believe that as long as we do well on that, we should be able to grow well regardless of what competitor does in the short term.

Speaker 3

I think that will bring us to a better position in the market over the years. Of course, there might be fluctuation in the short term, up and down, but it shouldn't change the long term picture. On the gaming side,

Speaker 2

we are very happy to see what we have achieved in the Q1, right? And it's a pretty strong result and a strong trend. And we see this trend continued in Q2 so far. And in general, we are pretty optimistic about the rest of the year. I think as we shared in the last quarter, right, and we expected we're going to achieve, specifically for Free Fire, the double digit growth, right, for the whole year.

Speaker 2

And I think like the current the growth and the trend is pretty much kind of a reflection of what not just what we have done in the past quarter and it actually reflected what we have done in the past 2 years, right? And then we have gone through some challenges and faced some tremendous headwinds, especially after COVID, right? And but I think like we always believe, okay, the ambition and our aspiration is building Free Fire into an Evergreen franchise. So with that kind of fundamental belief and we didn't kind of like rush to monetize things that gateway may kind of continually go down till it's completely gone. And we're very, very much focused on like older user experience and try to fine tune the product and with a very, very much user centric approach, right.

Speaker 2

And in the past 2 years, we have been conducted a lot of study trip, right, and the surveys, right, and the go to talk to the gamers, ask them what they like and what we don't like about Brickwire, why they play and why they do not play. And the tremendous development effort is also spent continually fine tune the game based on the feedback we received. I think that, that is a kind of what we have seen now is accumulated result through those efforts. And another factor I want to mention is we kind of observed the whole market have gone through the COVID situation now after like almost 2 years for that period and we've been kind of like the gamers re kind of focus on the gameplay as we shared before like during the COVID time like the gamers to play a lot of game, right, and there is not much other options for entertainment and they kind of feel burned out. And that's why right after COVID and there we see there is a tremendous kind of like trends, right, and the gamers start to focus on other entertainment.

Speaker 2

But after another 2 years, I think like now that the whole gamer community globally, we see kind of that trend start coming back and the gamers start kind of reenjoying rather than the gameplay specifically for Free Fire. And this is the trend that not just happens specifically on a single market and actually it happened across all the market and we have the game operated. So in summary, I think like based on what has happened in the market and what we have done for Free Fire, it's a pretty much a very, very good product market feed, right? And I think like we make the Free Fire as an ideal product for gamers at the right timing when they are kind of have a strong appetite for to enjoy the gameplay. So we will do all our best to continue this trend, right, and hopefully to continually to grow Free Fire, the user base and also the monetization part as well for the rest of the year.

Operator

Your next question comes from the line of Alicia Yap of Citigroup. Please go ahead.

Speaker 5

Hi. Can you hear me okay?

Speaker 2

Yes.

Operator

Hello?

Speaker 5

Yes. Okay. Hi. Good evening, management. Thanks for taking my questions.

Speaker 5

I have a question related to Shopee. Just wondering, were you willing to return to loss making to defend your share if the competition is indeed getting more aggressive? What other levers can you further pull to allow you to defend your share while also maintain your profitability trend? And if we look at a commission take rate, excluding the advertising, how much more room can we actually still raise the commission take rate across different countries? Thank you.

Speaker 3

On the commission take rate, generally we still see that is a meaningful room to increase the commission take rate, although probably not aggressive not as aggressive as last year in terms of increase. We also see there's a meaningful room on the ad take rate that we can look at. I think I shared this in the previous call as well that we believe that our tech rate is still slightly lower than the peers that we see in other markets. So there is a meaningful room there. And in terms of the competition, I think similar to the previous question that's been raised.

Speaker 3

For us, the most important thing to focus on the long term core competitiveness, the cost of service, the price competitiveness, the service experience and all those things will bring us a long term advantage for us to outcompete the competitor in the market. In the short term, we have observed a more stable competition environment in the past few months. And if it changes, we will study country by country, category by category and evaluate what's the best way to respond to that.

Operator

Your next question comes from the line of Navin Kalia from UBS. Please go ahead.

Speaker 6

Hi, good evening and thank you for the opportunity. I actually had a couple of questions. The first one was just trying to understand the strength in the GMV for e commerce. How much of that is attributable to seasonality given the movement that we have seen around Lebaran this year? And therefore, I guess, in the context of that, I noticed that we haven't changed your GMV guidance of high single digit sorry, high teens growth.

Speaker 6

I'm just wondering how you think about that. And I guess the second question is on the logistics strategy. Clearly, we are starting to see some results. If you could share some numbers on the percentage of orders that are delivered on your own platform and how do you see that number evolving in the medium to long term?

Speaker 3

For the GMV, as Horace said in the opening, in Q1, we did see a very strong GMV growth. And part of that is contributing by the seasonality as this year we have both Lunar New Year and also the Ramadan falls into Q1 and the Ramadan holiday falls into Q2 versus the different patterns in the past few years. But we don't think that's the only reasons. I think that's contributing part of reasons. Another part of reason is that all the execution work we've done in the past few quarters start to give us benefit in terms of the top line growth and also the bottom line improvement impact is coming ahead actually.

Speaker 3

The exact split is probably hard to really split that for in term of the both. But I do emphasize on that is not only some analogy, but also the hard work we've been doing, giving us the benefit on both the top line and bottom line. For the logistics, in Asia, we do deliver more than half of our orders through our own SPX Express. In Brazil, we probably have more than 7% now and we will be looking at increasing the percentage over time. I think both spending will increase over time.

Operator

Your next question comes from the line of Divya Kotial of Morgan Stanley. Please go ahead. Thank you very much. Good evening. My first question is

Speaker 7

on the e commerce business. Could you talk about the drivers for the 23% quarter on quarter reduction that we've seen in sales and marketing expense for this segment, especially with regards to where we are in terms of unit economics for live streaming e commerce versus marketplace? And also if you can comment in which scenario do you think we can get back to the profitability levels of over 1% of GMV that we were able to achieve in the beginning of last year? My second question is on the DFS business. The marketing spends have remained elevated in this quarter.

Speaker 7

Could you talk about what parts of fee money are these being allocated to and what kind of traction you're seeing? And would it be fair to say that this segment's top line growth may actually deviate from the e commerce growth going forward as you build new cases? Thanks.

Speaker 3

Yes. On the e commerce side of the questions, we do see a sizable reduction on the sales and marketing. The part of that is contributing that computing by the better UEs from live stream that we see from Q4 to Q1. But part of that is also contributed to just general better performance in the marketplace in general. So for live streaming, just a little bit context on that.

Speaker 3

I think we do see our live stream volumes still growing in most of our markets. But the UE actually improved significantly for various other markets. And in general, I think in the coming quarters, we will see similar patterns that our UE will continue to improve for live stream. In terms of the EBITDA per GMV, I think we will eventually go to that. I think that the number you mentioned, the 1%, I think that's a reasonable number to look at.

Speaker 3

And in long term, I think we shared that we believe that 2% to 3% is a meaningful number to look at. I think just to add a little bit on the previous question that I make sure I don't miss that. I think the question was on the guidance for the high teen growth on the GMVs for e commerce. I think the number we see in Q1 has given us much stronger confidence in achieving that, both the high single digit GMV growth and even in the second half of the year. And we have been seeing good trends in the latest markets as well.

Speaker 3

I think we will monitor the numbers. We will update the market when we see the see through the quarter. I think there are many factors impacting the numbers. Part of that is just seasonality. Part of that is also in terms of the ForEx of the U.

Speaker 3

S. Exchange rate, etcetera. But I think we'll update the market when we see more numbers. Regarding the DFS, for the DFS, we do believe that still last part of the DFS contributed by the credit businesses, I think as we shared in the opening. If you look at the credit businesses, at this point in time, still a cycle part of that is contributing by the Shopee Pay Later, which is growing together with the Shopee.

Speaker 3

But although, we do see there are better penetrations over time within Shopify for Shopify later. Besides Shopify later, there's also many other use cases like the buy cash loan, we call BCL, which is not part of the Shopee payment system. It's a cash flow you can take out to spend in any other places. And also we are increasing the use cases in other scenarios, for example, the offline Shopify later. You can for example, in Indonesia, you can scan a QR code and using Shopify to scan QR code and pay that with SBL similar to a credit card experience.

Speaker 3

We also have handphone loans in Indonesia as well, expanding to other markets. I think all those use cases will expand our digital financial businesses beyond the Shopee ecosystem. In terms of the sales and marketing, I think our businesses has a fairly good margin as you can see from the EBITDA. At the same time, our business is still in a very early stage. The penetration on our shopping is during the early stage.

Speaker 3

The cash loans during the early stage and many other use cases are still in the early stage. So we see there's a huge potential there to grow over time. And in some quarters, we do see there are good acquisition channels. In some quarters, we see a new product mix change because our new products coming out, etcetera. So that is intention to acquire more users to our digital financial service ecosystem, giving the very good economics we have seen so far.

Speaker 3

And the actual marketing spending depends a little bit on what we see on the customer facing cost and the UE we saw from the new users, plus the new product we're launching in different markets. So it will fluctuate a little bit just in practice.

Operator

Your next question comes from the line of Sachin Soudounkar from Bank of America. Please go ahead.

Speaker 8

Hi, congrats on a good set of numbers. I have two questions. First question is on Shopee EBITDA. You already achieved EBITDA breakeven in Shopee for Southeast Asia. So should we breakeven in Shopee for Southeast Asia.

Speaker 8

So should we think this is sustainable going ahead and we could see improvement in EBITDA out here? Or there was some seasonality factor specifically in this quarter? Should we see some volatility in EBITDA or directionally it should continue to improve? And second question is on average revenue per user in the gaming business. We saw it been lower than the historical trend.

Speaker 8

So just wanted to check anything specific happened in the quarter or is this a new trend going ahead?

Speaker 3

Thank you. On the EBITDA side, it does contribute partially by the Zenality as well, simply because in most of the market, we are contribution margin positive, so we see a higher top line. It will help us on the EBITDA as well. The similar to the top line, we are observing the trend on how the market evolves during the quarter. I think we are about 1.5 months into the quarter.

Speaker 3

Our guidance shared purposely, we're pretty confident of achieving that. And whether there is any changes to that, I think we will share with the market. Yes. For the game, I think that is the it simply reflect we have

Speaker 2

a lot of new users to come to our game like specifically for Free Fire, right? And even like Free Fire has been in its 7th year, but we see the very, very effectively attract new users. That's why we believe like the game can still go for very, very long time. And when like we have the new gamers, new players coming to the game and in general, I think like their kind of average spending is compared to the like more kind of like experienced gamers or like who have played the game for longer time will be relatively low, right? And there is a yearly like the gamers will kind of play the game and the more they play, they have be better engagement and then there is a higher chance for the monetization.

Speaker 2

So I think that there's nothing specifically about the monetization. It's kind of just a reflective fact that there's a very, very strong user growth for the game in the Q1.

Operator

Your next question comes from the line of Piyush Choudhary from HSBC. Please go ahead.

Speaker 9

Yes. Hi. Good evening, management and congratulations for a strong set of results. Two questions. Firstly, again going back to 2024 guidance, after such strong performance, why like Shopee guidance of turning EBITDA positive in 2H has not been revised upwards?

Speaker 9

Do you expect volatility in the upcoming quarter? If you can comment on the competitive intensity in Indonesia and across ASEAN after merger of TikTok and Tokopedia, like has there been an increase in competition and thus you're keeping guidance unchanged? Any color over there will be helpful. That is first question. Secondly, in DFS, is it higher customer acquisition cost or even higher funding cost, which has led to margin drop?

Speaker 9

And if you can talk a little bit about the outlook for the margins in DFS? Thank you.

Speaker 3

On the competitions, we're seeing the market has been relatively stable terms of competition. We didn't see any signs of changes, to be honest. Of course, we cannot predict what the competitors are doing, but we didn't see any particular signs of difference on competition. On the guidance, again, I think we are very encouraged by the number we see in Q1. We are pretty confident on achieving what we shared.

Speaker 3

And I think we are coming to 1.5 months in Q2. I think we will look at the market a bit more. I think in the time when we have a better sense of the numbers, we will share with the market on how we look at the forward looking guidance. There's no particular reason of that from competition or other reasons, yes. For the DFS questions, the margin fluctuations more coming from the acquisition cost rather than on the funding cost.

Speaker 3

In fact, our funding cost is actually getting better quarter on quarter. Again, the acquisition cost a lot depending on what we see from the market or how much we spend on client users versus the value they will bring to us in long term and also depend on the new product launches we have in various markets.

Operator

Your next question comes from the line of Ranjan Sharma from JPMorgan. Please go ahead.

Speaker 10

Hi, good evening and thank you for the presentation. Two questions please. Firstly, on the sales and marketing expense, seems to have reduced to 2.9% of GMV for the e commerce business. Based on your comments on competition, should we expect or are you seeing the same level of spend in the Q2 as well? And the second question is on the FinTech side, if you can shed some color on how much of the loan book is coming from Brazil or whether that will be our focus for the lending business given the strategy of some of your competitors in the market?

Speaker 10

Thank you.

Speaker 3

Yes. On the sales and marketing spend for e commerce, we do see that is a reduction in Q1 by many different reasons. Part of that is due to the live streaming that the big investment done in the last in Q3, Q4 last year start to give us the benefits. We don't need to spend so much part of that is general marketplace spending optimized. In the coming quarter, I believe that we'll continue to optimize our sales and marketing spending.

Speaker 3

And we do believe that the general trend will come down. Although, honestly, if you look at month to month, there will be some fluctuations even for upcoming reasons or for ForEx reasons, etcetera, yes. For the loan book, we do have a high expectation for Brazil. We do believe that Brazil can be a very good market for our digital financial service businesses. Businesses.

Speaker 3

Although we only started Brazil mid last year, which gives us a very short period of time to accumulate our loan book. So right now, the Brazil loan book is still, let's say, a relatively smaller share of our entire loan book businesses. I don't think we just closed the country by country split for the loan book. But yes, it's a small part of it and it can be a potential good growth driver in future.

Operator

Your next question comes from the line of Jiyoung Xiao of Barclays. Please go ahead.

Speaker 11

Thank you for taking my questions. Congrats on the strong results. Two quick follow ups on the e commerce side. One is I was wondering, could you talk about linearity in your improvement in unit economics throughout the quarter? And related to that, the percentage of live streaming in terms of the orders now And that's I think that's the first question, which is why people are asking why Q2 is not a breakeven point for you.

Speaker 11

And then I had a follow-up question on the Shopee Express SPX Business. You talked about over 50% orders in Asia are done through Shopee Express and 70% in Brazil. Do you have like a target number for the percentage for orders fulfilled by Shopee Express and the unit economics or contribution margin for the orders down through SPX, is that any different from your average or the better or worse? Any information on color or data point will be very, very appreciated. Thank you.

Speaker 3

For live streaming in term of the percent of orders, it's stable versus last quarter. I think we share the percentage around 15% in South Asia last quarter. I think it's less of a stable. Although the bucket size increased during this quarter because we optimized some of the category mix and the UEs. In terms of the driver for the UEs improvement, as I shared earlier, it's both the live streaming part of the improvement and general marketplace improvement.

Speaker 3

Actually, on top of that, things we talk about the logistic pace, we also see a better logistics cost improved over time, which drives down the cost as well fundamentally. In terms of the percentage of the orders through our own logistics, I think each market might evolve slightly differently. So we probably don't have a fixed target for all the market. Although what we can say is largely in average, I think we'll see a bigger part of the share of logistics will go to our own SPX. It should be more than what we have right now, but we probably wouldn't set a very, very specific target for all the markets.

Speaker 3

In terms of the unit economics for those orders, the giving that our cost per order for our own SPX is lower than the cost per order for PPLs in the market. Essentially for every order we're delivering in house, we will be able to save part of that cost, which essentially a contributor part of the unit economics improvement that you see here. I think the degree of the EUV difference is slightly varied market by market. But I think the trend is pretty stable across most of the market that we're able to improve this over time even further.

Operator

Your next question comes from the line of Pang Pang Viet from Goldman Sachs. Please go ahead.

Speaker 4

Thank you very much. And 2 follow-up questions from my side. Firstly, on the logistics for Shopee Express as well, you did share that you see a greater unit economics for Shopee Express versus 3PL. Can you explain or walk us through a little bit on how you done that differently? And how are you able to achieve this better unit economics and efficiencies versus 3PL as well?

Speaker 4

That's question number 1. Question number 2, earlier you have mentioned that there is still room for advertisement take rate, especially versus global peers for Shopee. Can you share of the current ad take rate you've seen currently for Shopee? And what's the long term target on what Shopee can achieve?

Speaker 3

Yes. On the logistics front, there are couple of reasons drives better UEs. I think number 1 is there's a margin actually that the 3PL takes. So we retain that margin as simple as that. That's number 1.

Speaker 3

Even you take that out, I think we're still better for a few reasons. One is, we are able to better plan our CapEx over a long period of time because we are able to forecast how our business is evolving, not only just the total volume, but the volumes split in different regions, in different routes, etcetera. So this help us to optimize our CapEx and our operating models for a long period of time. That's one. The second one is, given that we have a good forecast even in the short term on our order volume upstream.

Speaker 3

For example, in the next week, what our volume will be or in the next day, what the volume will be. This will help us to do a lot of operation planning better. For example, how many workers you want to come into work today versus tomorrow and how many trucks you want to prepare for pickup tomorrow or 2 days later. I think this will essentially help us to improve on the day to day operation efficiencies. Number 3 is even beyond the planning, we are able to retool quite a lot of the buyer seller, sorry, seller behaviors to optimize for our logistics.

Speaker 3

For example, the way that we pick up from the sellers, when the seller should pack their product, whether the seller should drop off versus pick up, all those things we can do quite a lot of influence on the upstream to optimize for the downstream fulfillment. And number 4 is, as a technology company, we do have a better tech capabilities in terms of how do we are using technology to optimize our Intel supply chain. And all those tools, all those automations and all those forecasting models we build will help us to essentially have a better efficiency through the fulfillment network. I think number 4 is because we can work together with the marketplace side, we can roll out quite a lot of new services to the consumers. But when we roll out new services, we can control the cost because we can do many of the new service planning end to end together with the marketplace upstream.

Speaker 3

I think one of the example that in the opening we gave is the on time guaranteed deliveries. To do that, I think everybody can do that theoretically. You can always give a voucher to the fact that it is delivered late, right? But how do you do that economically? It's a big question.

Speaker 3

How do you make sure that you can have a good forecast of your deliveries end to end from the buyer place order to the seller pack order to the 1st mile pickup order to the sorting center and to the mid mile to the last mile. And the entire modeling process and the entire retooling part of the seller behavior and associate behaviors that requires a lot more joint planning across the value chain. And because we can do it together, so we can do it more economically compared to if you work with the pure third parties. I think for all that reason, putting together, we kind of are able to achieve better ergonomic and not only just the cost, but also better service levels and differentiated services we can offer to the consumers in our market.

Operator

Your next follow-up question comes from

Speaker 3

And for the sorry, for the uptick rate, the I don't think we just closed the active rate actual numbers. But what we can share is that if you compare with our global peers, for example, in China or in the U. S, we are kind of like still meaningfully lower than where they are. We still have few percentage to catch up to them. So that's meaningful rooms for us to increase the attic rate.

Speaker 3

I think there are few tools that we can deploy to do that. I think one is just having more seller participation in terms of the to enhance the total pool of the SKUs that utilizing the ad. In order to do that, we have to develop a simpler ads product for the seller to use. Unlike many of the sellers in a multi vendor market, we are more familiar with the ads. In our market, there are quite some sellers that are less familiar with the ads.

Speaker 3

So we have to customize our ad tool for those sellers to make sure that it's easier for them to adopt, so they can so we can have more SKUs into our ad pool. That's number 1. Number 2 is to increase the ad efficiencies through technology. We are spending quite a lot of effort on making sure that we increase the conversion rate for ad products. So the conversion ad so we can actually serve more ads to our users because of increased conversion rate.

Speaker 3

And number 3 is to find a way to balance organic and the ads traffic better. So by having enhanced products to balance the organic and ad products in a common stream, we can essentially dynamic adjust ad load depends on the conversion rate and the SKU participation and scenarios within our app. So by doing all the three things, we see that it's a meaningful potential to increase the ad take rate over the next few quarters.

Operator

The next follow-up question comes from Navin Kila from UBS. Please go ahead.

Speaker 6

Hi. Thank you for the opportunity again. I just wanted to ask a question with regards to your cash, which obviously remains strong and continues to grow. I know several of your peers have started talking about buybacks and have even announced buybacks. What's your thinking on the use of the cash balance?

Speaker 6

Thank you.

Speaker 3

Yes. Thanks for the question. We currently don't have any sense on buybacks or any sort of thing. Our operation results are strong and we are kind of like quite confident on our outlook for each of the business lines and pretty much we'll be focusing on these.

Operator

The next follow-up question comes from Alicia Yap from Citigroup. Please go ahead.

Speaker 5

Hi. Good evening. Thanks for taking my follow-up questions. 2 for me here. One is on the DFS.

Speaker 5

Can management share the ranking of the growth by the product or the services line and the ranking by the revenue or profitability contribution for your FinTech products this quarter? And then second, not sure if I've missed it, but assuming if you will be relaunch in India in some time in the future, what could be the incremental upside to the user and the growth in if this become reality? Thank you.

Speaker 3

For our DFS businesses, there are a few main business main product that we have. The SBL, the Shopify Later and BTL, buy cash loans. And the other the offline product that we have. I think at this point in time, the SPL in terms of outstanding is still the biggest product. But if you look at the EBITDA contribution, the UAE, the back cash loan will have a higher UAE than the shopping facility.

Speaker 3

I think that's kind of like rough pictures, if you will.

Speaker 2

For Free Fire relaunch in India, at this moment, we are actively working with the holder like a stakeholder including like, yes, the regulators, the potential local partners, right, and to figure out what is the best plan to relaunch Revire in India. And well, if that is successful, I think that will be a meaningful potential asset in terms of the users and the bookings considering India is a very, very big market. But just to clarify, at this moment for our outlook for the rest of the year in terms of the our like double digit growth, right, and this is not taking into the consideration of the relaunch of the India. Basically, we come out with guidance and outlook based on the current business, what we have seen for the existing kind of the trend of our current market for Free Fire.

Operator

This concludes our Q and A session. I would now like to turn the conference back over to Mr. M. Siko for any closing remarks.

Speaker 1

Thank you all for joining today's call. We look forward to speaking to all of you again next quarter.

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Key Takeaways

  • Shopee achieved its strongest quarter yet with Q1 gross orders up 57%, GMV up 36% and revenue up 33%, while Asia markets turned profitable with a Q1 adjusted EBITDA of USD 11 million.
  • Sea’s in-house logistics arm, XPX Express, now delivers 70% of Asian orders within three days and reduced cost per order by 15% in Asia (23% in Brazil), enabling new services like guaranteed delivery and faster returns.
  • SeaMoney’s digital financial services grew revenue 21% and adjusted EBITDA 50% year-on-year, with consumer and SME loans outstanding reaching USD 3.3 billion (up 29%) and NPLs stable at 1.4%.
  • Garena returned to growth with bookings up 11% and Free Fire MAUs up 24% year-on-year, driven by frequent content updates and interactive features, making it the most downloaded mobile game globally in Q1.
  • Consolidated Q1 GAAP revenue rose 23% to USD 3.7 billion and adjusted EBITDA was USD 401 million, while net loss was USD 23 million, keeping Sea on track to meet its full-year guidance.
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Earnings Conference Call
SEA Q1 2024
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