Good morning and good evening to all, and welcome to the Sea Limited fourth quarter and full year 2023 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 session. [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 Ms. Minju Song to begin the conference. Please go ahead.

Minju Song — Senior Manager, Group Chief Corporate Office

Thank you, and hello, everyone, and welcome to Sea’s 2023 fourth quarter and full year earnings conference call. I’m Minju Song from Sea’s chief corporate officer’s office. Before we continue, I would like to remind you that 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. 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; chief financial officer, Tony Hou; and chief corporate officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights, and financial performance for the fourth quarter and full year of 2023.

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This will be followed by a Q&A session in which we welcome any questions you have. So, with that, let me turn the call over to Forrest.

Forrest Li — Chairman and Group Chief Executive Officer

Hello, everyone, and thank you for joining today’s call. I’m happy to share that we have achieved our first full year of annual profit since our IPO. In 2023, we achieved profitability, strengthened our market leadership for our e-commerce business, grew our digital financial services business, and stabilized the performance of our digital entertainment business. We have emerged with a much stronger balance sheet with our cash position increasing to $8.5 billion as of the end of 2023, demonstrating the discipline and the prudence we have applied in our investments over the past year.

Looking ahead, we expect 2024 to be another profitable year. Let me recap our performance at the individual business level in 2023 and share the key strategic focus for each business in 2024. Starting with Shopee. First, Shopee’s investments since July last year have paid off.

I’m pleased to report that despite an environment of intensified competition in Southeast Asia, we believe we had a meaningful gain in market share between the start and the end of 2023. We are happy to have solidified Shopee’s market share in the region, and we intend to maintain our market share in 2024. We expect Shopee’s full year GMV growth to be in the high teens range and its adjusted EBITDA to turn positive in the second half of this year. To retain and strengthen our competitive advantage, Shopee’s three operational priorities in 2024 are improving service quality for buyers, enhancing the price competitiveness of our product listings, and strengthening our content ecosystem.

On service quality for buyers, we’ll do more to optimize key aspects of the buyer’s experience such as the delivery speed and consistency, return and refund processes, and customer service. These are areas we already excel in and will continue to improve on. On keeping our product listings price competitive, we will continue to work more with sellers who have more upstream supply chain access and provide more fulfillment, marketing, and shop management services to our sellers. On content, we will deepen and broaden engagement with creators, sellers, and partners across the content ecosystem and better integrate livestreaming and short-form video into the shopping experience.

Let me now highlight some of Shopee’s achievements in the fourth quarter. During the quarter, Shopee delivered strong results with both top-line growth acceleration and bottom-line improvement. Shopee’s GMV and orders grew 29% and 46% year on year and 15% and 13% quarter on quarter, respectively, resulting in solid market share gains across our markets. Meanwhile, Shopee’s adjusted EBITDA loss improved by 35% sequentially and adjusted EBITDA loss per order improved by 43% quarter on quarter.

On logistics, we opened five new sorting centers and 385 new first- and last-mile hubs across our Asia markets and extended our logistics network further to improve our coverage. Through more automation, tighter planning, better routing, and other operational improvements, our platform logistics cost per order in Asia decreased by 12% year on year in the fourth quarter. This was partly driven by our own logistics network cost per order decreasing by 20% from the same period last year. We are also seeing good progress made on delivery speed.

In Indonesia, in December 2023, more than half of the orders from buyers in Java were delivered within two days. We will continue to improve logistics service quality in terms of both speed and consistency. And at the same time, we’re also expanding premium services such as next-day delivery and introducing new features. For example, we commenced return-on-spot services in Indonesia and Vietnam.

This initiative has resulted in higher trust and increased product frequency — purchase frequency from our buyers, particularly those who are new to Shopee. Our e-commerce logistics network is now one of the most intensive and efficient in our markets and a strong competitive moat for us. We have rapidly ramped up livestreaming e-commerce, which accounted for around 15% of our physical order volume in Southeast Asia last December. With the scale and the leadership achieved, unit economics of the segment also improved meaningfully quarter on quarter.

Shopee Brazil continued its strong performance in the fourth quarter. Its contribution margin loss per order improved by nearly 90% year on year. This was driven by improvements in both user monetization and cost efficiency. We believe we have achieved cost leadership in logistics through scale and operational efficiencies, which have been and will be key to our success in the market.

Turning to our digital financial services segment. SeaMoney has delivered a strong year in 2023, primarily attributed to our consumer and SME credit business. Our journey to build the credit business dates back to 2019. We initially started by introducing SPayLater consumption loans in response to Shopee buyers’ strong need for such services.

Subsequently, we extended our offerings to cash loan services to both buyers and sellers on Shopee. This underscores our user-centric approach and the unique advantage offered by the Shopee ecosystem for SeaMoney to quickly achieve critical scale and profitability. 2023 was the first year of positive profit for SeaMoney, with full year adjusted EBITDA of $550 million. As of December 31, 2023, our consumer and SME loans principal outstanding was $3.1 billion, a 27% increase year on year.

$2.5 billion of that was on the book. Consumer and SME loans active users for the fourth quarter, defined as credit users with loans outstanding by the end of the quarter, was over 16 million, a 28% increase year on year. In 2024, we will continue to invest in user acquisition for our credit business, both on and off Shopee platform as we see significant upside in our markets. As we scale, we will remain prudent on risk management.

In addition to our credit business, SeaMoney is also growing our digital banking and insurance services to capture future business opportunities in the digital financial services segment. We expect SeaMoney to continue its robust growth in 2024. In digital entertainment, Garena has done well in enhancing and optimizing game experiences for its players. For instance, we have continuously introduced fresh and highly localized content to Free Fire.

In the fourth quarter, we collaborated with Lamborghini to allow players to drive their cars in-game. We also recently announced our collaboration with JKT48, an idol group from Jakarta, as our Indonesian brand ambassador. These partnerships excite and delight our players and enable us to nurture our local communities. I’m happy to share that we are seeing improved user acquisition and retention trends for Free Fire.

In 2023, Free Fire was the most downloaded mobile game globally according to Sensor Tower. We are pleased that these positive trends are continuing into 2024. In February, Free Fire achieved more than 100 million peak daily active users. It remains one of the largest mobile games in the world.

With this positive momentum, we currently expect Free Fire to grow double digits year on year for both user base and bookings in 2024. To conclude, we are pleased to see positive trends in both growth and profitability for all three of our businesses. We will continue to invest for the future with discipline and focus. I would also like to take this opportunity to thank our employees, users, investors, and partners for your continued support throughout this journey.

With that, I will invite Tony to discuss our financials.

Tony Hou — Group Chief Financial Officer

Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 5% year on year to $3.6 billion in the fourth quarter and 5% year on year to $13.1 billion for the full year of 2023. This was primarily driven by the improved monetization in our e-commerce and digital financial services businesses. Our total adjusted EBITDA was $127 million in the fourth quarter of 2023, compared to an adjusted EBITDA of $496 million in the fourth quarter of 2022.

For the full year of 2023, our total adjusted EBITDA was $1.2 billion, compared to an adjusted EBITDA loss of $878 million for the full year of 2022. On e-commerce, our fourth quarter GAAP revenue of $2.6 billion included GAAP marketplace revenue of $2.3 billion, up 23% 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 $1.6 billion, up 41% year on year as a result of platform growth and improved monetization. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.7 billion, down 5% year on year as a result of higher revenue netting off against shipping subsidies.

For the full year of 2023, GAAP revenue of $9.0 billion included GAAP marketplace revenue of $7.9 billion, up 27% year on year; and GAAP product revenue of $1.1 billion. E-commerce adjusted EBITDA loss was $225 million in the fourth quarter of 2023, compared to an adjusted EBITDA loss of $196 million in the fourth quarter of 2022. 2023 full year adjusted EBITDA loss improved by 87% year on year to $214 million. For our Asia markets, we had an adjusted EBITDA loss of $193 million during the quarter, compared to an adjusted EBITDA of $320 million in the fourth quarter of 2022.

In our other markets, the adjusted EBITDA loss was $32 million, narrowing meaningfully from last year when losses were $124 million. Contribution margin loss per order in Brazil improved by nearly 90% year on year to reach negative $0.05. Digital financial services GAAP revenue was up by 24% year on year to $472 million in the fourth quarter and up by 44% year on year to $1.8 billion for the full year of 2023. Adjusted EBITDA was up by 96% year on year to $148 million in the fourth quarter of 2023 and up by 341% year on year to $550 million for the full year of 2023.

Digital entertainment bookings were $456 million in the fourth quarter and $1.8 billion for the full year of 2023. GAAP revenue was $511 million in the fourth quarter and $2.2 billion for the full year of 2023. Adjusted EBITDA was $217 million in the fourth quarter and $921 million for the full year of 2023. Returning to our consolidated numbers, we recognized a net nonoperating income of $32 million in the fourth quarter of 2023, compared to a net nonoperating income of $35 million in the fourth quarter of 2022.

For the full year, our nonoperating income was $208 million, compared to a loss of $13 million for the full year of 2022. The improvement was mainly due to higher interest income for the full year of 2023 as compared to the full year of 2022. We had a net income tax expense of $77 million in the fourth quarter of 2023, compared to net income tax credit of $43 million in the fourth quarter of 2022. For the full year, our net income tax expense was $263 million, compared to $168 million for the full year of 2022.

As a result, net loss was $112 million in the fourth quarter of 2023, as compared to a net income of $423 million in the fourth quarter of 2022. For the full year, net income was $163 million, as compared to a net loss of $1.7 billion for the full year of 2022. At the end of fourth quarter of 2023, cash, cash equivalents, short-term, and other treasury investments were $8.5 billion, representing a net increase of $566 million from the previous quarter. The increase includes proceeds of approximately $370 million from lower securities purchased under agreements to resell relating to our banking operations.

From the first quarter of 2024 onwards, we will include this as part of our other treasury investments as these are highly liquid marketable securities. With that, let me turn the call to Minju.

Minju Song — Senior Manager, Group Chief Corporate Office

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

We will now begin the question-and-answer session. [Operator instructions] Your first question comes from the line of Pang Vitt from Goldman Sachs. Your line is open.

Pang Vittayaamnuaykoon — Goldman Sachs — Analyst

Hi. Good morning, management team. Thank you very much for the opportunities and congratulations for the solid set of results. Two questions for me.

Firstly, on Shopee, can you please provide a little bit more color on the guidance you gave out for 2024? What is the assumption behind in terms of competitive landscape and market share, especially in Indonesia? When it comes to high-teen growth, how do you plan to achieve this? And on the margin side, what gave you the confidence that we can go back to breakeven by second half of this year and what kind of EBITDA margin we can expect as well for Shopee to achieve in the near term? That’s question number one. Question number two, related to SeaMoney. Can you provide some color on why EBITDA was weaker quarter on quarter? We noticed that you spend more on marketing this quarter. Should we expect this to be the new run rate? What kind of growth outlook can we expect for 2024 and can we still expect to see EBITDA growth here? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

I think the — let me address the first question first. I think in terms of Shopee, we do believe that we are able to grow high teens for the full year 2024, as we shared in the opening. For — particularly for Indonesia, we do see Indonesia as a good market for us in Q4, and we will believe that the trend — likely — the growth trend likely to continue in Q1 and in line with the other market in the following quarters. If you look at the overall competitive landscape, we have seen a more stable competitive landscape in the past quarters.

Again, we cannot sort of control, I guess, our competitors. But if you look at the past, we have been competing with the similar set of competitors for quite a while. And even with the most intensive competition during the past few quarters, we’re able to gain market share while improving our unit economics. The — contributed by a few factors.

I think number one is we’re a clear market leader in the market. This translates to the economic scale benefiting by both having better monetization capabilities and also better cost efficiencies. And if you look at the scale, we are in a much better position now compared with a year ago. We do believe that we have gained market share in Indonesia if you compare the beginning of the year for last year and now.

The second one is I do believe that we have a strong local leadership team and operation team to execute on what we set up to execute and also make the right judgment based on overseeing the market. I spent probably most of my time — if you compare all countries, I spent most time in Indonesia, and many of our management team, including myself, learned to speak Bahasa Indonesia over time as well to understand the market better. Number three is we have built infrastructure for the market over time. For example, our logistics coverage in Indonesia has been a lot larger than before.

Our cost has reduced significantly over the past few quarters for shipping one order. Also, the quality has been improved. But most importantly, by having our own logistics in the market, enable us — are enabling us to offer differentiated services. If you follow the market closely, we have recently started the return on the spot for the users, which has very good feedback, not only for Indonesia, but also for Vietnam.

We also started differentiated return services that we are going to allow the user to ask for a return anytime during the shipping process and we can intercept the orders even during the shipping, which is not offered by any other ones in the market so far. The — and also, on top of that, we have our strong integration with our digital financial services businesses. This not only enables us to reduce the cost for transactions, for example, on the payment side, but also allow us to untap a sizable potential by offering the SPayLater to a broader segment that we have never seen in the market before. All this helps us not only to reduce costs, but increase the conversions in the market.

We have been doing all this in the past few quarters, and we do believe, across all dimensions, we are able to do better over this year so that, you know, even with whatever competitive landscape that we’re facing, we’re able to outperform our competitor in the market. Be more efficient in the market. I think that’s kind of like how we see the market so far and how this is going to evolve in the future. In terms of the margins, as we shared in the opening, we believe as the overall businesses of Shopee, we’re able to break even in the second half of the year, while with the intention to at least maintain our current market share in the market.

And this applies to Indonesia as well. I think, as I shared earlier, compared to a year ago, we gained sizable market shares, and we are going to execute even better over this year given the foundations we built during the last year. On top of what I mentioned just now in terms of, you know, all the things we are doing, there are a couple of other things we are doing further even over the year. One is the price competitiveness.

We do believe we are the most price-competitive platform in the market, as you can do benchmark externally. We are going to deep dive — we’re going to deep dive on that even further over the year, in particular, for — not only for Indonesia, but for the other markets as well. But yeah, Indonesia is the key market for us. That we’re also going to further drive the service qualities I shared earlier, not only on the logistics, but also on the after-fulfillment, like the return-on-spot services, the customer service quality, etc.

And all this will essentially put us into an even better position in the future, not only sort of maintaining our growth trajectories, but also improving our EBITDAs. For the livestream that we talked about in the past earnings call, the — we’ve seen quite fast growth on the livestream in this quarter as well. As we shared in the opening, we have — across the region, we have about 15% of our orders come from livestream. The — for Indonesia, it’s even bigger percentage.

Indonesia is the first country we started. The — in some markets, we believe that we are probably the largest livestream platform in the market, not only the scales, but while we’re growing it, we have reducing the — been reducing the unit economics quite significantly in the past few months and continued in Q1, essentially. This also enables us to compete effectively with our competitors, which is very different probably from a year ago, you know, if you look at it. If you look at a year ago, we probably don’t have this ecosystem.

We have to invest to build this ecosystem. That we are now in a very different status for that. I think this sort of probably conclude on the first question for Shopee. Moving to the second question on the SeaMoney EBITDA for Q4.

So, I think we probably should put into perspective on the overall SeaMoney businesses. The SeaMoney has seen the first positive profit in 2023, and the trajectory has been doing well. If you look at Q1, Q2, and Q3, and extend to Q4, we have seen very healthy margins in our SeaMoney businesses. And given the very healthy margin in the businesses, we, in Q4, are leveraging on the seasonality.

We spend — we invest more to acquire new users to the platform. And this, essentially, will bring us better profitability in the long term. We measure our user acquisition costs very prudently. Every user we acquire will bring positive profit over time.

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

Navin Killa — UBS — Analyst

All right. Thank you for the opportunity. I actually had a couple of questions. First, I just wanted to understand a little bit about competition in the e-commerce space.

Particularly in Indonesia, I suppose Q4 numbers might have benefited from the fact that TikTok was not in the market for a large part of the quarter. So, since the relaunch of TikTok and, you know, as we probably come close to the end of the trial period, have you seen the intensity from the combined TikTok Tokopedia entity evolve in a different direction over the course of the quarter? So, that’s my question number one. And second question, I guess, given the strong cash balance and your expectation of, I guess, positive profit for the full year for the group, how do we think about use and allocation of this cash going forward potentially for buybacks and other use cases? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

For the first question, I think I shared quite a bit in the last answer as well. Generally, we compete with both competitors you mentioned for quite a long period of time. And you’re right that it does benefit us, in some extent, in Q4 that TikTok wasn’t operating for the period of time — for five full period of time during the quarter. But I don’t think that’s the only reason that we grew well in Q4.

We’ve seen similar growth trend continued in Q1 as well, even, you know, the landscape have changed. In a typical e-commerce transactions, as we can see across globally, it might not necessarily one plus one plus two — greater than two situations. I think, for us, the most important thing is to focus on what we are great at. As I mentioned earlier, our scale advantage, our local leadership and operating teams, our infrastructure built over time, our integration with DFS.

And all of this give us the competitive advantage in the past few quarters, as you can see, and will continue to give us an advantage in the coming quarters. The — and with that, I think the — you know, we have shared that we have a — we’re expecting good growth for Shopee over this coming year in 2024 and in the coming quarters.

Yanjun Wang — Group Chief Corporate Officer

And regarding our cash balance, we think, for a company of our size, it’s prudent to maintain a strong cash balance, and we’re also very disciplined and focused in deploying our capital to capture future opportunities to maximize our long-term shareholder return. We do not rule out any options for using our cash balance in this regard.


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

Alicia Yap — Citi — Analyst

Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid results.

I have two questions. First is that, obviously, with the Ramadan coming, do you anticipate your competitors in Indonesia to further step up the spending? And in the event if your competitor in Indonesia catching up on the market share, would you step up your spending that might actually prevent your EBITDA to regain profitability in the second half of this year? Second question is what are the main reasons for your confidence in growing the Free Fire in double digit in booking and user this year? What have you done or plan to do to regain your user traction and monetization? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

For the first question, so in a way, Ramadan campaign has started already in Indonesia. We have — we are comfortable with what we’re seeing so far, let’s put it this way. So, in a way, we cannot see market share as a static number. Market share is always dynamic.

And the most important thing for us is to make sure that we always have a sizable leader — a leadership compared to our next competitors so that we can sustain our scale advantage, and that’s number one. Number two is we’re able to build up our long-term moat compared to competitors, so we’re more efficient when we compete with the competitor in the market. I think, again, as I shared earlier, given all the things we have done, even with the most intensive competition in the past few quarters, we’re able to reduce our costs while increase our market share. I think this reflects of the moat we have built over time, and we do believe that we’ll be able to continue in the future.

Yanjun Wang — Group Chief Corporate Officer

Yeah. And then regarding Free Fire, as we shared earlier, we’re encouraged by the positive trends we have seen so far this year in terms of active user base and monetization across our various markets. As a result, we shared that our current expectation is for the game to achieve double-digit year-on-year growth for both user base and bookings. As a self-developed game, Free Fire also enjoys better margin for us.

In terms of what we have done and will do in the future, I think our focus has been quite consistent. It’s on building better user experience such as easy access to our users, file download size and data requirements, introducing more engaging content, and strengthen esports communities to further develop the game into a strong evergreen franchise.


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

Piyush Choudhary — HSBC — Analyst

Yeah. Hi. Congratulations to the management team on a great set of results. First question is on Shopee.

If I annualize your fourth quarter GMV, that itself is implying around 18% year-on-year great — growth in 2024 GMV. So, why does company expect to grow only high-teens range and not more than that? What is driving conservative guidance? And also, for Shopee EBITDA, as you expect to turn profitable in the second half, would it mean that, on a full year basis, adjusted losses for Shopee would narrow year on year in ’24? Secondly, on gaming, what led to fourth quarter quarterly pay users decline despite a strong seasonality? And your outlook for Free Fire is strong. Would that mean console Garena will also grow double digit and what’s the margin outlook for Garena business? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

I think for — in terms of the guidance we gave out, I think the high teens for the year, we believe that it’s a reasonable estimate that we’ve given out based on both the market growth rate and also the EBITDA goal we set up to achieve. And on top of that, the most important thing is, with this, we are able to sustain our market leadership while building up all the competitive moat that we’ve been building over the past years. On top of that, even started a few other new initiatives during the year. So, we are comfortable with what it is.

You know, in a way, we are not chasing for growth for the growth. We are trying to grow in an efficient and prudent fashion with the long-term profitability in mind. The — in terms of the second question, whether the full year will narrow over time, I think this is something we haven’t given a guidance on. We probably wouldn’t comment to detail on that.

But generally, I think what we set to achieve again is to have Shopee as an overall business break even over the second half of the year.

Yanjun Wang — Group Chief Corporate Officer

Yeah. Regarding Free Fire, I think the quarter-on-quarter user fluctuation can be many reasons, including seasonality and game launch for Garena as a whole or esports events. And — but for Free Fire overall, I think we are — we have — as shared earlier, we are very positive based on the trends we have seen so far. And therefore, we want to give the market some indication of what we also have seen.

Regarding the rest of our portfolio, which are third-party games published by us, we will continue also to work closely with our partners to bring more content to our game communities as well.


Your next question comes from the line of Thomas Chong from Jefferies. Your line is open.

Thomas Chong — Jefferies — Analyst

Hi. Good evening. Thanks, management, for taking my questions, and congratulations on a strong set of results. My question is first on Shopee.

Given we are looking for adjusted EBITDA to break even in the second half and we have built up our competitive moat, I just want to ask about in terms of the take rate trend for Shopee in 2024, how should we think about the advertising and the commission trend? That’s number one. And then number two, on the fintech side, given the strong growth momentum that we are seeing, I just want to get some color with respect to our new user acquisition strategies. What kind of channel are we getting new users other than the organic one? And on that one, how are we thinking about the loan — performing loans expectations as a percentage of our loan book? How is our technology or our data insights, which can make it at a low level? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

On the first question, regarding the take rate trend, as you have seen that we have adjusted our commission side continuously over the past few quarters. We are actually reviewing it every month in terms of what makes sense for our user base in terms of commissions. I think, overall, the most important thing is we want to make sure there’s a healthy ecosystem, that our seller has a reasonable margin to operate but also are able to support the overall marketplace to grow healthily. So, we will probably see some adjustment on the commissions over the year.

Some of them can be for specific categories, some of them for specific countries. The — yeah, I think it’s probably going to be a fine-tuning, I guess, over the year. And the second part, on the ad take rate, we do believe there is a sizable potential on the ad side for the take rate. Comparing to many global peers, we still have a sizable room to grow there.

And we have done quite a few technical revamps in the past few months, and this will be deployed and fine-tuned in the coming quarter, which will enable us to further grow our ad take rate. The second question regarding the SeaMoney growth. If you look at SeaMoney, the majority of businesses are in the credit business at this point in time. Of course, we also have digital banks and insurance, but still in the relatively growing stage.

The — there are few pathways we’re looking at here. One is to further penetrate our Shopee ecosystem through our Shopee PayLater. The penetration on our e-commerce platform still has a sizable room to grow. We started in Indonesia first and other countries later.

The — even for our earliest market, we still see a potential to further penetrate the user base. I think that’s the first one. The second one is we also believe that outside of the Shopee ecosystem, there are many users that we can onboard to our digital finance platforms. This is still in a very early stage as we started much later than penetrating the Shopee ecosystem.

But I think — essentially, I think you can imagine that in a big country like Indonesia where credit card penetration are relatively small, single-digit stage, the — we are probably the first one that are able to offer a credit service to the broader mass market. And of course, this was helped by the Shopee penetration in the mass market. But there are still many other users out of the Shopee ecosystem in the mass market that we believe that we can target on. And of course, there are many channels to do that.

You know, we have offline, QR SPayment. We have a very product-based, theme-based consumption loans that we are working on, which is not uncommon in many other markets. So, there’s another part of the equation in the credit businesses. The third equation in the credit businesses is to cross-sell other financial products to our Shopee PayLater user base.

I think you asked about NPL as well. The great thing for our businesses here is giving the data we have from the e-commerce transactions. And also, over the years, we built up the external data, besides our Shopee ecosystem, that we are able to credit rate user a lot more efficiently and effectively. Ad if the user is onboarded to our Shopee PayLater platform, we have even better credit data based on the Shopee PayLater performance.

This will enable us to sell them many other credit products over time, for example, as we mentioned earlier on the cash loans that we offer to the users, which unlock more use cases. Basically, the user can use the credit for many other use cases besides the Shopee scenarios. And the other products we’re rolling out over time. And I think the — as we grow, this will — the scale will also enable us to lower down the cost of service as well.

So, the economics can be even better. As time goes, this will, you know, go to a positive cycle that we have a cost to serve — better cost to serve, better risk management so that we can — we are able to target even broader segment in the market so we can grow even further in the market. I think that’s probably how we look at the growth side of the story. On the NPL side, we have seen a relatively stable NPL, as Tony has shared in the opening, over the time.

Of course, there’s a — that’s based on, number one, the data we have, as I mentioned in the first — in the previous descriptions, but also because I do believe that we have probably the best, if not one of the best, credit modeling team in Southeast Asia to utilize the data to be able to credit rate our users. On top of that, it’s also about how we manage the business overall. We mentioned this in a very prudent way. We’re not rushing for growth for the growth.

We want to make sure that our financial services businesses not only have a profitable business now but have a profitable businesses in the very long term, even the credit cycle situations. So, putting all these things together, the — we will probably see a pretty high — pretty good upside for our financial services businesses. In 2024, we would like to further grow our user base and maintain our credit risk in the market. Thank you.


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

Sachin Salgaonkar — Bank of America Merrill Lynch — Analyst

Hi. Thank you for the opportunity. I have two questions. First question, if you could help get a bit more clarity on improving unit economics at livestreaming? Can you give some color in terms of the difference between normal e-commerce and livestreaming in terms of AOV, the margin perspective? And also, any thoughts on steady-state EBITDA margin at livestreaming? Second question, also wanted to understand a bit more on Free Fire, i.e., is the expected launch of India baked in the expectation of a double-digit growth and are there any specific markets which is driving your optimism in terms of overall growth? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

In terms of unit economics for livestream, it has improved cyclically in the past few months. Of course, at this point in time, comparing to the nonlivestream part, it has a lower economics simply because we just started and it takes some effort to invest for the growth. But we do believe, in the long term, the livestream profitability wouldn’t be too different, would be quite similar to what we see in the other part of the marketplace platform. In terms of the AOV that you asked earlier, we started livestream with a lower AOV compared to the marketplace.

As time goes, it will start to converge. And now, in some markets, it’s very similar. Some markets are even a little bit higher. Some markets are a bit lower.

So, a bit mixed at this stage. But eventually, in the big market, it will converge as time goes. In the smaller market, it might have different variations, but I don’t think it’s significant for the purpose of discussion here.

Yanjun Wang — Group Chief Corporate Officer

And regarding Free Fire, the — so far, the positive trends we have seen across various different markets for our global operations and currently no material development in India. We are still making changes to the Free Fire India to best accommodate our preference — users’ preference locally, and we’ll update the market when there’s more material development.


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

Jiong Shao — Barclays — Analyst

Thank you very much for taking my questions. My first question is about your growth trend in the near term. You — has returned back to growth over 20% for the first time in the last year and a half. You changed your strategy a couple of times during that period.

Usually, this kind of momentum doesn’t sort of change very quickly. So, based on what you are seeing and also given what you have said so far about Indonesia, could you talk about your near-term growth momentum? Right now, in the first quarter, should we expect sort of similar to what you saw in Q4? My second question is about your sort of the mix between core marketplace and the VAS. I know you talked about the VAS, which is logistics, sort of decline year over year, at least partially, if not mostly, due to the subsidies for shipping. But over the last few quarters, it looks like your core marketplace growth has been very, very good, right? It’s 30%, 40%.

And your VAS growth has been relatively low — very low and negative in Q4. Other than the subsidies, are there other reasons behind or strategic reasons behind these pretty meaningful differences? And if you add subsidies back, would the VAS growth be somewhat similar to your core marketplace growth? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

I think for the growth trend for the near term, I think we have seen pretty good growth in Q1. I mean, you probably can see it from the external data as well, although it’s not very accurate. The — but, you know, bear in mind that Q1, that’s the Ramadan season for Indonesia, in particular, and we have Chinese New Year in some other markets. So, we do take — we have to take into consideration for seasonality.

But yeah — but all in all, we see — we’re pretty happy with what we see in Q1 so far.

Yanjun Wang — Group Chief Corporate Officer

On the VAS versus core marketplace, I would encourage you to look at the core marketplace more closely to measure our overall platform growth, as well as monetization. The reason for VAS top-line growth to deviate from that is because of an accounting treatment that has the contract revenue effect caused by our shipping subsidies. So, that, actually, does not only affect the bottom line but also affects the top line for that revenue segment, causing a departure in the overall trend. We cannot discuss the non-GAAP revenue — adjusted revenue.

But if you add that back, I think the overall growth is consistent with the platform growth.


Your next question comes from the line of Ranjan Sharma from J.P. Morgan Singapore. Your line is open.

Ranjan Sharma — JPMorgan Chase and Company — Analyst

Hi. Good morning and thank you for the presentation. Two questions from my side. Firstly, for Chris, on livestreaming, is there any cohort analysis that the team has done on the impact to livestreaming GMV as incentives are removed for buyers? The second question is for Forrest, if he’s there, on Garena, still, the discussion is around Free Fire, but are there any developments to move away from a single-titled franchise to a more broader studio? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

For the livestreams, on the cohort, yes, we do look at the cohort for livestream, and we have seen pretty good retention and repurchase rate for livestream. But on top of that, I think more importantly for us, actually, for livestream is we have seen very good new user percentage coming to livestream, which means that it does help us to reach out to a segment that we might not completely reach out to before, which helps us to grow the marketplace further as time goes. And the — we also observed that the new user coming from — coming to livestream also cross purchase from the livestream platform as well. I think these are the encouraging signs we see, and that’s also how, actually, we have been reducing our unit economics — improving our unit economics in the past few months.

Yanjun Wang — Group Chief Corporate Officer

Yeah. And regarding Garena, I think Garena is definitely not a single franchise platform. We have multiple titles, both self-developed and published across different genres, including Battle Royale, MOBA, sports, casual, RPG, etc. It’s just that the super successful Free Fire franchise seems to dwarf in comparison the other titles, which are also highly successful and very long-lasting for Garena so far, thanks to our global teams’ very strong operations and ability to build a strong pipeline in content, in partnership with our partners, as well as self-development and also in growing our global esports communities.

I think that being said, we — as always, we’re very focused on building future pipelines in terms of expanding our portfolio of genres and type of content, including more user-generated content, deploying more AI tools in building — in furthering new new models of interaction with our users. All of these things are going on in the background that our teams have been very, very much focused on. So, we are very excited about the long-term prospects of Garena, again, as a leading global game company.


Your final question comes from the line of Ellie Jiang from Macquarie. Your line is open.

Ellie Jiang — Macquarie Group — Analyst

Great. Thank you so much for taking my question. I just have a kind of two questions on the e-commerce side. Just now, management, you talked about our price competitiveness.

Just wondering how do we maintain this level of supply chain sustainability and how do we see, you know, our merchants’ general overlap compared to the other e-commerce app in Indonesia? Also, in the slightly longer term, what is the endgame for, I guess, overall e-commerce dynamics, and how do we really evaluate longer-term profitability level on the EBITDA side? Thank you.

Forrest Li — Chairman and Group Chief Executive Officer

Yeah. I think for the price competitiveness, I think the — as a platform, we are generally the most competitive in the market, as you can benchmark from external numbers. The key to sustain price competitiveness are from a few angles. Number one is we have the scale.

So, scale does bring advantage. So, assuming that the same seller sell 100 items on our platform, sell 10 on the other platforms, clearly, you know, we have slightly better bargaining power in terms of how much price that can be set. I think that’s number one. Number two is the cost to serve from a seller perspective.

The — we would like to make this — the process for a seller to transact to make that businesses successful on our platform, much simpler compared to the other platforms. That come with the tools, policies, and the fundamental concepts of how the marketplace operates. I think the third one is to be able to identify the right skills, right sellers through our traffic allocation algorithms and policies, of course. It’s about how can we make sure the sellers with the good performance and with good price competitiveness will be presented — will be rewarded with the better traffic on our platform so they can sell more, so they can reduce the price further because the scale they achieved, and they can also reduce the operation to — operation cost to serve the customers, and then this will flow to a very positive directions and then win-win for everybody from the both buyer and seller perspective.

I think that’s probably on the price-competitive side. Just to add to that, I think another part of price competitiveness is to be able to different — to offer different services to different types of selling in the platform. There are sellers who operate the full value chain. There are sellers who are very specialized in part value chain, for example, on the production side or the importing side.

It’s very important for us as a marketplace platform to serve this well, to serve them well, to enable them to sell well on our platform so we can leverage on their strength rather than sort of, you know, they need to be better on everything and it makes it a bit harder for many of the sellers to excel in the platform. But, you know, again, there’s a lot of detailed operation methods that we have to work on to make sure that this work out smoothly. I think the — in terms of the long-term probabilities, I — my feeling is that our market is not too different from the other major e-commerce platform that you have seen before. I think similar profit level that is reasonable.

In some markets, it may be a bit better because our market position, because the nature of the retail margin in the market. Some market might be a bit more competitive. But in general, you know, we don’t see our market too different compared to the other market and the market leader and the — you know, as a market leader in the platform, we will be able to achieve similar profitability as a market leader in the other market.


This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Minju Song for any closing remarks.

Minju Song — Senior Manager, Group Chief Corporate Office

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

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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Sea Limited (SE) Q4 2023 Earnings Call Transcript was originally published by The Motley Fool

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