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.