Sea Limited

Good morning and good evening. Welcome to the Sea Limited Second Quarter 2021 Results Conference Call. All participants will be in 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. And I'd like to turn the conference over to Ms. Minju Song. Please go ahead.

Thank you. And hello, everyone, and welcome to SEAS 2021 Second Quarter Earnings Conference Call. I'm Minju Song from SEAS 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. We believe that 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 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 the Chairman and Group Chief Executive Officer, Forest Lee, Group Chief Financial Officer, Tony Ho, and Group Chief Corporate Officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights, and financial performance for the second quarter of 2021. This will be followed by a Q&A session in which we welcome any questions you have. With that, let me now turn over to Forest.

Hello everyone, and thank you as always for joining today's call. I'm very pleased that we are reporting sustained outperformance in the second quarter of 2021. Our efforts to capture the long-term growth from the shift to digitalization across our markets continued to deliver clear and strong results. At the group level for the second quarter of 2021, We achieved gap revenue of $2.3 billion. This represents 159% year-on-year growth. Our gross profit was $931 million, up 364% year-on-year. Bookings for Garena reached $1.2 billion, growing 65% compared to last year. Shopee recorded 1.4 billion gross orders, a 127% year-on-year increase. And C-Money's mobile wallet services registered total payment volume of over $4.1 billion, up close to 150% from last year. We are very encouraged to see such strong year-on-year growth across our businesses. This is in comparison to our standout results for the second quarter of 2020, when most of our markets were under the strictest form of lockdowns. Considering the strong performance observed across our businesses in the first half of 2021, we are raising our full year 2021 guidance Our digital entertainment portfolio has outperformed our expectations so far this year. As such, we now expect bookings of between $4.5 billion and $4.7 billion, representing over 44% growth from 2020 at the midpoint of the revised guidance. E-commerce results in the first half of 2021 also exceeded our expectations, and gap revenue is now expected to be between $4.7 billion and $4.9 billion, representing over 121% year-on-year growth at the midpoint of the revised guidance. While strict lockdowns have mostly been lifted in our region since the end of the second quarter last year, many of our markets continue to see a high volume of COVID cases. In this dynamic environment, we continue to demonstrate our ability to adapt quickly to fast-changing circumstances and to execute well to serve evolving needs of our users. We are also working hard to help our communities navigate the near-term challenges brought by the pandemic. For example, we have donated medical supplies, supported vaccination programs, and worked with local governments and partners on various initiatives to assist SMEs and the broader economy through this period. In addition, We are working with our government partners to use our platforms to distribute aid and information related to the pandemic quickly and efficiently. Also, considering the ongoing challenges to our communities, we are doubling down on our mission to better lives through technology by promoting innovation and creating employment opportunities. An example of this is our partnership with the West Java province in Indonesia. Working with the local government, we plan to establish shopping centers that will serve as local e-commerce hubs for more than 5,000 villagers there. West Java is Indonesia's most populous region. home to close to 50 million people. We expect these Shopee centers to provide infrastructure, training, and assistance to help villagers and the small business there to accelerate their digitalization journey. Besides the Shopee centers, we're also partnering with vocational schools across West Java to include syllabus and the courses related to Shopee in their official curriculum. In Vietnam, we have launched an initiative called Shopee Farm to enable Vietnamese farmers to go digital. Together with government partners, Shopee works closely with agricultural cooperatives across Vietnam to onboard local farmers. Our teams organize training sessions to teach farmers the necessary skills to sell and promote their agricultural products on the Shopee platform. Many of these rural producers are coming online for the first time. In Malaysia, we have been working with the government to distribute aid. and promote digital inclusion through participation in the Ibelia program using our mobile wallet services. The Ibelia program is an initiative under Malaysia's budget 2021 to help ease the financial burden off and promote cashless spending by the young people. This is done through giving mobile wallet credit of 150 ringgit to every qualified person through our mobile wallet and other mobile wallets selected for participation in the program. These efforts reflect our commitment to serve the underserved in our markets through technology and to give back to our communities through social support. In the current environment, we see a greater urgency than ever for our communities to digitalize. We are working hard to support this process and to maximize the value we offer through our ecosystem. Indeed, we strongly believe that our business performance is closely linked with our ability to deliver on our mission of bettering lives through technology. Let me now discuss each business segment in greater detail. Garena recorded strong results for the second quarter of 2021. Bookings were $1.2 billion, up 65% year on year, and adjusted EBITDA grew to $741 million, up 70% from last year. The results are mainly due to the continued strong growth of our active and paying user base globally. We recorded quarterly active users of 725 million, up 45% year on year. While our quarterly paying users grew 85% over the same period to reach 92 million. As a result, our paying user ratio improved to 12.7% from 10% last year. Free Fire delivered excellent results during the quarter, setting multiple new records. Building on its strong performance across global markets, the game recently exceeded 1 billion cumulative downloads on Google Play. We believe Free Fire is the first-ever mobile battle royale game to achieve this milestone. It was ranked third globally by average monthly active users on Google Play in the second quarter, according to FNE. Furthermore, Free Fire's peak daily active users hit more than 150 million during the quarter. This is a new record for us, and we believe that few online games globally have ever reached this scale. Meanwhile, Free Fire continued to be the highest-grossing mobile game in Southeast Asia, Latin America, and India in the second quarter, according to FNE. The game has now returned its leadership in Southeast Asia and Latin America for eight street quarters, and in India for three street quarters. We have also gained traction in certain developed markets, like the U.S., where the game was ranked the highest-grossing mobile battle royale game for the past two quarters, based on FNE. Free Fire was the second-highest-grossing mobile game in the U.S. on Google Play across all games categories in the second quarter as well. The exceptional global scale of its user base and ecosystem has solidified Free Fire as one of the largest and most popular online game platforms worldwide. We also believe Free Fire is increasingly established as a long-lasting global platform with its massive and growing user base and deepening user engagement. Free Fire's continued success is built on our relentless focus on community engagement around high-quality content and immersive experiences. An increasing number of gamers join and stay on our platform to enjoy not just the core Battle Royale gameplay, but also the new experiences we frequently introduce. For example, during the second quarter, we launched Pet Rebel. This is a social deduction game mode where players can use their in-game virtual pets to take part in a game of cooperation and infiltration. Many of our new game modes are designed to be highly social and to provide more ways for our gamers to interact with their friends. and other members of the Free Fire community. We are also setting new records in terms of esports engagement. In May, the finals of the Free Fire World Series 2021 Singapore hit a peak of 5.4 million concurrent online viewers, according to esports charts. Esports are a great way to connect and engage with our community as fans view and root for teams together while learning the best plays from professional players. With esports growing similarities to traditional sports, we expect large esports games to exhibit the same level of community engagement and appeal as physical sports and become more and more deeply ingrained in general communities and mass culture. In addition, we have been adding to our portfolio of published titles to further diversify our game offerings. In June, we launched Moonlight Blade Mobile in Taiwan. Moonlight Blade Mobile is a third-party massively multiplayer online role-playing game that combines fantasy and martial arts and is an example of our ongoing efforts towards growing our portfolio across a larger number of game genres. The game has received very positive reception from our users. We will continue to work closely with all our global partners to bring more new and exciting content to our markets. Looking ahead, we will leverage our local insights and know-how to keep delivering high quality experiences to our fast expanding global user base. Now let's turn to e-commerce. Shopee continued to deliver superior retail experience to our consumers and merchants. During the quarter, our communities continued to face challenges with the surge in pandemic cases across the region. We remain focused on helping our merchants with their digital transformation to build a successful e-commerce business, while providing our buyers with better experiences and wider choices. We recorded 1.4 billion gross orders in the quarter, up 127% year-on-year. GMV grew 88% year-on-year to hit $15 billion. GAAP revenue reached $1.2 billion, growing 161% from last year. GAAP revenue as a percentage of total GMV improved year on year and sequentially to reach 7.7%. This deepening monetization was driven mainly by growing merchant investments in marketing and advertisement on the Shopee platform to better attract and serve buyers. According to App Annie, Shopee was the most downloaded app on Google Play and the second most downloaded app across the Google Play and iOS app stores combined for the shopping category globally in the second quarter. Shopee also ranked third by the total time spent in app in the shopping category globally. Shopee remained the top ranked mobile app both across Southeast Asia and in Taiwan by average monthly active users and the total time spent in app in the shopping category for the quarter. In Shopee's largest market, Indonesia, it also ranked first across those same metrics. Shopee continued to extend its market leadership in Indonesia with consistent triple-digit year-on-year growth in order numbers. Shopee's adjusted EBITDA loss per order declined 20% year-on-year to 41 cents. We are happy to share that Shopee Malaysia has become our second market after Taiwan to record a positive adjusted EBITDA before allocation of headquarters common expenses. Given the highly attractive growth opportunities ahead of us, We continue to invest in sustainable growth with efficiency to maximize long-term value. While we may see period to period fluctuations with shopping seasons and events, we will continue to drive improving economics over the long run as we scale. Consistently delivering value to our merchants remain an important driver of our business. During the quarter, we launched a number of new features and programs to support our diverse seller base. For example, we recently deployed Shopping More brand memberships across Southeast Asia and Taiwan. It offers a new customer management and retention tool for brands. This program allows brands to introduce their own loyalty programs within Shopee to drive more conversions and repeat purchases on our platform. Brands which were early adopters have reported strong results, including material increase in repeat buyers and significantly higher spending by members. I'm also encouraged to note that Shopee continued to see growing traction in Brazil. According to App Annie, Shopee ranked first in Brazil by downloads and the total time spending app. And it ranked the second most popular mobile app by average monthly active users in the shopping category for the second quarter. While the markets that Shopee operates in are highly diverse, the consistent trend we see is that the potential for future digitalization remains high in our market. Therefore, a substantial portion of the population in our market is increasingly benefiting from our growing and improving platform services. With that in mind, we will continue to invest efficiently towards the long-term and highly localized growth of the Shopee ecosystem. Finally, our digital financial services business, C-Money, continued to perform well in the second quarter as digital payment adoption deepened in our market. Our mobile wallet services recorded total payment volume of over $4.1 billion, up close to 150% year on year. This was driven by both user growth, with quarterly paying users increasing to over 32 million in the second quarter, and the more frequent usage of our mobile wallet services with growing use cases. In particular, we are quickly expanding off-platform digital payment use cases. For example, besides increasing our payment touchpoints at convenience stores, F&B chains, and on the Google Play Store, our mobile wallet series recently expanded its partnership with MasterCard in Thailand. This will allow our users to pay at any of the 200,000 plus offline outlets that accept MasterCard contactless. We are also partnering with Pure Gold, one of the largest supermarket chains in the Philippines, to accept our mobile wallet payment to over 400 of its stores. Even though C-Money is still at an early stage of development, the long-term addressable opportunity is highly significant. Consumers and small businesses in our market are moving more of their consumption and commercial activities online, creating a greater need for the digital financial services that C-Money can offer. One example is the Abelia program in Malaysia, which was run by the government to distribute financial assistance to the young people as mentioned earlier. Of the 1.7 million Abelia applicants recorded as of June 7th, close to 1 million chose to claim their credit with our mobile wallet over other wallets participating in the program. credit received in the mobile wallet can be used in any online and offline transactions that accept such mobile wallet payments. Indeed, the strong adoption could be partly attributed to the fast-growing popularity of our mobile wallet with over 750,000 touchpoints nationwide in Malaysia. Moreover, We are encouraged to see the strong network effects of our mobile wallet helping to drive its acceptance and adoption across the region. We are working closely with various local stakeholders to continue to build more use cases, features, and products to our users. By utilizing and expanding the existing relationships we have built with a growing consumer and merchant user base, we look to serve even more segments of our market efficiently with technology. To conclude, our performance in the first half of the year has been strong across all our business segments. Our conviction in the size of the long-term opportunities we are addressing as well as the positive impact we are making in our communities has only grown. Leverage the virtual cycles and the network effects both within and across our core business. we believe we are very well positioned to capture these long-term growth opportunities. This is also reflected in our revised four-year guidance for both Garena and Shopee. More importantly, as demonstrated by our consistent track record, we continue to focus on prudence and efficiency in managing long-term sustainable growth. With that, I will invite Tony to discuss our financials.