Good morning and good evening to all, and welcome to the Sea Limited First Quarter 2024 Results Conference Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr. M.C. Koh to begin the conference. Please go ahead.

Hello, everyone, and welcome to Sea's 2024 First Quarter Earnings Conference Call. I'm M.C., 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. 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 Hou. Our management will share strategy and business updates, operating highlights and financial performance for the first quarter 2024. This will be followed by a Q&A session, in which we welcome any questions you have. With that let me turn the call over to Forrest.

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 3 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. 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 environments. 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 order GMV and revenue. In the first quarter, 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 $22 million. And our Asian market achieved a positive adjusted EBITDA of $11 million this quarter. Shopee'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. 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 order in the first quarter. 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 differentiating factor of our service quality. We have put a lot of hard work into SPX Express. And…

Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 23% year-on-year to $3.7 billion. This was primarily driven by GMV growth of our e-commerce business and the growth of our credit business. Our total adjusted EBITDA was $401 million in the first quarter of 2024 compared to an adjusted EBITDA of $507 million in the first quarter of 2023. On e-commerce, our first quarter GAAP revenue of $2.7 billion included GAAP marketplace revenue of $2.4 billion, up 33% year-on-year, and GAAP product revenue of $0.3 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues, was $1.7 billion, up 47% year-on-year. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.7 billion, up 8% year-on-year. E-commerce adjusted EBITDA loss was $22 million in the first quarter of 2024 compared to an adjusted EBITDA of $208 million in the first quarter of 2023. For our Asian markets, we had an adjusted EBITDA of $11 million during the quarter compared to an adjusted EBITDA of $276 million in the first quarter of 2023. In our other markets, the adjusted EBITDA loss was $33 million, narrowing meaningfully from last year, when losses were $68 million. 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 million. Adjusted EBITDA was up by 50% year-on-year to $149 million. Digital Entertainment bookings were $512 million. GAAP revenue was $458 million. Adjusted EBITDA was $292 million. Returning to our consolidated numbers. We recognized a net nonoperating loss of $18 million in the first quarter of 2024 compared to a net nonoperating income of $23 million in the first quarter of 2023. We had a net income tax expense of $79 million in the first quarter of 2024 compared to net income tax expense of $62 million in the first quarter of 2023. As a result, net loss was $23 million in the first quarter of 2024 as compared to net income of $87 million in the first quarter of 2023.

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

[Operator Instructions] The first question comes from the line of Pang Vitt of Goldman Sachs.

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 the subsidies and move towards profitability? If your competitors decide to turn more aggressive, is there a way for you to probably react towards that? That's question number one. On number 2, on gaming, given a very strong first quarter trends and results, how are you seeing trends towards second quarter and rest of the year? Can you provide color on what exactly you have done in order to derive growth? And any thoughts on the run rate of margin going forward as well?

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 mode for e-commerce. I think to us, as I shared in the previous call, is number one, that 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 competition of the product to make sure that the price for the same product, our platform is always better than the other platforms. To do that we have to work closely with the sellers, especially upper the value chains, to ensure that we can offer the lower price to the buyer always. Number three is the quality of services. As far as I mentioned quite a few times, that this is what 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, et cetera. I think all the 3 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 sellers so we can grow better than the market that we operate in. 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 situation regarding to the competition point that you mentioned. And if the competitor does get more aggressive, I think we have to evaluate exactly what they did and how they 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 to grow well regardless of what competitor does in the short term. 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, 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 these trends 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? We expected we're going to achieve, specific for Free Fire, the double-digit growth, right? For the whole year. And I think like the current growth and the trend is pretty much kind of a reflection of what -- not just what we have done in the past quarter and actually reflected what we have done in the past 2 years, right? And we have gone through some challenges and faced some tremendous headwind, especially after COVID, right? And -- but I think like we always believe, okay, ambition and our aspiration is building Free Fire into an evergreen franchise. So with that kind of a fundamental belief, and we didn't kind of like a rush to monetizing the game way may kind of continue to go down until -- until it's completely gone. And we very, very much focused on all the user experience and try to fine-tune the product and to -- and with a very, very much user-centric approach, right? And in the past 2 years, we have been conducted a lot of study trip right on the surveys, right on to go to talk to the gamers, ask what they like and what they don't like about Free Fire, why they play and why do not play. And the tremendous development effort is also spent on continually fine-tune the game based on the feedback we've received. I think that is kind of what we have seen…

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

I have a question related to Shopee. Just wondered, 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 maintaining your profitability trend? And if we look at the commission take rate, excluding the advertising, how much more room can we actually still raise the commission take rate across different countries?

On the commission take rate, generally, we still see there 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 ad take rate is still slightly lower than the peers that we see in other markets. So there is some meaningful room there. And in terms of the competition, I think similar to the previous question that has been raised, the -- for us, the most important thing to focus on the long-term core competitiveness that cost us 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 it country by country, category by category. And evaluate what the best way to respond to that.

Your next question comes from the line of Navin Killa from UBS.

Actually I 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 you haven't changed your GMV guidance of high single digit -- sorry, high teens growth. 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?

For the GMV, as Forrest said in the opening, in Q1, we did see very strong GMV growth. And part of that is contributing by the seasonality. 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 reason. I think that's contributing part of reasons. Another part of the reason is that all the execution work we have done in the past few quarters start to give us benefits in terms of the top line growth and also the bottom line improvement impact is coming hand actually. The exact split, it's probably hard to really split that for -- in terms of both. But I do emphasize on that. It's not only seasonality, but also the hard work we have been doing are giving us the benefit on both the top line and bottom line. For logistics, in Asia, we do deliver more than half of our orders through our own SPX Express. In Brazil, we probably have more than 70% now, and we will be looking at increasing the percentage over time. I think both will increase over time.

Your next question comes from the line of Divya Kothiyal of Morgan Stanley.

My first question is 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. Could you talk about what parts of SeaMoney 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?

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 UE 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, there's a little bit of context on that, I think we do see our live stream volumes still growing in most of our markets. But the UE actually improved significantly for various 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 for GMV, I think we will eventually go to that. I think that the number you mentioned 1%, I think that's a reasonable number to look at. 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 GMV for e-commerce. I think the number we see in Q1 has given us much stronger confidence in terms of achieving that, both the high single-digit GMV growth and even in the second half of the year. And we have been seeing a good trend in the latest markets as well. I think we will monitor the numbers. We will update the market when we see the through the quarter. I think there are many factors impacting the numbers. Part of that is just seasonality. Part of that is also in…

Your next question comes from the line of Sachin Salgaonkar from Bank of America.

Congrats on a good set of numbers. I have 2 questions. First question is on Shopee EBITDA. You already achieved EBITDA breakeven in Shopee for Southeast Asia. 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, i.e., should we see some volatility in EBITDA or directly it should continue to improve? And second question is on average revenue per user in the gaming business. We saw it be lower than the historical trends. So I just wanted to check anything specific happened in the quarter? Or is this a new trend going ahead?

Thank you. On the EBITDA side, it does contribute partially by the seasonality 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. Our guidance, shared [Indiscernible] we are 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 simply reflects we have 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 seventh year, but we -- we very, very effectively attract new users. That's why we believe like the game can still go for a very, very long time. And when like we have the new gamers, new players come into the game and in general, I think like their kind of average spending is compared to the -- like more kind of like experience the gamers like who have played for longer time will be relatively low, right? And there is a really like the gamers will kind of play the game and the more they play, the better engagement then there is higher chance for the monetization. So I think that's -- there's nothing specifically about the monetization, it's kind of just reflect the fact that there is a very, very strong user growth for the game in the Q1.

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

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? 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 the first question. Secondly, in DFS, is -- is it higher customer acquisition cost or even higher funding costs, which has led to margin drop? And if you can talk a little bit about the outlook for the margins in DFS?

On the competition, we have seen the market has been relatively stable in terms of competition. We didn't see any similar 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 different 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. 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 question, the margin fluctuations more coming from the customer -- the acquisition costs rather than on the funding cost. In fact, our funding cost is actually getting better -- quarter-on-quarter. Again, the acquisition cost, a lot depending on what we see for the market and how much we spend on acquiring users versus the better they will bring to us in long term. And also depends on the new product launches we have in various markets.

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

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 -- are you seeing the same level of spend in the second quarter 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?

Yes. On the sales and marketing spend for e-commerce, we do see there 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 and Q4 last year start to give us the benefits. We don't need to expect 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. 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 our coming reasons of -- ForEx reasons, et cetera, yes. For the loan book, we do have a high aspiration for Brazil. We do believe that Brazil can be a very good market for our digital financial service business. Although we only start 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.

Your next question comes from the line of Jiong Shao of Barclays.

Congrats on the strong results. Two quick follow-ups on the e-commerce side. One is, I was wondering, could you talk about leading there 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. 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 done through SPX? Is that any different from your average or better or worse? Any information or color or data point will be very, very appreciated.

For live streaming, in terms of the percentage of orders, it's stable versus last quarter. I think we share the percentage of around 15% in South Asia last quarter. I think is relatively stable. Although the bucket size increase during this quarter because we optimized some of the category mix and the UE. In terms of the driver for the UE improvement, as I shared earlier, it's both. The live streaming part of the improvement and general marketplace improvement. Actually, on top of that, things we talked about the logistics, we also see a better logistics costs 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 just, so we probably don't have a fixed target for all the markets. 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. In terms of the unit economics for those orders, given that our cost per order for our own SPX is lower than the cost per order for 3PL in the market, essentially for every order we deliver in-house, we will be able to save a part of that cost, which essentially contributed part of the unit economic improvement that you see here. I think the degree of the UE difference is slightly varies market by market, but I think the trend is pretty stable across most markets that we are able to improve this over time even further.

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

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've done it differently? And how are you able to achieve this better unit economics and efficiencies versus 3PL as well? That's question number one. Question number two, earlier, you have mentioned that there is still room for advertisement take rate, especially versus global peers for Shopee? Can you share off the current ad take rate you've seen currently for Shopee? And what's the long-term target on what Shopee can achieve?

Yes. On the logistics front, there are a couple of reasons it drives better UE. I think, number one, is there's a margin actually that the 3PL takes. So we retained our margin, as simple as that, that's number one. Even if 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 volume split in different regions, in different routes, et cetera. So this helps us to optimize our CapEx and our operating model for a long period of time. That's one. Second one is given that we have a good forecast, even in the short term on our order volume upstream, for example, in the next week, what our volume would 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 in to 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 operating efficiency. Number 3 is even beyond the planning, we are able to retool quite a lot of the seller behaviors to optimize for our logistics. 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 pickup and all those things, we can do quite an influence on the upstream to optimize for the downstream fulfillment. And number 4 is, as a technology company, we do have…

Your next follow-up question comes from...

And for the -- sorry, for the ad take rate, -- I don't think we just disclose the ad take rate actual number. 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 a few percentage to catch up to them. So there is meaningful room for us to increase the ad take rate. I think there are a few tools that we can deploy to do that. I think one is just having more seller presentation in terms of the -- to enhance the total pool of the skews they're utilizing the ad. In order to do that, we have to develop simpler ad products for the sellers to use. Unlike many of the sellers in multiple markets who are more familiar with the apps in our market, they have quite some sellers that left some with that. So we have to customize our app tool for those sellers to make sure that it's easier for them to adopt so they can -- so we can add more skews into our app pool. That's number 1. Number 2 is to increase ad efficiencies through technology. We are spending quite lot of effort on making sure that we increase the conversion rates for our ad products, so the conversion ad, so we can actually serve more ad to our users because of increased conversion rate. And number 3 is to find a way to balance organic and add traffic better. So by having an enhanced product to balance the organic and ad products in a common frame, we can essentially dynamically adjust ad load. It depends on the conversion rate and the skew presentation and scenarios within our app. So by doing all the 3 things, we see that there is a meaningful potential to increase the ad take rate over the next few quarters.

The next follow-up question comes from Navin Killa from UBS.

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?

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 quite confident on our outlook for each of the business lines and pretty much, we'll be focusing on these.

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

Two for me here. One is on the DFS. 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, I'm not sure if I missed it, but assuming if you will be relaunched in India in -- sometime in the future, what could be the incremental upside to the user and the [Indiscernible] if this become reality?

For our DFS businesses, we are a few main business -- main product that we have. The SPL, Shopee PayLater, and BCL, buy cash loans. And the other -- the off-line product that we have, I think that 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 UE, the buy cash loan will have a higher UE than the Shopee PayLater. I think that's kind of like a rough picture, if you will.

For Free Fire relaunch in India, at this moment, we are actively working with order -- like stakeholders, including like the regulators, the potential local partners, right? And to figure out what is the best plan to relaunch Free Fire in India. And well, if that is successful, I think that will be a meaningful potential upside in terms of the users and the bookings considering India is a very, very big market. And -- but just to clarify, at this moment for our outlook for the rest of the year in terms of the -- our like a double-digit growth, right? And this is not taking into the consideration of the relaunch of the India. So that's basically the -- make it to the -- basically, when 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.

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

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

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