Sea Limited

Good morning and good evening. Welcome to the Sea Limited fourth quarter and full year 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. I would now like to turn the conference over to Ms. Minju Song. Please go ahead.

Thank you. And hello, everyone, and welcome to SEIS 2021 Fourth Quarter and Full-Year Earnings Conference Call. I'm Minju Song from SEIS 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 a discussion of certain non-GAAP financial measures, such as adjusted EBITDA and net loss-excluding share-based compensation. 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 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 today's Chairman and Group Chief Executive Officer, Forrest Lee, Group Chief Financial Officer, Tony Ho, and Group Chief Corporate Officer, Andrew Wang. Our management will share strategy and business updates, operating highlights, and financial performance for the fourth quarter and for the full year of 2021. 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, Mingju. Hello, everyone, and thank you for joining today's call. In 2021, we continue to focus on growing and evolving our business to address the fast-changing needs of our users and communities. We have invested with vision and efficiency to capture the opportunities available to us during this period of accelerated digitalization. As a result, we have greatly deepened our engagement with consumers and small businesses, vastly expanded our total addressable market, and extended our leadership across all our business. Moreover, our growing skill, leadership, and strong cash balance means we are well-placed to leverage efficiencies across our ecosystem. As we look ahead, I would first like to take this opportunity to share with you how we plan to manage sustainable growth going forward. We believe we are now in a strong position to manage the leverage of our business to reach profitability across more markets and segments in 2022 and beyond. We currently expect Shopee to achieve positive adjusted EBITDA before HQ cost allocation in Southeast Asia and Taiwan by this year. We also expect C-Money to achieve positive cash flow by next year. As a result, we currently expect that by 2025, cash generated by Shopee and C-Money collectively will enable these two businesses to substantially self-fund their own long-term growth. By that point, we believe Shopee and C-Money will be generating meaningful cash in our existing core markets of Southeast Asia and Taiwan as strong market leaders. while Shopee will also have achieved significant scale and a strong market position in our new growth market of Brazil. On the path to this inflection point, we plan to continue to invest in Shopee and C-Money with efficiency. We have around $10 billion of cash, cash equivalents, and short-term investments on our balance sheet. including close to $7 billion raised last year, which we intend to invest into the growth of Shockey and C-Money over the coming years. Based on our current plan, we believe that we have the financial resources required to grow the two businesses to the inflection point without having to heavily rely on cash generated from the digital entertainment business. Of course, any additional growth from Garena will further strengthen our position, and we remain extremely focused on developing Garena's global platform, which we see as a key strategic asset in the long run. Next, let me share with you how we are thinking about resource allocation for this period. Broadly speaking, Shopee, Latam, and Brazil in particular, as well as R&D, would be our top two focus areas for investments. Our investments and the overall impact on the bottom line is likely front-loaded, as unique economics and profitability for our businesses generally improve with scale. Firstly, we will continue to invest in Shopee, Latam, with a focus on Brazil. Of course, it would be much easier operationally for us to just focus on the seven existing core markets for Shopee. However, we strongly believe that by investing prudently and sustainably in Shopee LATAM and Brazil in particular, we will generate significant value for our shareholders in the long run. While we do not underestimate the challenges of any new market expansion, I would also like to highlight that we have established track record seven times in the seven highly diverse and complex markets of Southeast Asia and Taiwan. When we started in each of those markets in 2015, we had significantly less resources, experience, and know-how and as a result fits a much more formidable competitive landscape than we currently do in our market expansion. Moreover, our growth trajectory in each existing core market has generally followed certain patterns whereby we are able to first manage strong user and order growth with improving efficiency and then achieve market leadership and profitability with scale. As I will share in greater detail when we discuss the segment results, Shopping Brazil has already achieved strong user traction, meaningful commercialization, and fast-increasing unique economics just two years after entering the market. This gives us further confidence in managing growth in this market. Achieving success in Brazil which is the sixth most popular country in the world, where the profitability model for marketplaces has also been lost to it, which allows Shopee to substantially expand its total addressable market, significantly enhance its competitiveness as a global e-commerce platform, and further diversify its businesses across the world. Secondly, Our technology and R&D capabilities are already a strong competitive model for us, and we aim to invest in deepening this advantage. Our skill, market leadership, and ability to leverage efficiencies across our entire ecosystem position us very well to continue to build core strengths in tech. We intend to ramp up investment in R&D to continually provide better and greater varieties of services, offerings, and features to our users, as well as to maximize our long-term growth potential. The results of some of these investments are already visible across our business in fast-evolving offerings and features. Such offerings and features range from UGP tools in free file user engagement features on Shopee, and FinTech products under C-Money to share technology platforms, improve security and risk management infrastructure, and enhance commercialization and financial underwriting systems. Just to name a few. These investments are both necessary for our current operations and highly important to our future growth. We strongly believe that our investment in technology will continue to serve as a key competitive mode across our ecosystem. Having discussed the near- to mid-term plans, I would also like to share our longer-term view about the future we are working very hard towards. As we look ahead, it is clear that consumer activities and experiences are increasingly converging online at the intersection of content, commerce, and community. It is also clear that agile, adaptable companies that have successfully tapped into active, engaged, and social communities will have a unique advantage as we move into this new era. Our three core businesses collectively offer immersive and interactive digital, social, and commercial experiences to large global communities, supported by our fast-growing digital financial infrastructure and deep online-offline operational capabilities. We therefore believe that our ecosystem comprises a complete consumer tech and innovation stack that is distinctively relevant to the new opportunities being presented. All the business investments and additions we are making today are intended to also factor position us to better serve the changing needs of fast-growing digital native generation. Let us now discuss the performance of our group and each of our businesses in the fourth quarter and the full year of 2021, and our outlook for 2022. At the group level, GAAP revenue increased 106 percent year-on-year to $3.2 billion, and the gross profit was $1.3 billion at 146 percent year-on-year for the fourth quarter. Meanwhile, for the full year of 2021, Gap revenue grew by 128% year-on-year to reach $10 billion, and the gross profit reached $3.9 billion, up 189% from 2020. The recent bookings for the full year is $4.6 billion, and the shortest gap revenue reached $5.1 billion. Both businesses performed in line with our recently-raised full-year guidance. For 2022, we currently expect bookings for digital entertainment to be between $2.9 billion and $3.1 billion. With many economies reopening further in the fourth quarter and into this year, we have observed some moderation in online activities and a fluctuation in user engagement. Due to unanticipated government actions, as we previously reported in the press release, Free Fire is currently unavailable in the Google Play and iOS app stores in India. Our guidance, therefore, takes into consideration these headwind factors. The midpoint of the guidance of $3 billion reflects our current expectation that our bookings for 2022 will be close to the level in 2020 while also considering the uncertainty in India. While we will continue to accept the longer-term trends as our market continues to evolve, we remain highly confident in the long-term prospects of our digital entertainment business. We expect gap revenue for e-commerce to be between $8.9 billion and $9.1 billion, representing 76% year-on-year growth at the midpoint of the guidance. This strong outlook, particularly against the very high phase of 2021, reflects our deeper engagement with consumers and small businesses across our market. vastly expanded e-commerce at the direct-goal market, and continued improvement in commercialization. I'm also excited to share our 2022 outlook for the digital financial services segment for the first time. C-Money made strong progress in 2021 as we continued to scale our mobile wallet services and launched more products and services which saw successful adoption across the ecosystem. We anticipate that this trend will continue and it seems to be a growth engine for us. We expect gas revenue for C-Money for this year to be between $1.1 billion and $1.3 billion, representing 165% year-on-year growth. at the midpoint of the guidance. Let's now turn to our businesses in more detail. Beginning with digital entertainment, in the fourth quarter, the rate of generated bookings of $1.1 billion, an increase of 7% year-on-year, as just the EBITDA was 56% of bookings at $603 million. Quarterly active users reached $654 million, up 7% from a year ago, and quarterly paying users were $77 million, an increase of 6% year-on-year. For the full year of 2021, Garena recorded bookings of $4.6 billion, up 44% year-on-year. Adjusted EBITDA was up 40%, compared to 2020 at $2.8 billion, representing 50% of bookings. During the fourth quarter, online game momentum moderated somewhat, giving the reopening trend in many of our markets. That said, it is worth emphasizing that Free Fire continues to have one of the largest and the most engaged user communities of any gaming history. According to data.ai, previously known as App Annie, for the third year in a row, Free Fire was the number one most downloaded mobile game globally in 2021. Free Fire also ranked second globally by average monthly active users for all mobile games on Google Play in the fourth quarter and the fourth year. Free Fire also returned its leadership as the highest-grossing mobile game across both iOS and Google Play in Southeast Asia and Latin America for both the fourth quarter and the full year, based on data.ai. We have maintained this leading position in Southeast Asia and Latin America for 10 consecutive quarters. Furthermore, Free Fire was the highest-grossing mobile battle royale game for the fourth consecutive quarter to the U.S., according to data.ai. We remain committed to investing in content you prefer to enhance user experience and uplift user engagement. For that, we have a comprehensive pipeline in place that includes partnerships, original and user-generated content, and esports activities. For example, this month, we have a crossover event with Assassin's Creed, one of the most popular global video game franchises. And we're also excited to have BTS, one of the world's most streamed artists worldwide, enter the universe of free fire as our global brand ambassador in the coming months. Additionally, we have seen strong engagement with user-generated content through modes like Cropland. I will recently introduce the map editor feature. Since launch, the most popular Cropland maps have subscribed by close to 40 million users so far. We will continue to encourage user-generated content by enhancing creator features and accessibility. We believe that a strong user reception to Cropland is a positive indicator of the initial success to encourage user participation in content creation and to build Free Fire into an increasingly open platform and is well aligned with major emerging industry trends such as the metaverse. Besides Free Fire's strong performance, the other games in our portfolio continue to perform well. For example, Arena of Valor has grown year-on-year in 2021 across both active users and bookings, despite being in its fifth year of operation. In 2022 and beyond, we expect to expand our portfolio with more games across diverse genres, such as multiplayer action, role-playing, sandbox, and casual games. Over the long term, Our priority remains sustaining and growing our existing major franchises while diversifying our game portfolio. Our strong and growing self-development capabilities will be a key component of this diversification effort. Our teams are working on multiple prototype games across different genres and stages. In dual course, we expect to bring more self-developed games to market. We also continue to actively acquire and invest in top talent and game IPs to further expand our capabilities across gender and geography. Meanwhile, we will keep growing our publishing relationships, leveraging our unique set of strengths across diverse global markets. We believe that this comprehensive approach to portfolio diversification will allow us to identify and execute around the largest game trends in the years to come. More importantly, we see games as one of the most engaging and immersive forms of entertainment, bringing communities from across the world together to play and interact. that will play a vital role in shaping the virtual experiences of users. And we are well-positioned to capture new opportunities that arise, giving our core competency in developing highly social, immersive, and interactive global game platforms with live operations at scale. Therefore, we are highly focused on maximizing the long-term potential of the arena. We see it as our key to potentially greater success in the future world, where activities, experiences, interactions, and consumption are increasingly virtual. Now let's turn to e-commerce. Shopee had a great year in 2021 as the business scaled and it strengthened its market position across both new and existing markets. For the quarter, Shopee's GAAP revenue grew 89% year-on-year to reach $1.6 billion. It recorded gross orders of $2 billion, an increase of 90% year-on-year, and the sole GMB growth 53% over the same period to reach $18.2 billion. The strong performance contributed to strong results for the full year of 2021, where Shopee achieved gap revenue of $5.1 billion, up 136% year-on-year. The full year's gross order totaled $6.1 billion, up 117% year-on-year, and GMB reached $62.5 billion, an increase of 77 percent from 2020. Monetization improved across all revenue components with gap revenue as a percentage of total GMB rising from 6.1 percent in 2020 to 8.2 percent in 2021. Our strong revenue growth shows how more merchants across the market trust the Shopee platform, and understand the value we deliver to them. Our leading market position is also evident in strong brand recognition and engagement from consumers on Shopee. It was the top e-commerce brand in YouGov's Best Global Brand 2021 and ranked sixth overall. In terms of engagement, our buyers shopped on Shopee over six times a month on average in the fourth quarter with initial monthly order frequency exceeding eight times. We are very pleased with the progress made around engaging our buyers and will continue to deliver more value to them. According to data.ai, Shopee ranked first in the shopping category globally by downloads in the fourth quarter and the full year. In the same category, for Google Play, Shopee ranked first globally by total time spent in apps and second by average monthly active users in the fourth quarter and the full year. During the same period, Shopee also continued to be the top-ranked app in a shocking category across both iOS and Google Play, in each of Southeast Asia and Taiwan, by average monthly active users and the total time spent in the app. In Indonesia, Shopee was ranked the number one app across the same matrix, with gross orders growing around 88% year-on-year during the fourth quarter. We have also scaled our presence in Brazil, serving the local sellers and the buyers. During the fourth quarter and the full year, Shopee was ranked first by downloads and the total time spending app, and second by average monthly active users for the Shopee category, according to data.ai. In the fourth quarter, Shopee Brazil recorded more than 140 million orders, growing at close to 400% year-on-year, and more than $70 million of gap revenue, up by around 626% year-on-year. We believe our offering provides a new and fresh online shopping experience that caters to the underserved segment of the Brazilian market. We see Brazil as a new growth market for us. and we are very excited about its growth prospects and the long-term value we can deliver to the ecosystem. Meanwhile, we continue to see efficiency gain as we scale. For shopping sites in Asia and Taiwan, the adjusted EBITDA loss per order before HQ cost allocation was 15 cents in the first quarter. an improvement from 21 cents in the fourth quarter of 2020. As shared earlier, we believe Shopee is on track to achieve positive adjusted EBITDA before HQ cost allocation in Southeast Asia and Taiwan by this year. Our newer market has also made progress with adjusted EBITDA loss per order before HQ cost allocation improving consistently in every quarter in 2021. Basically, in Brazil, our adjusted EBITDA loss per order before HQ cost allocation improved by more than 40% year-on-year during the fourth quarter to below $2. Across all our markets, our total adjusted EBITDA loss per order was 45 cents in the fourth quarter, an increase from 41 cents for the fourth quarter of 2020. This increase was attributable to the increasing contribution from the newer markets, which are at a much earlier stage of development. These markets are both growing faster and incurring higher adjusted EBITDA loss per order than Southeast Asia and Taiwan. For the full year, our total adjusted EBITDA loss per order across all markets was 42 cents, improving 9% compared to 2020. Over the past couple of years, we accelerated the growth of Shopee by quickly adapting and serving our buyers and sellers through the pandemic. We've also successfully strengthened our competitive position in Southeast Asia and Taiwan, as well as Brazil. Going forward, we expect Southeast Asia and Taiwan to keep growing healthily while we further strengthen our market leadership and execute towards profitability. In our new growth market, Brazil, we are focused on efficient and sustainable growth as we continue to scale and improve our service offerings to local sellers and buyers. Finally, Our additional financial services business, C-Money, performed well in the fourth quarter and the full year of 2021. In the fourth quarter, gas revenue was $198 million, up 711% year-on-year, driven by the growing adoption of our products and services. For the full year of 2021, our gap revenue grew 673% year-on-year to reach $470 million. Quarterly active users across our C-Money products and services reached 45.8 million, up 19% year-on-year. In the fourth quarter and full year 2021, we further expanded our digital financial service offerings across credit, in short-term and in digital bank services. For example, we launched C-Bank in Indonesia during the latter half of the year with strong traction in terms of user growth. We also obtained a bank license recently in the Philippines. In Indonesia, which has the most comprehensive set of products and services among our markets, over 20% of the quarterly active users have used the multiple C-Money products and support services in the first quarter. We view this as a highly positive indicator of the strong efficiencies we can leverage in bringing new digital financial service offerings to the large and fast-growing user base in our entire consumer internet ecosystem. In particular, We see Shopee and C-Money as both highly synergistic with one another and enjoy a strong flywheel effect in their scaling. The total payment volume of our mobile wallet was close to $5 billion in the fourth quarter, up 70% year-on-year, and $17.2 billion for the full year, up 120% year-on-year. In 2021, we grew our mobile wallet services across both on-platform and off-platform use cases, leveraging our growing ecosystem of products and services. This further drives a positive flywheel effect that allows us to benefit through higher growth and better efficiency as we drive adoption across both consumers and merchants. In the fourth quarter, We expanded our payment acceptance points to include key merchants like AirAsia in the Philippines, 7-Eleven in Malaysia, and Subway in Thailand. We believe there are many other large opportunities within our market that C-Money can address. We are looking forward to loading up more digital financial products and services in 2022. as we continue serving the underserved in our ecosystem with technology. At the same time, as the business grows with our communities adopting more financial services and products, we are also excited to see that C-Money is on track to achieve positive cash flow by next year. To conclude, I'm proud of the progress our team has made in 2021, both in scaling our businesses and serving our communities. We believe we are very well positioned to continue strengthening our market leadership while focusing on sustainable and efficient long-term growth. We are highly confident that the learning and the resilience we've built over the past years will only further enhance our ability to execute on our long-term strategies and continue to deliver significant value to our communities and stakeholders. I would also like to personally and on behalf of SEED, thank our stakeholders and friends for your continued long-term support. We hope to return your trust and investment in us. We continue strong execution and focus on the long-term success of the company. 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. So see, overall, total gap revenue increased 106% year-on-year to $3.2 billion in the fourth quarter and 128% year-on-year to $10 billion for the full year of 2021. This was primarily driven by the growing adoption of products and services across our e-commerce and digital financial services businesses as we continue to deepen the engagement with our users as well as the growth of our digital entertainment business. Digital entertainment boobings rose 7% year-on-year to $1.1 billion in the fourth quarter and 44% year-on-year to $4.6 billion for the full year of 2021. Gap revenue was up 104% year-on-year to $1.4 billion in the fourth quarter and 114% year-on-year to $4.3 billion for the full year of 2021. Digital entertainment adjusted EBITDA $603 million in the fourth quarter and $2.8 billion for the full year of 2021. E-commerce, our fourth quarter gap revenue of $1.6 billion included gap marketplace revenue of $1.3 billion up 104% year-on-year and gap product revenue of $0.3 billion up 48% year-on-year. For the full year of 2021, Gap revenue of $5.1 billion included. Gap marketplace revenue of $4.1 billion, up 156% year-on-year. And gap product revenue of $1.1 billion, up 83% year-on-year. The strong results of deepening penetration of e-commerce and our ability to capture these significant growth opportunities. E-commerce adjusted EBITDA loss was $878 million in the fourth quarter and $3.6 billion for the full year of 2021 as we continued our investments to fully capture the opportunities in our markets. We remain committed to continue investing in a prudent and sustainable manner and growing the ecosystem to serve our users' expectations. Digital Financial Services' cap revenue was $198 million in the fourth quarter and $470 million for the full year of 2021. This represents year-on-year growth of 711% and 673% for the quarter and full year, respectively. The growth was primarily due to increasing traction as we continue to expand our suite of services offerings. Adjusted EBITDA loss was $150 million in the first quarter and $617 million for the full year of 2021. This was primarily due to our continued efforts to drive mobile wallet adoption. Returning to our consolidated numbers, we recognized a net non-operating loss of $71 million in the first quarter of 2021. compared to a net non-operating loss of $124 million in the fourth quarter of 2020. For the full year, our non-operating loss was $132 million, compared to a loss of $180 million for the full year of 2020. Our non-operating loss for the fourth quarter and full year ended December 31, 2021, was primarily due to interest expense on our convertible notes. We had a net income tax expense of $106 million in the fourth quarter of 2021 and $333 million in the full year of 2021. This was primarily due to corporate income tax and withholding tax recognized in our digital entertainment units. As a result, net loss excluding share risk compensation was $483 million in the fourth quarter of 2021 and $1.6 billion for the free year of 2021. With that, let me turn the call to Andrew.

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

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. In the interest of time, we will take a maximum of two questions at a time from each caller. If you wish to ask 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. Our first question is from Alicia Yap from CityGP. Please go ahead.

Hello. Hi. Good evening, management. Thanks for taking my questions. I have two questions. The first one on the digital entertainment. Regarding your guidance, I believe you are not including any of those new games that you mentioned in the pipeline that potentially you plan to publish in later the year. So just want to clarify on that and then related to that as well, Besides, you know, India, which country do you think will also see some declining trend? And then second question is on the e-commerce. With the decisions to exit France, at what point would you also evaluate some of these cross-border attractions in Poland and Spain that you could maybe – kind of prompted you to moving ahead with your next step of the penetration. Thank you.

Thank you, Alicia.

In terms of digital entertainment, if our guidance does take into account of games that we believe might be launched this year, of course, any new games in the initial launch stage probably will focus more on user growth and managing penetration as opposed to immediately focus on monetization. So the contribution probably might come towards the later part of the year or later part of the stage of the development of the game. And in terms of the trends, I think the overall opening up post-COVID is across all the markets. Therefore, we do start to see the weakening. I think it's industry-wide as well. We are still evaluating the data and the trends. At the same time, we are very much focused on the long-term success of the Free Fire IP, which we see it as a very important strategic asset to us. While, of course, it is contributing billions of dollars of cash every year, but most importantly, we want to build into a long-lasting IP and with hundreds of millions of active users and fully engaged and socializing and playing different types of games and modes and also incorporating more IP over time into this game and platform to build into more of an important franchise which we will use as also a key to the future development of the virtual economy. So I think that while there are some headwinds, our focus on the long-term has not wavered and our view towards the game as a long-term play has not changed. In terms of e-commerce, as we shared, we are focused on Southeast Asia, and Taiwan as our core existing market, which continues to enjoy very strong growth despite the very strong coughs versus last year during the height of COVID. And as you can see, we also have gained significant ground. These are our peers. In Indonesia, we grow more than about 80% year-on-year in the order. And also in ASEAN 6 countries, our growth rate is around 80%. So our growth rate is meaningfully, significantly, in fact, higher than our next peer while we are already multiple times their size. So that is highly encouraging. And at the same time, We are looking at more and more markets turning profitable, as we shared, in terms of adjusted EBITDA before H2 cost allocation. So this will become the market will not only be a growth engine for us, but also potentially down the road contribute positive cash to fund our global growth. And another growth area that we focused on is Brazil. Not only we have reached top rankings in downloads and total time spent and second in MAU just two years after entering the market, we have also achieved more than 140 million quarterly growth orders with more than 70 million revenues in the market. As we also shared, for that kind of, when we enter into the market, we focus first on user growth and then order growth and then market leadership and positive unit economics over time would scale. And we have repeated that playbook seven times in seven highly distinct markets in Southeast Asia and Taiwan. And we are saying that we are already seeing strong user traction, strong order growth, and a sense of market leadership, and also fact-improving union economics in that market or pointing to another potential market that could essentially double our total addressable market for e-commerce with highly proven profitability. Now, when you look at Southeast Asia and Taiwan, we're probably the first large e-commerce player to show profitability in this market, in this region. But in LATAM, all the existing major players are quite profitable. So the profitability model for the market is highly proven. Therefore, we're very encouraged by the results of our e-commerce and its outlook into a global platform. In terms of the other markets that we shared before, these are highly nascent markets where we might test the water in from time to time. So our exit from France, again, shows while we are open-minded, We're also very disciplined in our pilot exercise. So we'll remain disciplined and open-minded with all our markets. Again, the focus will be on the existing core Southeast Asian Taiwan markets and our new growth market in Brazil.

Our next question comes from Diusu Nubi from Goldman Sachs. Please go ahead. Hello, is your line on mute? Thank you for taking my question.

Can you hear me?

Yes, we can hear you.

Thank you. Sorry about that. If I could just ask about what is built into your game forecast for 2022 for booking that you shared with us, and how does that potentially change if India were to come back on track? at an earlier than expected date, potentially. So if you could just share with us how you're thinking through that, we would be grateful. And the second is, is it at all possible in the game business to talk about how quickly you can build up a portfolio of games and use them to beat a stage in some of those games? That would be fantastic to understand how we can expect that trajectory to happen. potentially proceed through the course of 2022 quarter by quarter and then into 2023. And third, this is a general question on the e-commerce business where we notice how the momentum is very positive both from the standpoint of rate on account of take rate progression as well as a progression towards free cash flow and profitability. I wonder if you could just take a step back and give us a feel for how much further this business can be accelerated into 2020 through 2022, those are where the guide is. Thank you.

Okay, thank you, Piyush.

Sorry, the voice quality wasn't very good. I'll try to answer your questions if it's not clear, please let me know. In terms of the guidance as we shared in the earnings that given the opening of all markets and the trends we're seeing and also some unexpected government action, are we facing, we have taken into consideration. And therefore, we at this point believe our 2022 game bookings will probably be close to the level of 2020. That means we're giving back some of the games we made during, partially during the COVID. And also with some additional discount to reflect the situation in India, which is highly uncertain. Again, I think at this point, given the uncertainties we're facing, this is probably more art than science for us. In terms of a big portfolio, we are very focused on diversifying our game genres. As we shared before, we are looking into different genres such as sandbox, RPG, and other more casual games to supplement our existing offerings. Now, I think these will still be early stage games, and also given the size of Free Fire, which is probably the largest and highest-grossing mobile games in history, it is probably hard to come up immediately with a game that can match the size of Free Fire. However, everything we're doing is to, A, diversify our portfolio and capability, and, B, at the same time, well-prepared for the long run while we already have such a big platform of Free Fire that we can incorporate different types of modes, game modes and IP into and leverage that platform to introduce more content and more types of playing and more IP into our user base, which still remains probably one of the largest user bases in the world. So while we have some earnings headwinds on the lean side, our focus is really on the long run to make sure that we stand ready to capture the next wave of major opportunities that might come. If you look at our track record, so far it's been quite strong. We captured the mobile wave, for example, on the PC side with the rise of League of Legends, and we are the exclusive publisher. took us to where we initially were at the time of IPO as a gatekeeper of Southeast Asia and Taiwan in terms of gate publishing. And then we also captured the next mobile wave with publishing of Arena of Valor, development of Free Fire by ourselves, which expanded our camp from a Southeast Asia-focused market to a global platform. And then we also captured the battle royale wave with the rise of free fire, and that significantly enhanced our game size, the business size of the business, and also the overall strength of the business. I think our track record does speak for itself. So what we are doing now is continue to get us ready and strengthen our capability to capture the next major wave that might come our way. In terms of the rate, so we are, as we shared before, we believe a high single, low double-digit rate is achievable in the long run. We still believe that, and as you can see, we are progressing well towards that rate in most of the markets. We are already getting a high single-digit rate, and we believe this will continue to rise, although we think a gradual and well-managed progression will be effective for our business in the long run. And also for the newer markets, such as Brazil, as you can see, the prevailing rates in the markets are more at 15% to 18% charged by some of the leading players. So it is a very high take rate market also. So we're not particularly worried about the e-commerce take rates. And in terms of profitability, as we shared, we believe our Southeast Asia and Taiwan will achieve positive adjusted EBITDA before HQ cost allocation. by this year, that means more and more markets will break even on that term or over time this year and maybe go into next year. So that will give us also a strong footing in further growing our other new growth markets, as I shared before, where profitability has long been proven.

Our next question comes from Jiang Xiao from Barclays. Please go ahead.

Hi, can you hear me?

Yes, I can hear you.

Hi, this is Roger on behalf of Joan. So I have two quick questions. First of all is can management talk a little bit about your view on the 2022 GMV growth? And the second is can management help to sort of break down the rough mix of ASEAN and new markets in terms of EBITDA loss this quarter? Thank you.

Yeah, so we don't give guidance on GMB, but we did give guidance on gap revenue for e-commerce. We believe that this reflects our view about the potential growth rate, and I also mentioned that in terms of the tape rate increase, while we will continue to increase tape rate, the pace will be moderated and well-measured. We don't also give the breakdown in terms of EBITDA, but we have given the order number for fourth quarter of Brazil and also the EBITDA loss pre-issue allocation for order in Brazil. So I think you can roughly do the math.

Our next question comes from Piyush Chowdhury from HSBC Singapore. Please go ahead.

Hi. Thanks for the opportunity. Two questions. Firstly, on e-commerce, your guidance to achieve positive adjusted EBITDA in your core markets, this would be driven by what key factors? Is it higher take rate or lower sales and marketing? Any color over there would be helpful. And if you can throw some light on the competitive landscape in core markets. Secondly, your cash and cash equivalents went down by 1.6 billion quarter on quarter to 10.2. Can you highlight what factors drove that decline? Is there any other investments? Thank you.

Sure. In terms of our e-commerce in Southeast Asia and Taiwan, This is as a result of both of the higher take rates and also cost efficiency as we scale. As we always mentioned, the platform, the marketplace model that we are pursuing enjoys a strong side effect and the economy of scale. As we continue to grow our business, the unit economics just keeps improving. And it actually comes to a very even point. And at the same time, as you can see, we have been gradually ramping up the take rate, especially on the high margin take rate in terms of transaction-based revenue as well as advertisement. We are broadly charging more types of sellers and gradually raising the take rate each type of seller might pay. And at the same time, more importantly, voluntarily sellers are adopting more of our free shipping programs, advertisement programs, and they are actually paying more as their business at scaling our platform to facilitate further growth of their business. So as a marketplace model, its profitability is actually quite proven. But it takes some investment and time to get there. We believe we'll probably be one of the first to get there as a major e-commerce player in this region. But we are very happy that at the same time, we are still growing at a very strong rate despite the tough cost against the COVID period. and also expanding our market leadership. I would like to invite Tony to address the second question.

About the cash position, we are trying to optimize the cash yield by investing into short-term time deposits and some of which are over the period of three months and by debt is categorized as short-term investment and that amount to quite significant to $800 to $900 million. So if you add that back, actually the cash position is over $10 billion.

This is just to say that the cash isn't gone. It's just heading towards some savings buyout.

The next question comes from Ranjan Sharma from JP Morgan. Please go ahead.

Hi, good evening, and thank you for the opportunity. Two questions from my side. Firstly, if you can talk about new game development. We know there's a lot of talent available in China now. Are you changing your hiring strategies to accelerate new game development? And second question, I know it's a bit sensitive, but is there a process to get the ban revoked in India on Free Fire? Thank you.

In terms of new gig developments, I think our strategy has been quite consistent. We have studios globally in the States and also in Singapore, Asia, and Korea and other parts of Asia. So we are focused on income development, and at the same time, we have been investing globally into strong development teams and ITs. with partnership agreements tied to such investments. That also augments our organic And, of course, there's the publishing side that we continue to work with, and we'll discuss partnerships with global game developers to bring top IP to our region. And in terms of Free Fire in India, we're still working on it. So other than what's being publicly disclosed, we don't have much more to share at this point. Thank you.

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

Thank you. Thank you all for joining today. We look forward to speaking to all of you again next quarter. Much appreciated.

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