Sea Limited

Good morning and good evening. Welcome to the Sea Limited fourth quarter and full year 2020 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Minju Song. Please go ahead.

Hello everyone and welcome to CEE's 2020 fourth quarter and full year earnings conference call. I am Minju Song from CEE's Group 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 and net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes. 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 here with me C's Chairman and Group Chief Executive Officer, Forrest Li, Group Chief Financial Officer, Tony Hou, and Group Chief Corporate Officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights, and financial performance for the fourth quarter and for the full year of 2020. 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.

Thank you, me too. Hello everyone and thank you as always for joining today's call. 2020 was a landmark year for CEE. Our team, users, and communities all faced unprecedented challenges as a result of the pandemic. This further reinforced the importance of our mission to empower the consumers and small businesses in our communities with technology. We adapted rapidly to enable our users and community to meet the unique challenges of the last year, while also successfully addressing the fast-growing and fast-evolving demand from our users for these products and services. For example, we quickly scaled up home and living and grocery offerings on the Shopee platform, rolled out seller support programs to help local merchants to get back on their feet faster, accelerated our digital payment service offerings, and shifted major esports events online, each with highly successful results. The lockdown and social distancing measures to curb the pandemic have materially accelerated the digitalization of our economies, and we expect the effects to be long-lasting. During this time, Our team has demonstrated their resilience, adaptability and strong execution. We believe these capabilities position us very well to capture and drive the significant growth opportunities ahead as a strong market leader. Our results for the fourth quarter and for the full year of 2020 speak to the success of our approach. On the group level, in the fourth quarter, We recorded accelerated year-on-year growth in gap revenue compared to the previous quarter. It reached $1.6 billion of 102% year-on-year. We also recorded 102% year-on-year growth in our fourth quarter gross profit to reach $533.7 million. Our fourth quarter adjusted EBITDA were $48.7 million compared to an adjusted EBITDA loss of $104.9 million a year ago. The strong fourth quarter results contributed to an outstanding set of results for the full year of 2020. Gas revenue for the full year more than doubled compared to that of 2019 to reach $4.4 billion. Gross profit grew 123% year-on-year to reach $1.3 billion. We also achieved a positive adjusted EBITDA of $107 million for the full year, compared to a loss of $178.6 million for 2019. This was supported by the strong performance across our digital entertainment and e-commerce businesses. For the full year, Garena achieved bookings of $3.2 billion and Shopee achieved gap revenue plus sales incentives net-off of $2.5 billion. Both businesses exceeded our recently raised full-year guidance for 2020. Let me now discuss each business individually, starting with digital entertainment. Garena's outstanding performance in the previous quarter continued in the fourth quarter, as we recorded bookings of $1 billion, up 111% year on year. Adjusted EBITDA in the fourth quarter was $663.5 million, up 149% year on year, representing 66% of bookings. For the full year, we generated bookings of $3.2 billion, increasing by 80% year-on-year. Garena's adjusted EBITDA increased by 94% year-on-year to reach $2 billion, representing 62% of bookings. The strong financial performance in the fourth quarter and the full year was the result of our ability to continually expand our user and paying user base. Every quarter, more gamers globally engaged with our in-game content and esports activities. In the fourth quarter, quarterly active users reached 610.6 million, an increase of 72% year-on-year. Quarterly paying users hit $73.1 million, up 120% year-on-year. Our paying user ratio, measured as quarterly paying users as a percentage of quarterly active users, continued to grow in the fourth quarter to reach 12%. Free Fire was once again a key driver of Garena's outperformance. According to App Annie, it continued to be the highest-grossing mobile game in Latin America and Southeast Asia in the fourth quarter, as well as the full year of 2020. It has maintained this top ranking for six consecutive quarters. The strong performance was also evident in India, where Free Fire was the highest-grossing mobile game for the fourth quarter and for the full year of 2020 based on FNE. We are also pleased to share that Free Fire was once again the most downloaded mobile game in the world in 2020, according to FNE. This is the second year in a row that Free Fire was ranked first globally. As we continue to grow the Free Fire user base worldwide and build even tighter bonds with global gamers, we believe that Free Fire is formally establishing itself as a strong global gaming franchise and platform. One of the key factors in Free Fire's sustained success is our commitment to keeping our game fresh and engaging. Gamers around the world increasingly recognize Garena's reputation for constantly enhancing the Free Fire experience with innovative content, partnerships, and esports activities. In the fourth quarter, for example, we announced the partnership between Free Fire and football legend Cristiano Ronaldo, marking one of the most significant tie-ups between the esports industry and the physical sports industry in recent times. in addition to new in-game items and the playable characters. We also introduced the two new game modes as part of the partnership with Cristiano Ronaldo. A limited time battle royal reason game mode and a team-based 1v1 duel mode. Our users love these new game modes as they provide a richer and more varied gaming experience by morphing different types of gameplay into the battle royal genre. Free Fire's huge and growing esports and streaming community is another key pillar of our user engagement strategy. We made significant progress in deepening engagement with our community in 2020. Despite the challenge of holding live events, three of the five top esports tournaments by peak concurrent viewers in 2020 were Free Fire tournaments according to esports charts. In 2020, Free Fire was once again the top-ranked mobile-only video game and the top-ranked battle royale video game on YouTube in terms of views. It was also the third-ranked game overall on YouTube by view count. Free Fire-related content recorded over 72 billion view counts across YouTube globally over the course of the year. The game was also named the Esports Mobile Game of the Year at the Esports Awards 2020. These esports activities and online video content help to drive up gamer engagement around the Free Fire franchise, while extending its reach to a wider group of communities as a spectator sport. While we continue to grow Free Fire into a long-lasting global franchise, we are also focused on building solid foundations for Garena's long-term growth. For example, in the fourth quarter, Phoenix Labs Our AAA gaming studio based in Vancouver announced the further expansion, adding new offices in Montreal and Los Angeles alongside its existing bases in Vancouver and Seattle. It also unveiled plans to build out teams in each of those cities to focus on new game development. We are confident that the expanded Phoenix Labs team will deliver great content in the years to come. As we move through 2021, Garena is building on the strong momentum of 2020 and strengthening our position as a global leader in the digital entertainment industry. We believe that our uniquely nuanced understanding of the tastes and preferences of global games communities and our proven abilities to build lasting bonds of affinity with gamers in diverse markets around the world will continue to drive growth and success for Garena in 2021 and beyond. Moving on to e-commerce, 2020 was an extraordinary year for Shopee. In a challenging environment, we adapted quickly to serve our communities and many more. As a result, we have cemented Shopee's position as the favorite e-commerce platform for both buyers and sellers across Southeast Asia and Taiwan. We continued to record excellent results for the fourth quarter. Year-on-year growth for each of Gross Order, GMB, and GAAP revenue further accelerated compared to the third quarter. In the fourth quarter, Shopee reported 1 billion gross orders of 135% year-on-year and GMB of $11.9 billion, an increase of 113% year-on-year. GAAP revenue grew 178% year-on-year to $842.2 million, adjusted EBITDA loss per order decreased by 41% year-on-year to 41 cents during the quarter, reflecting the efficiencies we have reached across 2020 even as we continued to invest in growth, especially during the peak shopping season. For the full year of 2020, Shopee's gross orders totaled 2.8 billion, up 133% year-on-year. GMV was $35.4 billion, an increase of 101% year-on-year. Gap revenue grew 160% year-on-year to achieve $2.2 billion. In Indonesia, Shopee's largest market, we continue to grow our leadership position. We recorded more than 430 million orders in the fourth quarter. This translates into a daily average of around 4.7 million orders, up 128% year-on-year. According to AppAny, Shopee continued to rank first in Indonesia by average monthly active users, total time spent in apps on Android and downloads in the Shopee category in the fourth quarter and for the full year of 2020. We are also encouraged to see more sellers and brands around the region doing business on Shopee. For example, Shopee Mall, our dedicated space for leading brands, now features over 23,000 international and local brands. As our communities increasingly embrace e-commerce as their top retail toy, We believe Shopee's relentless focus on serving our users ensures that we continue to capture the largest share of the resulting growth. In both the fourth quarter and for the full year, Shopee was ranked number one in the shopping category across Southeast Asia and Taiwan by average monthly active users, total time spending app on Android, and downloads based on App Annie. In fact, Shopee was ranked the third most downloaded app in the shopping category globally for the full year, according to F&E. The success of Shopee has also translated into stronger brand recognition across our community. We see this in YouGov's recently published best APEX bus ranking 2020, where Shopee was ranked first in Asia. Shopee was also the number eight ranked brand in YouGov's Best Global Brand 2020, representing one of the two e-commerce brands in the world's top 10 rankings. Our strong focus on serving our users will continue to drive lasting brand affinity across our region. In each of our markets, e-commerce adoption continues to grow at an accelerated pace, and we believe that, as the go-to online shopping platform, Shoki will successfully capture and further drive these growth opportunities. Turning now to digital financial services. C-Money had a transformational year in 2020 as it successfully captured opportunities presented by both acceleration of digitalization in our economy as a whole and the particularly strong growth of our e-commerce platform. As a result, it enjoyed rapid and efficient growth in the fourth quarter and the full year of 2020. For the fourth quarter, C-Money's mobile wallets recorded total payment volume of $2.9 billion, with quarterly paying users surpassing 23.2 million. This was partly driven by monthly paying users in Indonesia, which exceeded 10 million during the fourth quarter. Over the full year 2020, our mobile wallet's total payment volume was $7.8 billion. Even as our mobile wallet Shopee Pay benefited from the strong growth of Shopee, it also meaningfully reduced the payment friction and improved user experience on Shopee. This synergistic growth of both Shopee and Shopee Pay showcases the strength and many more of our platforms in terms of adding value for our consumers. Off-platform online and offline use cases and the partnerships also grew in 2020 as we continued our initiatives to expand use cases and as we saw more natural adoption by users who appreciate accessibility and the convenience of our mobile wallet services. For example, We recently expanded our partnership with Google to offer our mobile wallet as a payment option for the Google Play Store in Indonesia, in addition to our existing partnership in Thailand. As we onboard more online and offline use cases, we are seeing that our users increasingly appreciate the ease and convenience of using our mobile wallet services. We also see that C-Money's merchant partners increasingly recognize the value of tapping into the vast and rapidly growing user bases of Shopee and C-Money. We are excited about opportunities ahead of us to serve a wider set of needs for both new and existing consumers and businesses across our ecosystems. The rapid adoption of digital financial services in our region is expected to have a long-term growth perspective, and we will continue to focus on delivering strong, efficient, and sustainable growth. Turning now to our guidance for 2021, we believe that we are well positioned to continue delivering value across our community. For the full year of 2021, we currently expect bookings for digital entertainment to be between $4.3 billion and $4.5 billion, representing 38% year-on-year growth at the midpoint of the guidance. We also expect gap revenue for e-commerce to be between $4.5 billion and $4.7 billion, representing 112% year-on-year growth at the midpoint of the guidance. I'm also pleased to share that Xi has completed the acquisition of Composite Capital, a leading investment management firm founded and led by David Ma. I have known David for several years. In the past, he has been a long-term shareholder of Xi and shares our vision for the business and our passion to serve our communities through technology. David and his team have a demonstrated track record of thoughtful long-term investing with a deep understanding of industry trends and businesses globally. I'm very excited to welcome David and the team at Composite Capital to the Zee family. Along with this acquisition, I'm proud to announce the formation of Zee Capital, a new platform to manage Zee's investment efforts. They will serve as the chief investment officer of C-Capital and report directly to me. C-Capital will focus on identifying, partnering with, and investing in technology companies that share our vision of bettering the lives of consumers and small businesses through technology. By investing into the growth of our broader ecosystem, We believe Z-Capital can help accelerate the growth of the overall digital economy and create real and lasting value for our users, business partners, and communities. In line with this commitment, we are allocating an initial $1 billion for Z-Capital to deploy in the coming years. We believe the addition of the composite team and the establishment of C-Capital will further enhance our investment and capital allocation capabilities in support of C's long-term growth strategies. I would also like to take this opportunity to welcome Dr. Yan Shui Cheng, who has joined the C family to build and lead CAI Labs as our Group Chief Scientist. Dr. Yan is a leading expert in the field of artificial intelligence, with a particular focus on computer vision, machine learning, and multimedia analysis. He is an ACM Fellow and Fellow of Academy of Engineering Singapore. CAI Labs intends to attract and collaborate with top talent in artificial intelligence with the goal of exploring and developing long-term insights and technologies related to our existing businesses and new opportunities beyond. I believe that Dr. Yan and CAI Labs will strengthen our capabilities in innovation and research in line with our commitment to advancing technology to drive the development of the digital economy across our region. I am very proud of the outstanding results our team achieved in 2020 and believe we are moving into 2021 primed for the exciting growth opportunities ahead of us. Across the business, we are focused on driving sustained and efficient growth as we scale towards becoming a top global internet company We believe our single-minded goal of delivering value to our users will continue to drive our success. With that, I will invite Tony to discuss our financials.

Thank you, Forrest, and thanks to everyone for joining the call. We have included detailed financial schedules together with the corresponding management analysis in today's press release, and Forrest has discussed some of our financial highlights, so I will focus my comments on the other relevant metrics. For C overall, total GAAP revenue increased 102% year-on-year to $1.6 billion in the fourth quarter and 101% year-on-year to $4.4 billion for the full year of 2020. This was mainly driven by tick rate growth in our e-commerce business as we continue to roll out tools to better serve our users' needs, as well as growth of our digital entertainment business especially ourselves developed Gain35. Digital entertainment booking grew 111% year on year to $1 billion in the fourth quarter and 80% year on year to $3.2 billion for the full year of 2020. GAAP revenue was up 72% year-on-year to $693.4 million in the fourth quarter and 78% year-on-year to $2 billion for the full year of 2020. The growth was primarily driven by the increase of our active user base and deep ping user penetration as we continue to engage the community through news content rollout and esports events. Digital Entertainment adjusted EBITDA was $663.5 million in the fourth quarter and $2 billion for the full year of 2020. This represents year-on-year growth of 149% and 94% for the quarter and the full year respectively. This was mainly due to strong top-line growth and an increased share of our self-developed game among our total bookings. On e-commerce, our fourth quarter gap revenue of $842.2 million included gap marketplace revenue of $627.6 million, up 175% year-on-year, and gap product revenue of $214.6 million, up 187% year-on-year. For the full year of 2020, Gap revenue of $2.2 billion included gap marketplace revenue of $1.6 billion, up 155% year-on-year, and gap product revenue of $0.6 billion, up 173% year-on-year. The strong results demonstrated the deepening penetration of e-commerce and our ability to capture these accelerated growth opportunities created by the rapid expansion of the digital economy. e-commerce adjusted EBITDA loss was $427.5 million in the fourth quarter and $1.3 billion for the full year of 2020. As we continue our investment to fully capture the opportunities in our markets, we remain committed to efficiently investing in and growing the ecosystem to serve our users better. Digital Financial Services' capped revenue was $24.4 million in the fourth quarter and $60.8 million for the full year of 2020. Digital Financial Services' adjusted EBITDA loss was $171.3 million in the fourth quarter and $511.1 million for the full year of 2020. As we continue our efforts to drive mobile wallet adoption, Returning to our consolidated numbers, we recognize a net non-operating loss of $124.5 million in the fourth quarter of 2020 compared to a net non-operating loss of $15.2 million in the fourth quarter of 2019. Our non-operating loss in the fourth quarter of 2020 was primarily due to investment loss and interest expense on convertible notes. For the full year, our net non-operating loss was $179.9 million compared to loss of $477.4 million for the full year of 2019. Our non-operating loss for the full year of 2020 was primarily due to interest expense on convertible notes, while such loss in 2019 was primarily due to value loss of $472.9 million on our 2017 convertible notes. We had a net income tax expense of $44.2 million in the fourth quarter of 2020 and $141.6 million for the full year of 2020. This was primarily due to corporate income tax and withholding tax recognized in our digital entertainment business. As a result, Net loss, including share-based compensation and changes in fair value of the 2017 convertible notes, was $430.7 million in the first quarter of 2020 and $1.3 billion for the full year of 2020. With that, let me turn the call to Yanjun.

Thank you, Fawzi and Tony. We're now ready to open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch down phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In the interest of time, we will take a maximum of two questions at a time from each caller. If you wish to ask any more questions, please request to join the question queue again after your first questions have been addressed. At this time, we will pause momentarily to assemble our roster. The first question today comes from Payesh Mubeya with Goldman Sachs. Please go ahead.

Thank you for taking my question, and congratulations on the numbers. May I just ask about the guidance that you provided on the gaming side? And looking back at the growth that you've seen in the user number in 2020, Could you extrapolate from that and give us a feel for what sort of user growth we can foresee in 2021 that's underpinning the growth in gaming revenues for 2021? And related to that, if you could expand on the driver of the improvement in margins that we're observing on the gaming side, that would be great. Go back to the queue, thank you.

Thank you, Piyush. In terms of the user growth, we don't separate forecast for 2021, but if you look at our past performance, so far our revenue growth or bookings growth for the digital entertainment segment has been driven by both user-based growth as well as pay user penetration deepening with a relatively stable average revenue per paying user. and that speaks to the strength of our game especially our self-developed game Free Fire which has been a top-grossing game in Southeast Asia and Matan for multiple quarters and has also become a top-grossing game in India for 2020 as well as the fourth quarter of 2020. I think that is a very positive trend we're observing. We'll continue to grow our user base globally for this game, and we are also seeing very positive diversification of our revenue, with Latin America now contributing the largest share of revenue. At the same time, we see other parts of the world, including India, increasingly contribute significant portion of booking to the entertainment segment. With this diversification, we're seeing Garena to become increasingly a global player with revenue coming from all over the world and user base expanding to the rest of the world rapidly. When we reached last quarter, well, third quarter, we reached more than 570 million fully active users. We thought that was a very good number. And then you see in fourth quarter, our active user base has increased to more than 600 million users. We still continue to see very positive user growth across all our regions. And that to us is a very positive sign for the longevity and long-term commercialization of this game, as well as a return to our effort to build this game into a long-lasting IP A strong platform and increasingly an ecosystem of itself. In terms of the improvement of Shou Entertainment's adjusted EBITDA margin, we're seeing, as we mentioned, this is mainly attributable to Free Fire being our self-development game, which doesn't require any revenue share with any IT owner or developer. And therefore, we continue to see a margin improvement Of course, in the longer run, we will also see more diversification of revenue, both from self-developed as well as third-party publishing sites. And we are also focusing on investing into our ecosystem, in recruiting top talent, in building our technology capabilities, and in introducing more IT, including IT collaborations with partners across different sites, whether it's on the gaming side as well as on the social and other entertainment front, to further improve our content offering to our user base. But in the longer run, we do expect to maintain a very healthy adjusted EBITDA margin for our game business. We'll continue to run it in a very efficient manner.

The next question comes from Thomas Chang with Jefferies. Please go ahead.

Hi, good evening. Thanks, management, for taking my questions and congratulations on a solid set of guidance. On Shopee, I would like to ask about our triple-digit revenue growth. Can management comment about the business trend across different regions, Indonesia, Singapore, Taiwan, Malaysia, etc., I just want to get a sense about which countries are we seeing faster growth for this year? And my second question is on the digital finance side. Can management comment about our strategies for this year? In particular, whether we will step up our efforts in the food delivery or other O2O initiatives? Thank you.

Thank you. In terms of the business trends and revenue growth for Shopee, first of all, we're seeing very strong growth across the region. And in particular, our largest market in Indonesia, which we discussed, continued accelerated growth. So on GMV order, as well as take rate side, we see even accelerated year-on-year growth rates. which speaks to volume again to the strength of our market leadership and our platform growth. Even as most of the countries have opened up in a more of a contained manner as the COVID situation increasingly being under management. And I think that in terms of the growth rates across different markets, we don't specifically give the breakdown, but usually we see very strong growth in larger markets where we already established their strong market leader position as well as highly accelerated growth in some of the markets where we see very strong adoption during the COVID period. For example, in the Philippines, Malaysia, Singapore, we see very strong growth as people embrace online solutions during the COVID period and shall be becoming increasingly the go-to platform for people's consumption needs across various segments. And that trend we're seeing going into 2021 as showing our guidance for e-commerce, again, and we're continuing to focus on driving efficient growth across our region and especially focus on serving the new users as well as the sellers being onboarded during this period of time and catering to the shift in lifestyle choices now accelerated by the COVID and lockdown measures taken so far, which could be, as we said before, we believe is going to have a long-lasting effect and many more. In terms of digital financial services, we see again very strong growth. Even though we started integrating our Shopee Pay and Zmoney Wallet platform with Shopee just at the beginning of last year, we already saw very strong adoption as demonstrated by our pay user ratio, our pay user number as well as TPV growth and will continue to drive efficient growth first through Shopee user base and also continue to expand it to third-party merchants. As we mentioned, we are expanding our partnership with Google to Indonesia We have also partnered with other offline malls and FMV chains to continue to make our payment and wallet offerings available to a broader user base. Again, this is further accelerated by the fact that now people are increasingly looking for alternative contactless payment methods. and shifting their consumption online that requires a convenient infrastructure for online payments in a region where credit card penetration remains very low. In terms of food and other initiatives, we see these as a category on Shopee that can offer additional value adding to our consumers. We will continue to observe what is based on the consumer's natural consumption behavior in terms of expansion into new categories over time with efficiency.

The next question comes from Alicia Yap with Citigroup. Please go ahead.

Hi. Good evening, management. Thanks for taking my questions. Congratulations on the strong results. My first question is related to Shopee. There has been a lot of news report mentioned about Shopee making good progress in Brazil. So just wondering if you could share with us your overall e-commerce thoughts or the strategies for the LATAM America, specifically for Brazil. And then if we can compare between LATAM and Southeast Asia, What are some of the similarities and also the biggest difference between the two regions? And if your vision for this Brazil e-commerce initiative, what are the things or efforts that you would need to step up in order to achieve your target in Brazil? And then very quickly on the gaming, in terms of your studio that you're setting up in Brazil, Montreal and Los Angeles and all that. Is this more coming for potentially we are planning to license more US IP or is it will come up from our own IP in terms of these new games development? Thank you.

Thank you Alicia. On the e-commerce front as we mentioned Brazil is a are all initiated by our cross-border team to offer more markets to our cross-border sellers, given that we already have established operations on the gaming side in the market, so it's generally efficient for us to offer additional value adding to our sellers. On that front, we also start to see local sellers embarking on our platform and it's well received. We think that, of course, is a positive sign. However, it's still very preliminary for us and we'll continue to observe the market and let the team run with it and see how that progresses over time. And in terms of our comparison between LATAM and Southeast Asia, I think these are very different markets. We wouldn't presume that we know those markets very well at this point. Again, given the early stage of the development there, we will let the team explore a bit more and see how that goes. And in terms of the Phoenix Labs expansion, so these are, if you recall, we acquired Phoenix Labs in an effort to bring in top talent based in the West and who have traditionally a long history of experience of AAA titles and also on PC and console-based games. and the team has been expanding into other locations in the U.S. to continue to recruit more gaming talents for our long-term self-development capabilities. So at the same time, of course, our partners in the U.S. as well as other parts of the developed markets have been always in close communications with them to see if there could be good IT to be brought to our region. Now have been expanded to not just Southeast Asia, but also to include LATAM, India, Amina, and the rest part of the world. And we have demonstrated our strong track record in managing Deepening user base as well as commercialization in a pretty much unprecedented, massive way in those regions for a sustained long period of time with our own IT as well as third-party IT incorporated in our self-developed game. So with that strong track record, we believe we're in a very good position to both attract top talent from all over the world those based in the U.S., Canada, or Asia, as well as to attract top IT globally and in partnership with other developers.

The next question comes from Pius Chowdhury with HSBC. Please go ahead.

Yeah, hi, good evening. Congratulations, and thanks for taking my questions.

Two questions.

Firstly, on Shopee, take rate has been improving. Can you provide us some color on the ranking of the countries in terms of the take rate and which country has the highest potential of improvement in take rate in 2021? Secondly, on the logistic side, what are the average delivery times and can you tell us high level plans for Shopee Express? Are there kind of targets for managing We had a percentage of orders through Shopee Express in one year. Any color over there will be helpful. Thank you.

Thank you. We don't give the take rate breakdown, but suffice to say that the take rate increase has been giant across different countries over time. We do it in a good pace. and by communication, well communication with the market and also making sure we understand the performances and needs of our sellers and buyers as well. Most importantly, the increase in the take rate is driven by advertisements as well as transaction-based fees across different markets. So I think that there could be fluctuations also from time, from period to period It is a dynamic process. We always look at the condition, the time period, as well as the performances of our ecosystem to decide how best to manage the take rate over time. As a fact to say that, we think in the longer run, on a blended level, we still believe it can still move to an even higher rate. at an even high single and low double-digit range. And I think we're quite on target of getting there over time. And in terms of logistics, our average delivery time is around probably a couple of days, depending on, of course, what part of the region you're talking about. In the city, it can be less than a day. But, of course, in some far off places, that it can be a longer period of time. But so far, we don't see that as a bottleneck for our e-commerce business growth. Of course, during the COVID period, with travel constraints, as well as increased demand from all over the different parts of the region, We are quickly ramping up logistics capabilities in partnership with our third-party logistics providers as well as by increasing our own capacity in last mile express delivery to supplement the 3PL capacity during the peak time. So we will continue to monitor the logistics demands as well as the service levels of our 3PL and help them further grow in their efficiency and capabilities in serving our users and at the same time ramping up our own capabilities as needed but in a very efficient manner.

The next question comes from Rajen Sharma with JP Morgan, Singapore. Please go ahead.

Hi, thank you for the presentation and congratulations on the results. Two questions from my side. Firstly, on the gaming guidance, do new games make up any part of this guidance? And if you can share what your new game pipeline might be for this year. Secondly, we have seen sea expanding into new geographies and Vinasa introduced services. How should we think about your sales and marketing budget and how are you allocating it to the different services? Thank you.

Thank you. In terms of the game guidance, we are budgeting it based on whatever is currently visible to us, as always. We don't specifically discuss pipelines, As we all know, we've always been testing prototypes, ideas, and even more advanced games at any time, at any point of time. And so we continue to also diversify our pipeline, genres, and capabilities across different types of games. So the revenue guidance or booking guidance is based on our reasonable estimate for 2021 based on whatever is currently visible to us. And in terms of the allocation of sales marketing, are you referring to digital entertainment segments also?

Hi, can you hear me?

Yes, yes, I can. So for e-commerce sales marketing expense, as you can see, we continue to improve on our efficiency and our allocation sales marketing is, again, a dynamic process based on the time of the year and what we think is the development pace and pace of growth. for the market and efficiency of investment in the market as well as any opportunistic media events, for example. So these are a combination of factors we look at in allocating sales and marketing. But the gist of it is we continue to focus on efficient growth to make sure that every dollar we spend there is driving Effective user growth and strong user retention and also increasing user frequency. For example, during Q4, during the peak sales period, this is a very strong shopping period and we have a lot of shopping activities as well as media activities across different markets and these have shown very strong results as you can see. and more importantly, we're driving up not just user time spent but also user frequency on our app. We now see more than 5.7 times purchase frequency, order frequency per month. That's another step up from the last quarter's Q3 number. So that is a very good testament to the strength of our platform and Efficiency of Investment into Sales and Marketing.

The next question comes from John Blackledge with Cohen. Please go ahead.

Great. Thank you. On Shopee's EBITDA, any thoughts on EBITDA trend in 2021? Would you expect losses to be higher than in 2020? And more broadly, is there a certain kind of overall take rate range We should think about that would lead to flat or positive EBITDA, Shopee. And then also on Shopee, so the 4Q20 overall market place take rate was 5.3% in 4Q versus 5.9% in 3Q. So any color on the modest Q over Q decline in the take rate? Thank you.

In terms of the EBITDA trends, we don't provide guidance or forecast on EBITDA. I think maybe the previous question also, my answer to the previous question touched upon that is A, we look at efficiency of investment and B, we look at each market and timing based on what's the natural pace of growth and how we can invest in that growth with efficiency. And three, there could be optimistic events that could drive even that fluctuation over a period of time. But most importantly, I think, suffice to say is that we can break even if we choose to at this point, even as this takes place. And our Taiwan takes place. is not, for example, that's the first market where we broke even and we have achieved a very healthy EBITDA margin there as we previously disclosed before. And the take rate in Taiwan is not highest even among our existing market. So it's not to say that we have to drive to a very high take rate to be able to break even. Our investment in growth is really by choice and according to the pace that we think is suitable for each market. So we're in a very good position right now where our destiny is in our own hands and we can control the pace of investment and allocation of each market in a highly dynamic and elastic way to drive efficient growth. In terms of the take rate, our take rate has actually increased quote-on-quarter. It didn't decline. I'm happy to elaborate further offline, but if you look at our past disclosure, there's an increase in the take rate, quote-on-quarter.

The next question will come from Varen Ajouje with Credit Suisse. Please go ahead.

Yeah, hi, good evening everyone and thanks for the opportunity. I've got two questions. First, can you elaborate a little bit on C-Capital? What are the objectives on that business? Is it you're looking more like a soft bank kind of an investment where you will turn up any kind of a thing? And what kind of returns, time horizon, any more color will be helpful given there are so many investments that you're looking into into business also, that's one.

And number two,

There have been, during the last few months, reports about you acquiring a bank in Indonesia. If you can provide more color on that, that would be helpful.

Thank you. In terms of seed capital, as we shared earlier, that we are very happy to have the composite team led by David Ma to join us to further strengthen our investment and capital allocation capabilities. We think it's very important for a global internet company to have that capability in the longer run. And we will continue to build on our talent pool as well as our pipeline to further strengthen that. We don't have a specific API in terms of a return rate in particular for a fund. I think our overall view towards that is still it is an integral part of CEE's growth story and whatever we do on the investment side is to further strengthen our growth capabilities in the long run and to further strengthen our ecosystem as well as to further our mission and vision to use technology to serve our users, our communities, as well as ecosystem participants in our core regions. So I think this is not any departure from our existing course of trying to grow the business in the long run and maximizing return to our shareholders for the long run. In terms of the Indonesia bank, We have gotten a bank license in Indonesia as well and we see this as an integral part of our C-Money segment where we continue to build out the infrastructure for digital payment as well as digital financial services. We'll continue to focus on the technology front. of our business as part of our core DNA. But at the same time, our focus is to use the technology that we have in our internet DNA to see how best to further strengthen the digital economy infrastructure in our region, which we're proud of. And at the same time, we believe there are significant opportunities in the long run that could even exceed the size of our current opportunities we're looking at in that segment. So we're going to adopt a very long-run view towards that and look at DFS as a highly comprehensive segment and each part as an integral part of our long-term venture into DFS.

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

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

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.