SEA Q1 2025 Earnings Report

SEA EPS Results

• Actual EPS: $0.65
• Consensus EPS: $0.93
• Beat/Miss: Missed by -$0.28
• One Year Ago EPS: -$0.04

SEA Revenue Results

• Actual Revenue: $4.84 billion
• Expected Revenue: $4.90 billion
• Beat/Miss: Missed by -$60.56 million
• YoY Revenue Growth: +29.60%

SEA Announcement Details

• Quarter: Q1 2025
• Date: 5/13/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 13, 2025
• Conference Call Time: 7:30AM ET

SEA (NYSE:SE) Ltd. is an internet and mobile platform company, which engages in the provision of online gaming services. It operates through the following segments: Digital Entertainment, E-Commerce, and Digital Financial Services. The Digital Entertainment segment offers and develops mobile and PC online games. The E-Commerce segment manages a third-party marketplace through the Shopee mobile app and websites that connect buyers and sellers. The Digital Financial Services segment includes a variety of payment services and loans to individuals and businesses through SeaMoney. Sea was founded by Xiao Dong Li, Gang Ye, and Jing Ye Chen on May 8, 2009 and is headquartered in Singapore.

SEA Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning and good evening to all, and welcome to the Sea Limited First Quarter twenty twenty five Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question and answer session. Thank you. I'd now like to welcome Mr.

[Operator]

Elson Choi to begin the conference. Please go ahead.

[Elson Choi, Senior Manager, Investor Relations at Sea Limited]

Hello, everyone, and welcome to twenty twenty five First Quarter Earnings Conference Call. I'm Nelson from Sea's Investor Relations team. 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 the 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.

[Elson Choi, Senior Manager, Investor Relations at Sea Limited]

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 first quarter of twenty twenty five. 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 Forrest.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Hello, everyone, and thank you for joining today's call. We have delivered another great quarter of strong growth with improving profitability across all three businesses. Our businesses are now all self sufficient and cash generating, positioning us well to capture future opportunities. Our strong start to the year gives us more confidence of achieving our full year guidance. Five days ago, on May 8, we celebrated Sea's sixteenth anniversary.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

On the same day, we rebranded our digital financial services business from SEA Money to Money, spelled M O N E E. We chose the name Money because it is simple, cute, and just like our company's name C, easy to write and pronounce. Money also resonates well with the name of its sister brand Shopee, reflecting the seamless synergetic connection between the two ecosystems. Our digital financial services business already has a decade long history, from ARPAY to Shopee Pay to S Pay Later and to all of Money's other products and services today, we create solutions that are simple, accessible and inclusive. We use technology to enable all our communities to join the digital economy and manage their money more easily.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

We'll remain grounded in these principles as we move forward. Today, Money is already one of the largest unsecured consumer lending businesses in Southeast Asia, and I believe we are only at the start of realizing its full potential. We have expanded beyond Southeast Asia to Brazil, and we are moving beyond payments and credits to every aspect of people's lives relating to money, such as banking, investment and insurance. When we help people achieve their financial goals, it can be life changing not just for them today, but for their children and grandchildren as well. We are excited and committed to creating financial freedom and empowerment for consumers and small businesses with technology, both for this generation and the generations to come.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

With that, let me take you through each business' performance. Starting with e commerce. Shopee has delivered a record high GMV and gross order volume in the first quarter. We sustained market leadership with improved profitability across both Asia and Brazil. Unique economics improved, largely driven by our continued scale expansion, cost optimization and enhanced monetization, especially from advertising.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Ad revenue grew by more than 50% year on year in the first quarter. Our operational priorities remain consistent to enhance price competitiveness, improve service quality and strengthen our content ecosystem. Our strong execution of these priorities has continued to make Shopee competitive and depreciated. On price competitiveness, our diverse product range and competitive pricing continue to resonate well with buyers. Our ability to deliver a clear price advantage over our peers comes from our closer collaboration with sellers and a deeper integration with upstream suppliers.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

In Qualtrics survey, we continue to rank as best in market across Asia and Brazil for offering good product prices. This has done a lot to build our brand's man's share of being the most price competitive e commerce platform in our markets. In the first quarter, our average monthly active buyers on Shopee grew by over 15% year on year. On service quality, logistics continue to be integral to our ability to deliver better and more reliable service to our customers. We further strengthened this value proposition in the quarter with both cost reduction and service quality improvements.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

In the first quarter, we reduced the Shopee's overall logistics cost per order by 6% in Asia and 21% in Brazil year on year, while continuing to improve delivery times and expand network coverage. These efficiencies enable us to pass on greater savings to buyers while providing a seamless and reliable shopping experience. In addition to these broad measures, we constantly explore and pilot new initiatives delivering value targeted at specific customer needs. For example, in some of Indonesia's major cities, we offer an instant delivery option that delivers orders in just a few hours. In the first quarter, we also piloted a Shopee VIP membership program in Indonesia to better serve our most loyal users.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

This paid membership program includes benefits such as unlimited free shipping, upsized discount vouchers, and priority customer service. Adoption has been encouraging, with more than 1,000,000 users subscribing as of the March. Members purchased more than three times as frequently and spend more than four times as much as regular buyers. These are just some examples of how we continue to experiment with value adding features to strengthen buyer engagement and stickiness. We also continue to improve service quality to our sellers by empowering them with intelligent tools and optimized ad tech solutions.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

For example, we introduced Shopee AI assistant to help sellers handle routine customer queries, making their daily operations on Shopee more effortless. Our upgraded ad tech product called GMV Max has also made it easier for sellers to launch campaigns, reach the right audience and maximize their returns. In the first quarter, the number of sellers who spend on our ad products increased by 22% and average ad spend increased by 28% year on year. We continue to make good progress with our content ecosystem and it is playing an increasingly important role in driving buyer engagement and conversion. In Southeast Asia, content driven orders including those from live streaming and short videos accounted for about one fifth of our total physical goods order volume in the first quarter.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Unit economics also continued to improve, supported by growing scale, larger average basket size, better marketing efficiency and higher adoption of shopping live ads. We are also seeing strong traction from our partnership with YouTube, which we have expanded to all six of our Southeast Asian markets. As of March, over 4,000,000 YouTube videos had Shopee product links embedded and average daily orders attributed to YouTube content continued to rise steadily. This partnership has strengthened our relationship with creators who can now more easily monetize their engagement, while also allowing our sellers to tap on the high traffic YouTube platforms for sales. Beyond Asia, Brazil continues to show encouraging results.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

The pace of our user base expansion continued to outpace the market average as we gained market share, and we remain adjusted EBITDA positive. This was driven by our strong execution. We expanded to serve more underserved market segments, onboarded more sellers, diversified into higher ticket size product categories and improved delivery speed while maintaining our logistics cost advantage. Looking ahead, we see plenty of runway for further growth in Brazil and we remain committed to capturing the long term opportunities in this market. In summary, Shopee has started 2025 on very strong footing, delivering high growth while improving profitability across our markets.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

With solid first quarter results, we remain confident of achieving our full year GMV growth guidance of 20% with improving profitability. Next, turning to Digital Financial Services. In the first quarter, Money delivered another strong set of results, with both revenue and adjusted EBITDA growing more than 50% year on year. This growth was delivered while maintaining stable asset quality, reflecting our continued commitment to prudent risk management. In the first quarter, our loan book grew by over 75% year on year to reach $5,800,000,000 mainly driven by the healthy expansion of our user base.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

In the first quarter, we added over four million first time borrowers, and we see new user cohorts continuing to generate positive profit over time as we scale. By the end of the quarter, active users for our consumer and SME loan products exceeded 28,000,000, representing more than 50% growth year on year. At the same time, our overall portfolio quality remains healthy with our ninety day NPL ratio staying relatively stable at 1.1%. Risk management remains our top priority. We take a proactive and dynamic approach to credit risk management, leveraging live insights from our ecosystem and closely tracking repayment trends across user cohorts.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Our deep roots in local markets serving a massive user base gives us the unique advantage of firsthand data, letting us evaluate market conditions in real time. With short loan tenure of typically three to six months, we can adjust underwriting thresholds, credit limits, and pricing parameters quickly in response to macroeconomic changes. In the first quarter, we made good progress across various markets. In Thailand and Malaysia, S Pay Later campaigns with Shopee effectively drove new user acquisition and further increased penetration on Shopee. By the March, Thailand's loan book surpassed $1,000,000,000 Brazil also delivered robust loan book growth in the first quarter, driven by both as Pay Later's higher penetration on Shopee and the growing contribution from buyer cash loans.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Such strong growth across different markets diversifies our overall loan book and reduces our exposure to any single market economic cycle, giving us a more stable and resilient loan portfolio. We also continue to roll out new products and strengthen our underwriting capabilities, enabling us to serve a wider range of users across different risk profiles and credit needs. For example, in the first quarter, we saw strong growth from credit products with lower interest rates, higher credit limits and longer tenure in markets such as Indonesia and Malaysia. These products are helping us attract more higher income users who may be more selective in their adoption of credit products. Having larger cohort of premium users gives us significant cross selling opportunities and higher customer lifetime value.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Taken together, as we continue to grow our credit penetration in more markets serving more users, we are cautiously constructing a loan portfolio with better diversification across markets and the user segments. This lets us maintain good asset quality, which benefits our long term growth and profitability. While the Shopee ecosystem remains an effective funnel for user acquisition and underwriting insights, Money is steadily expanding its reach beyond Shopee. In Malaysia, off Shopee usage of S Pay Later has grown meaningfully by leveraging Shopee Pay's merchant network and through targeted marketing campaigns that strengthen consumer man's share of our credit products. Offshopee as pay later loans now account for over 10% of our total loan book in Malaysia.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

We are seeing healthy repayment behavior with OffShopee as pay later loans and the unique economics continue to improve. In Indonesia, OffShopee growth has also been boosted by the standalone Shopee Pay financial services app, which has surpassed 30,000,000 downloads as of March. The app supports everyday payments beyond the Shopee platform. It seamlessly integrates as pay later functionality to enable the use of credit for off Shopee purchase. We continue to enhance the app with new features to drive user engagement and position it as a central hub for daily financial activities.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

This lays a strong foundation for cross selling a broader suite of financial products and services in the future. In summary, Money is on the right track to continue delivering strong loan book growth while maintaining sound credit quality and we are confident of achieving our full year guidance. As we scale, we remain focused on risk management as a top priority. Giving our unique business model and the strong support we have from our Shopee ecosystem, we are confident that we can grow money in a way that is resilient to credit cycles and profitable into the long term. Next, turning to digital entertainment.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Garena had a stellar start to 2025, with its best quarter since 2021. In the first quarter, Garena's total bookings grew 51% and adjusted EBITDA grew 57% year on year. In addition to Free Fire, our other games such as Arena of Valor, EA SPORTS for FC Online and Call of Duty Mobile have also had a good start in the first quarter, giving Garena a strong growth outlook for the year. In January, we launched Free Fire collaboration with Naruto Shibuden. This was our biggest ever anime IP collaboration to date.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

We spent over two years with the IP partner preparing for this major campaign. We came up with a comprehensive suite of content and features such as special moves, character inspired variables, and recognizable things from the animation. Our development team put a lot of effort into upgrading our character models to introduce the intricate finger movements and the hand signs that are iconic to the anime. This went a long way to bringing authenticity and the sensation of the anime into Free Fire. The Naruto campaign was a resounding success with extremely positive feedback from our gamer communities around the world.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Official video impressions gathered over 300,000,000 views since the launch of the campaign and the player feedback made it clear. The Naruto campaign stands out as the highest rated collaboration Free Fire has ever done. The collaboration's strong social phenomenon allowed Free Fire to not only capture new users, but also reactivate turned players. Thanks to the huge success of the collaboration, Free Fire's average DAU in the first quarter was close to its peak quarterly average DAU during the pandemic. This further reinforced Free Fire's position as the world's largest mobile game by average DAU and downloads according to Sensor Tower.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Beyond the Naruto campaign, our focus on hyper local content continues to drive strong user engagement by connecting with players through their culture and daily life. In the first quarter, Free Fire celebrated Ramadan through specially designed in game missions in Indonesia, allowing players to contribute real world donations of clothing and food, turning the gameplay into a shared act of generosity during the Holy Month. This resonates very positively with our gamer community. In Arena of Valor, we brought community spirit to life by organizing offline floaters in Taiwan during the culturally significant Madhu Pibri patch and lighting blessing candles at temples on behalf of users during Lunar New Year. The responses to these events on social media have been overwhelmingly positive.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

These initiatives show how our local teams proactively transform our games into platforms where culture relevance meets social impact. Beyond our existing games, we are growing our portfolio to deepen our capabilities and scale our market presence. In April, we published Delta Force Mobile, a first person tactical shooting game across markets in Southeast Asia, MENA, and Latin America. Since launch, the game has seen good traction with over 10,000,000 downloads. We have also started pre registration for Free City, a self developed open world adventure game, and we'll launch it in phases beginning in May.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

We are confident that these new launches will deepen user engagement with our gamer community across our markets. In summary, Arena had a very strong start to the year. We will continue to drive Free Fire's popularity and longevity, and expand our game portfolio for overall sustained growth. We remain confident of delivering our guidance of double digit growth for Green Dot's user base and bookings in 2025. In closing, we are very happy with this strong start to 2025.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

All three of our businesses have shown strong growth and improving profitability. We remain committed to executing well and driving greater efficiency. We look forward to delivering a strong 2025 and beyond. Thank you as always for your support. With that, I invite Tony to discuss our financials.

[Tony Hou, CFO at Sea Limited]

Thank you, Forrest, and thanks to everyone for joining the call. For the overall, total GAAP revenue increased 30% year on year to $4,800,000,000 in the first quarter of twenty twenty five. This was primarily driven by GMV growth of our e commerce business and the growth of our digital financial services business. Our total adjusted EBITDA was $947,000,000 the February compared to an adjusted EBITDA of $401,000,000 in the February. On ecommerce, Shopee's gross orders grew 20% year on year to $3,100,000,000 to $3,100,000,000 in the first quarter of twenty twenty five, and GMV increased by 22% year on year to $28,600,000,000 in the first quarter of twenty twenty five.

[Tony Hou, CFO at Sea Limited]

Our first quarter GAAP revenue of $3,500,000,000 included GAAP Marketplace revenue of $3,100,000,000 up 29% year on year and GAAP product revenue of $400,000,000 Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction based fees and advertising revenues, was $2,400,000,000 up 39 year on year. Value added services revenue mainly consisting of revenues related to logistic services was $800,000,000 up 4% year on year. E commerce adjusted EBITDA was $264,000,000 in the first quarter of twenty twenty five compared to an adjusted EBITDA loss of $22,000,000 in the first quarter of twenty twenty four. Digital Financial Services GAAP revenue was up by 58% year on year to $787,000,000 Adjusted EBITDA was up by 62% year on year to two forty one million dollars As of the March, our consumer and SME loans principal outstanding reached $5,800,000,000 up over 75% year on year. This consists of $4,900,000,000 on book and $900,000,000 off book loans principal outstanding.

[Tony Hou, CFO at Sea Limited]

Non performing loans past due by more than ninety days as a percentage of total consumer and SME loans was 1.1% at the end of the quarter. Digital entertainment bookings were $775,000,000 in the first quarter, up 51% year on year. GAAP revenue was $496,000,000 Adjusted EBITDA was $458,000,000 Returning to our consolidated numbers, we recognized a net non operating income of $89,000,000 in the first quarter of twenty twenty five compared to a net non operating loss of $18,000,000 in the first quarter of twenty twenty four. We had a net income tax expense of $136,000,000 in the first quarter of twenty twenty five compared to net income tax expense of $79,000,000 in the first quarter of twenty twenty four. As a result, net income was $411,000,000 in the first quarter of twenty twenty five as compared to a net loss of $23,000,000 in the first quarter of twenty twenty four.

[Elson Choi, Senior Manager, Investor Relations at Sea Limited]

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

[Operator]

You. Your first question comes from the line of Pang Vijat of Goldman Sachs. Your line is now open.

[Pang Vittayaamnuaykoon, Executive Director at Goldman Sachs]

Hi, good evening management. Thank you very much for the opportunities and congratulations for a strong set of numbers. Two questions from me. Number one on Shopee. You delivered a very strong improvement in profitability this quarter.

[Pang Vittayaamnuaykoon, Executive Director at Goldman Sachs]

What drives that uptick And how should we think about the margin strength in the coming quarter? As these profit grows, how do you think about the risk to Shopee GMV growth amid this uncertain macro environment? And what gives you the confidence to maintain that 20% outlook? That's question number one. Question number two, can you also share more color around the strong performance at Money as well?

[Pang Vittayaamnuaykoon, Executive Director at Goldman Sachs]

What do we see that drives the uplift in loan book, whether it's new geography, new products? And how should we think about the return and margins on these new loans?

[Chris Feng, President at Sea Limited]

Starting from the Shopee side, there are a few factors driving the good growth for Q1. Part of that comes from seasonality. I think this year, Q1 is the first year that Ramadan falls fully in Q1 and the holiday falls in Q2. In the past, it's always either in Q2 or partially in Q1. So that contributed part of the numbers.

[Chris Feng, President at Sea Limited]

Second one is we do improve take rates over time. I think as we shared in the opening that if you look at the ad take rate, we grow 50 basis point from last year. So that helps on our take rate side. The other one the other side of that is we also optimize our costs over time. Our shipping costs for example has dropping meaningfully from last year.

[Chris Feng, President at Sea Limited]

We also optimize our sales and marketing over time as well. On top of that, we also optimize our operating cost through many of the initiatives. For example, we're using a lot more AI solution to automate many of our customer service and listing management, etcetera. So all those contribute to better cost structure and as a result contribute to our margin improvement. So if you look at the rest of the year, we believe the top line guidance of 20% growth still stays.

[Chris Feng, President at Sea Limited]

If you look at the profit side, the long term trend, we still target on 2% to 3% of the EBITDA of over GMV. Of course, the short term, we're not squeezing our ecosystem as much as possible. We're still focused very much on the growth side to make sure that we have a good growth while improving the EBITDA over time. Although if you look at quarter over quarter, there might be some similarities as I shared just now. From the macro perspective, we have not seen a material impact to our Shopee growth from the macro side.

[Chris Feng, President at Sea Limited]

I think part of that is because we are very much local marketplace. Our cross border business has been relatively small percentage of our entire businesses. So the cross border trade impact from any aspect will not impact our overall business materially. And also if you look at our businesses, are very much price driven in a way we are a price leading platform in our market. So if any users who would like to seek any alternative for that purchase for a lower price element typically they will come to us.

[Chris Feng, President at Sea Limited]

Giving the low penetration of the e commerce in most of our market, this will potentially help us to advance the e commerce penetration while our user looking for a cheaper alternative versus the other channels. On top of that, Shopee is also more intent driven marketplace where the impulse driven purchase has a less percentage. So it's less impacted by the fluctuation on the discretionary spending. And all those will help us to grow well even with the macro uncertainties. The only thing that might impact our number in a way is the ForEx.

[Chris Feng, President at Sea Limited]

As you're probably aware that in some of our markets the ForEx rates can fluctuate quite a lot from time to time. So I think we are still okay right now if you look at the number, but we'll monitor closely on the Forex side. But again, that shouldn't impact our operational operation too much in our local market because we are very much a local marketplace rather than depends on the cross border trading. If you look at the money side, the money has money growth has been driven primarily both on the penetration of Shopee through SPL. So we see higher percentage of SPL penetration on the Shopee side.

[Chris Feng, President at Sea Limited]

And also, we're seeing a very good growth on the non Shopee side, especially on our BCL products. We're seeing a pretty good growth from our BCL products and also for SPL offline. For example, we have been growing our SPL limit extra with cell phones with we're also starting the two wheel financing as well for motorbikes in Indonesia. The offline spending through the national QR code has been growing very well in the past few months as well. If you look at the country mix, all country are growing well, although that we see that some newer countries has a fairly faster growth rate versus bigger countries by nature of the face of the market.

[Chris Feng, President at Sea Limited]

In terms of the margins, we're seeing a pretty good margin in Q1. Part of that is driven by optimizing some of our sales and marketing during Q1 giving the good momentum on seasonality. The there might be some fluctuation over time on the margins, giving the country mix might change slightly over time. And also giving that the product mix will might shift over time as well, and also giving that our target segment, we might expand over time, and also some of the sales and marketing spending. But but but overall trend, we should still have a very good margins and absolute amount of the EBITDA margin if you look at long term should keep growing.

[Chris Feng, President at Sea Limited]

Although we will expect the percentage margin percentage might go down a bit giving the country mix and product mix and expanding of the base.

[Operator]

Thank you. Question comes from the line of Piyush Chaudhary of HSBC. Your line is now open.

[Piyush Choudhary, Analyst at HSBC]

Yes, hi. Thanks. Congratulations to the management team on stellar results. Two questions. Firstly, how are you thinking about incremental capital allocation?

[Piyush Choudhary, Analyst at HSBC]

As it seems in the first quarter, majority of cash flows have been invested into money segment to drive credit business. So incrementally, would you use own capital for Money segment? Or would you like to diversify sources of capital in the future? Second question is on Gaming. 1Q booking was very strong.

[Piyush Choudhary, Analyst at HSBC]

What's the outlook for booking growth in gaming business? Can the current run rate be maintained? Or there could be quarterly volatility? I understand your full year outlook on double digit growth, but can it be like upward of 25%? Or any kind of range if you can talk about on the booking growth?

[Piyush Choudhary, Analyst at HSBC]

Thank you.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

Yeah. For the first question, yes. And we are like a for all our three business now, it's a self sufficient and constantly generating cash quarter by quarter. And we are actively monitoring the our cash position and really think through to what is the best way in terms of the capital allocation from the from the shareholder perspective. Actually, this has been constantly the the topic, like, not only for the operations, but only on the on the on the board meeting on the board level.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

And specifically in terms of the if we are going to continually using our own money for for our loan book growth, We we have been very, very cautious on that. And in general, we would prefer to to diversify our source of fundings, and we would rather, like, instead of using all our own cash, although it's probably in the short term, like, from the short term perspective, may make more economic sense, but we want to build up a more sustainable and healthy source of funding by collaborating with the third party financial institutions and by exploring different way of our our our source of funding. And this is including work with other banks, right, in terms of the channeling arrangement and including like, including, like, even we explore some structure product like the ABS and the and the and the and the some other channels as well. So and that is what is primary our focus in terms of the the source of funding for for diversification. And in terms of the for the for the question on on Garena, yeah, we have a we have a very, very strong first quarter, and we are very excited about that.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

And I think this is I think this is an extension of our strong growth momentum starting from a year ago. So 02/2024 has been a very, very strong year for Free Fire and Carina in general, and we are very happy to see entering to q one this year that growth is even accelerated. And I think that is a very, very positive sign that Free Fire itself will be continually to to be a very, long term focus and and could be as we always aspire and build it at every green franchise and platform. And in terms of the in terms of the the quarterly volatility, yes, I mean, q one, historically, in most of the year, this have been the because of the seasonality, yearly being a a strong month because of a lot of holidays end up, like, in this quarter. For example, the Lunar New Year, and this is just being a big this is a big holiday across a lot of our markets.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

And as as Chris just mentioned, like, even, like, for this year, Ramadan is also being in in the in the in the in the in the in the in the first quarter, like, meaning the first quarter as well. And and especially for q one, the the the great performance is also contributed a lot by the IT collaboration with the Naruto. That is a super successful collaboration. Of course, this is give us a lot of inspiration. Right?

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

And it give us a very, very good best practice. We should explore more for the CAPI collaboration along these lines, but it probably will not happen every quarter. So we expect some volatility. But looking at from the whole year perspective, we still remain very, very optimistic, and we we feel very confident about the the growth prospect of the for Karina for this year. I think at this moment, like, we are excited by q one result, but I think we also be should be just be be cautious and be be like a more like a focus on the product itself rather than just to say, okay.

[Forrest Li, Founder, Chairman & CEO at Sea Limited]

What is the financial number we can deliver? And when we have a better visibility across the year and if we we have a better sense of the how the year will look like, and we'll we'll come back to the market and give the more detailed update on that.

[Piyush Choudhary, Analyst at HSBC]

Thank you very much.

[Operator]

Your next question comes from Alicia Yap of Citigroup. Your line is now open.

[Alicia Yap, Analyst at Citigroup]

Hi. Good evening management. Congrats on the strong set of results. Thanks for taking my questions. Two questions here.

[Alicia Yap, Analyst at Citigroup]

First, it seems like Shopee and also your peer in Brazil continue to do grow really well this quarter. So can management share with us the main driver for the sustainable fast growth stage in Brazil? And how long do you anticipate the fast growth stage to last? Second question is on the overall Shopee VAS revenue. So with the subscription membership, given it will be driving higher frequency purchase order, will that actually put a pressure on your VAS revenue growth in the short term?

[Alicia Yap, Analyst at Citigroup]

How should we think about overall monetization rate over the next few quarters? Thank you.

[Chris Feng, President at Sea Limited]

On the Brazil question, we do see Brazil has a very good potential for us and for some of our peers as well as you can see. For Brazil, the key thing that we are growing well is similar to we shared before. Number one is we have been a leading pricing advantage in the market. We always focus on to make sure that in our platform the user can get the best pricing and that has been very welcomed by our core mass user groups. Second one is we have been working a lot on our infrastructure, especially on the SPX logistics.

[Chris Feng, President at Sea Limited]

Not only lowering down the cost, but we also shorten our delivery time quite a lot over the time. For example, if you look at Q1 twenty twenty five versus last year, our delivery time has been shortened by two to three days, which is quite meaningful impact to the experience. We also have a same day delivery in Sao Paulo as well, which helps us to penetrate better in the cities. We're also starting procurement services for some sellers. We just started, but we're seeing very good feedback from our sellers.

[Chris Feng, President at Sea Limited]

And all this essentially help us to serve our user better with the better pricing, with the better service and logistics, with the lower shipping cost. I think that's kind of what drives our Brazil growth. We will foresee that if we can continue to improve on those aspects, we will still be able to grow the market, giving the penetration of e commerce in Brazil is still relatively low even compared to our South Asia market. The we will try to essentially improve on those as I shared, so as far as we can. On the second question, on the VIP memberships, we do see a very good pickup of the VIP memberships.

[Chris Feng, President at Sea Limited]

As far as shared in the opening that we're seeing quite a lot of users subscribed to it, one point five minutes also as we shared. And the purchase frequency is a lot higher compared to the non VIP users. We also see better retention for those users in general. I don't think this conflict with the VAS revenues per se. I think we see this as a public site starting two different elements.

[Chris Feng, President at Sea Limited]

Our VAS revenue contributes a lot from the SLS, SPX, those shipping services, and and other type of services. Of course, ads is on top of it as well. So if you look at the overall monetizations, the commission side of the monetization, we will probably not increase as much as you're seeing last year, but there might be still some potentials. We will adjust in different markets based on the feedback from the sellers. We have not seen any negative feedback from the seller yet in terms of the commission side.

[Chris Feng, President at Sea Limited]

So we'll monitor very closely based on seller feedback and also the pricing our marketplace to adjust on the commission side. But on the ad side as we shared a few times, we still see there are meaningful potential for us to increase the ad take rate through both optimizing our efficiencies on the ad placement in our marketplace and also the seller adoptions. To increase seller adoptions we both make it easier for seller to invest in our ad, but also the efficient the the return of investment better for the sellers. So by doing all this, this will help us to increase the app take rate. If you compare where we are right now versus the other marketplace similar to us, we still have meaningful room there.

[Chris Feng, President at Sea Limited]

So that's that will help us in general on the monetization side.

[Operator]

Your next question comes from the line of Divya Kothiak of Morgan Stanley. Your line is now open.

[Divya Kothiyal, Analyst at Morgan Stanley]

Thank you very much. Two questions from me. The first one on e commerce's competitive landscape. Could you please comment on how you're seeing the competitive landscape in ASEAN and Brazil? And how does that tie into the margin expansion that we're seeing?

[Divya Kothiyal, Analyst at Morgan Stanley]

And specifically on Brazil, if you could comment on the launch of TikTok shop and how we are planning to showcase Shopee live there. What's your initial sense on the likelihood of live streaming becoming big in Brazil as it did in ASEAN? And what would our strategy would be versus TikTok? So that's the first question. And my second question is, again, on fintech, specifically in Brazil.

[Divya Kothiyal, Analyst at Morgan Stanley]

Could you give us some sense on how big Brazil is now relative to GMV there? How big is it as part of the loan book? What are the differences in the returns margin profile that you see for Brazil versus your ASEAN market? And how differently do we need to manage asset quality there given these differences? Thanks.

[Chris Feng, President at Sea Limited]

On the on the competitive landscape, in general, we're seeing relatively stable competitive landscape. I mean, there's always fluctuation here and there, but largely, strategically, we didn't see a big movement on that. And I think our margin improvement largely come from as I shared earlier, better asset grade, better cost structure, and just better operations from our side. So we will probably don't see any big impact from that front in our market, both in ASEAN and Brazil. I think as you rightly point out, TikTok shop launched in Brazil, actually just few days ago.

[Chris Feng, President at Sea Limited]

We will closely monitor the development. I think the core for us in Brazil is to we would like to make sure that we have a good pricing, we have a good infrastructure to deliver lower cost and better experience. And we believe those things, if we do it well, we can continue to grow as I shared in the last comments. The Shopee Live has been available in Brazil for quite a while. Although the the acquisition development of Intel Brazil for live streams during early stage.

[Chris Feng, President at Sea Limited]

Actually, only us as you can probably see that Melee also has a live streaming features here and there. And also the other social media platforms also have live streaming features. So it's not completely new to the market, but although the overall development of the livestream echoes in the market during early stage. So we will monitor it quite closely. If you compare to Asia, the livestream behavior as we see right now is probably not as prominent as we have seen in the Asia market.

[Chris Feng, President at Sea Limited]

But again, just like what we did in Asia, if we see that it's a good trend of ecosystem development, we have the capability, we have the experience, we have the technology to capture it where we need it. On the Fintech side, the the as as you probably know, Brazil is a country we launched it much later compared to Asia market. So the we're seeing a very good growth on the penetration of SPL on Shopee GMV. Although the absolute amount is still much lower than what Asia is, which shows that it's a much larger potential in the coming quarter to grow in Brazil as well. If you look at the overall margins, if you look at the EBITDA margins, it's it's somewhere sort of in the middle among our market.

[Chris Feng, President at Sea Limited]

It's probably better, higher than some of the market, but lower than the other market. So somewhere in the middle. The difference is in Brazil the interest rate is in general a bit higher. It's a it's a high interest market. So and the high interest are able to cover slightly higher risk as well in the market.

[Chris Feng, President at Sea Limited]

And just the nature of the market rather than anything we did very differently. We have been quite well profitable in the market, things quite a while ago. It took us quite some effort to figure out how to do risk assessment in Brazil, which is slightly different than Asia, because the data source and the user behaviors etcetera are slightly different. But I think we find a path and we have a good grasp on the risk of the market. We also integrate a lot more data over the last few quarters and we'll continue to integrate more data in the coming quarters lepting on the open finance framework that the president central bank has set up, which we think that we can leverage a lot on.

[Chris Feng, President at Sea Limited]

So yeah. So in general, Brazil, we believe that is a good market for us and there is quite a good potential for us in the coming months and years.

[Divya Kothiyal, Analyst at Morgan Stanley]

Thank you.

[Operator]

Your next question comes from the line of Zhong Shao of Barclays. Your line is now open.

[Jiong Shao, Analyst at Barclays Capital]

Thank you so much for taking my questions. Congrats on the very strong results. My first question is on your Shopee EBITDA margin as percentage of GMV. You have made a lot of progress, very impressive progress last couple of quarters. Now it's a bit over 0.9%.

[Jiong Shao, Analyst at Barclays Capital]

I think you have said before, your long term target is 2% to 3%. I was hoping you can comment on the sort of the timing to achieve that target. And that target I mean, it's a it's a bit lower than some of your peers in other parts of the world. Do you think there could be other or potential upside to that target? Second question is on your spending.

[Jiong Shao, Analyst at Barclays Capital]

The takeaway for VAS came down a little bit sequentially. Was that because of shipping subsidies? Have you made a sort of decision tweaking in how you spend your money, sales marketing vis a vis shipping subsidies? Is that sort of seasonal in Q1? Or is that sort of a strategic decision you made for this year or in the foreseeable future?

[Jiong Shao, Analyst at Barclays Capital]

Thank you so much.

[Chris Feng, President at Sea Limited]

Yes. I think on the EBITDA margins, I think as we shared before, I think the year 2% to 3% we think that's a meaningful range we can look at. Although if the market is right and if the growth is well, it could be better than that. And I think the the we are not constrained by the range that we shared. Guess that's what I'm trying to say.

[Chris Feng, President at Sea Limited]

The as you rightly point out, the art global peers has a higher range. And I think that's a good aspiration for us to look at. And it's something that we'll evaluate time though depending on how the competitive landscape is and how the market growth is fundamentally and also how the buyer and seller respond to what we do. At this point in time, we still see that a lot of growth potential in our market. The penetration of e commerce still low and we still see more than 20% growth in the market last year.

[Chris Feng, President at Sea Limited]

And we are sharing that we will have 20% growth this year as well. So we don't want to take the last time off the market at this stage. Growth is still more important to make sure that we can penetrate the market. On the spending side, the take rate as you can see on the revenue side is more driven by the GAAP accounting as you probably guessed If you look at our absolute take rate in the GAAP terms, it will subtract out the subsidy that we give out. And it's true that in Q1 we have more shipping subsidies that cancel out the number a bit more.

[Chris Feng, President at Sea Limited]

So if you take that out, our take rate should be increasing rather than decreasing. We do see shipping subsidy as a good ways of driving the user growth. And a part of that is because we do have a cost advantage on our SPX side. The the we dynamically adjust on how do we deploy different type of subsidies, either it's shipping or it's other forms. And and it's a it's a more dynamic process, and we do this test every day, every week based on the response of the market we'll adjust for it.

[Chris Feng, President at Sea Limited]

So directionally we do believe that shipping subsidy is useful and effective as we're showing in Q1, but it's not something we set on stone and we will measure this based on the testing results and we do it very dynamically when we operate the businesses.

[Operator]

Your next question comes from the line of John Choi of Daiwa. Your line is now open.

[John Hyungwook Choi, Executive Director at Daiwa Capital Markets]

Thanks for taking my question and congratulations on a strong set of results. I got two questions. First of all, on money, your new other fintech business, I think, when we're talking about, like, driving off Shopee growth, can you kind of comment, like, what kind of investments are required here given that, you know, there will be much more, investments, compared to your previous Shopee platform and how this will impact our current EBITDA margin, going forward? That's my first question. The second question is, you know, related to the AI investments.

[John Hyungwook Choi, Executive Director at Daiwa Capital Markets]

And also, how are you deploying this AI? What kind of investments have you been doing? And what's the plan? And how is this helping our business efficiently at the current stage? And how do you expect this to improve our business down the road?

[John Hyungwook Choi, Executive Director at Daiwa Capital Markets]

Thank you.

[Chris Feng, President at Sea Limited]

If you look at the offshopping growth, there are a few types. I think the first type is the cash loans. Second type is the as paid later offline out of the Shopee platform. If you look at the cash loan side, cash loan side cash loan is actually very powerful businesses. The the the the return of assets probably even better than the as paid later on Shopee.

[Chris Feng, President at Sea Limited]

So and we've been growing this quite well in in the past. So we don't think that we need a particular investment to grow this that can impact the margins for this part. For the escalator of Shopee, for example, the scanning national QR code or specific type of categories for cell phones or for motorcycles, the investment is very much on the teams that we have to build to deploy these services. And we have been running this business in a very prudent approach. So we had we've been trying to make sure that for all the services that we roll out in general we have a positive return rather than requires a big investment upfront.

[Chris Feng, President at Sea Limited]

Given the nature of our businesses, the way we run this is rather than you launch a new product and you try to do a big marketing, you try to attract a lot of new customers for that particular product, we first always leverage on our existing user base, especially the user base we have been built through our SPAY late term. So we target the new product to the existing user base, which will help us to save on the marketing costs and also help us to manage the risk very well for any new product we launch even for this offshopping products. So by doing all those typically, we will have a positive return when we add a new product to our assortment. The the impact of EBITDA is less from the upfront investment, but more from as I shared earlier. As time goes, there will be a country mix.

[Chris Feng, President at Sea Limited]

The Southern country has a higher profit margin than others. And also when we expand to different segment, and this can be across all different product. That doesn't matter if on shopping or off shopping. For certain off shopping product, it might have slightly lower margin by nature. For example, if you look at the big ticket items like we talked about the motor loans, typically will have slightly lower margin versus the small ticket loans if you look at a pure percentage of outstanding basis.

[Chris Feng, President at Sea Limited]

But still, if you look at absolute terms, it will still bring us positive EBITDA as absolute terms. So it will be a good product to have if you think about the absolute returns. For the AI investment, we believe that AI will make a big change to our industries, both from a consumer facing side and also from our internal productivity improvement. I think we shared a little bit on this last time. As an example, one of the big improvement that we did is our search recommendations and our ads.

[Chris Feng, President at Sea Limited]

So we're deploying AI solution to help us to target our user a lot more efficient when a user search us and when people come to our app so we can recommend more accurate products now, and also help us to have better efficiency on the ad product. That's why we can improve the ad take rate over time. Example is the AIGC production that we can help our seller to create for that product descriptions. We have been increasing the video coverage for our product description a lot over time. And part of that is driven by the we are enabling the seller to create videos based on the images or based on some of the descriptions.

[Chris Feng, President at Sea Limited]

And typically, for this investment, we always have a very clear ROI measurement for any of the investment I shared before. Whether we are spending our AI resources on better our ad, we're spending our AI resources on better the product descriptions. We measure the return of investment on this through our click through rate, measure our investment through our conversion rate. And most of our investments so far, anything in meaningful size has been positive return for any investment with the AI resources. Besides those consumer facing, we are also investing quite a lot on improving our internal productivity.

[Chris Feng, President at Sea Limited]

For example, that we're using AI to help our internal listing team to filter the product, our marketplace a lot more efficient. So we can just cover the contested, fraud, etcetera in a lot cheaper way. And again, for all those things we measure based on ROI as well for our AI investment versus the savings that we have typically bring a positive returns. And we still see there's a lot of application that we can do both on both front. But again, we do this in a very prudent way.

[Operator]

Thank you. This concludes our question and answer session. I would now like to turn the conference back to Mr. Elsin Choi for any closing remarks.

[Elson Choi, Senior Manager, Investor Relations at Sea Limited]

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

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Elson Choi, Senior Manager, Investor Relations
• Forrest Li, Founder, Chairman & CEO
• Tony Hou, CFO
• Chris Feng, President

Analysts

• Pang Vittayaamnuaykoon, Executive Director at Goldman Sachs
• Piyush Choudhary, Analyst at HSBC
• Alicia Yap, Analyst at Citigroup
• Divya Kothiyal, Analyst at Morgan Stanley
• Jiong Shao, Analyst at Barclays Capital
• John Hyungwook Choi, Executive Director at Daiwa Capital Markets