Sea Limited

Good morning and good evening to all and welcome to the Sea Limited third quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star and number one on your telephone keypad. If you would like to redraw your question, please press star and number one again. For operator assistance throughout the call, please press star and then number zero. And finally, I would like to advise all participants this call is being recorded. Thank you. I now would like to welcome Ms. Minju Song to begin the conference call. Please go ahead.

Thank you. Hello, everyone, and welcome to SEAS 2023 Third 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 the Jesse B. McDowell. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For a discussion of the use of non-GAAP financial measures and reconciliation with the closest GAAP measures, please refer to the section on non-GAAP financial measures in our press release. I have with me C's Chairman and Group Chief Executive Officer, Forrest Lee, Group President, 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 third quarter of 2023. 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.

Hello, everyone, and thank you for joining today's call. At our last earnings call, we shared that we would accelerate investment in e-commerce. In the past, our e-commerce business has made some significant shifts in operational focus to adapt to major business environment changes. Before diving into the details of the third quarter results, I would like to first share how the thinking behind each shift has been underpinned by our long-term view of the business. Our strategy for e-commerce is driven by the principle that maximizing the long-term profitability of the business will generate the greatest returns to our shareholders in the long run. And maximizing long-term profitability requires scale and strong market leadership. To achieve this long-term objective, we look at three key operational factors, growth, current profitability, and the market share gain. While all are important and positively correlated in the long run, near-term focus on one can create trade-offs for another. As business conditions change, sometimes rapidly, we need to decide which factor to prioritize for that period. During the pandemic, we focused on growth first, ramping up rapidly to meet surging demand for e-commerce, despite the great operational difficulties created by lockdowns. This allowed us to achieve significant scale and strong market leadership when growth was very efficient. Subsequently, capital became very expensive and less available, so we made a rapid turn to achieve immediate profitability for Shopee as a first priority, while sustaining the platform's scale and market leadership. In both cases, we believe we made the right decisions in response to the shifting business environment. As we focus on long-term profitability and adapt to changes in the business environment. Some short-term fluctuations in our results is inevitable. However, our demonstrated ability to adapt quickly and execute major transitions effectively is a core strength for the long-term success of our business. We are now deploying this strength to realize the next shift in our operational focus in e-commerce. In this period, we will prioritize investing in the business to increase our market share and further strengthen our market leadership. We made this decision in view of three recent developments. First, our move to self-sufficiency and profitability has significantly improved both our cash reserves and operational efficiency. Our group cash position has increased by around $600 million from a year ago to more than $7.9 billion at the end of the third quarter. This puts us in a strong position to pursue more competitive and growth-focused strategies while maintaining financial discipline and a strong balance sheet over the long run. Second, the entrance of new players has intensified competition in our markets. Competition may accelerate market share consolidation, and when markets stabilize, each remaining player will have sustainable profitability. Investing in market share gain now will position us better with even stronger market leadership when that happens. We thrive in a competitive environment. We competed aggressively and effectively in our market for years to emerge as the clear market leader from an underdog position. We now have scale, a deep understanding of our markets, and a strong localized execution across diverse geographies. This gives us a wide competitive moat, and we intend to grow it further. Third, live streaming has become increasingly popular among sellers, buyers, and the creators in our markets. These tailwinds give us a very good opportunity to build our e-commerce content ecosystem efficiently. We believe live streaming e-commerce will become a sizable and profitable part of our platform and extend our long-term growth potential. I want to emphasize that in making investment decisions, we are committed to maintaining a strong cash position, not relying on external funding, and investing within our means at the time and the pace of our choosing. At the same time, Given that e-commerce penetration remains low in most of our markets, we as the market leader have a responsibility to help grow the whole e-commerce ecosystem. Shopee will remain committed to doing so in a healthy and sustainable way and driving value creation for all stakeholders. I hope that this brief sharing on the thinking behind our decisions has been helpful. Being nimble and therefore able to do the right thing at the right time remains a core strength and a competitive advantage for our business. With that, I will invite Yanjun to discuss each business segment in more detail.

Thank you, Forrest. Let me now share more details on the recent performance of each business segment, beginning with e-commerce. Just now, Forrest discussed the long-term objectives of our investments in e-commerce. For the immediate period, we assessed the effectiveness of our investments by looking at how our market leadership, as well as the scale and strength of our e-commerce content ecosystem, has been trending. On both fronts, we made strong progress in the past quarter. In the third quarter, growth in Shopee's users, gross orders, and GMB accelerated sequentially. We saw average monthly active buyers growing 11% quarter on quarter with increased order frequency and improved buyer retention. As a result, our gross orders and GMB achieved 24% and 11% sequential growth respectively. further increasing our market share. We also saw a material improvement in MTS scores broadly across the markets, quarter on quarter and year on year. We believe this to be a good early indication of the effectiveness of our investments. Another key driver of our solid growth during the third quarter was the ramp up of Shopee Live. During this period, we have made a strong push into e-commerce live streaming and increased collaborations with a growing ecosystem of content creators and live streaming sellers. We have also successfully acquired many new buyers and deepened our engagement with existing buyers. For example, in Indonesia, one out of five daily active users watched live streaming in October on average. With our efforts to help our sellers and creators we saw a significant increase in their participation in Shopee Live. Our number of average daily unique streamers, total daily hour streams, and the number of daily stream sessions for October all grew by more than three times compared to June. Our streamers are also becoming more engaged, with the average stream duration per streamer increasing by more than a third during the same period. In Southeast Asia, our average daily orders from live streaming already reached more than 10% of the total order volume for October. For our investments in live streaming, we have a targeted focus on key categories, such as fashion and health and beauty. These categories tend to benefit more from this format of user engagement and tend to enjoy higher margins. This further strengthened our overall market leadership in these key marketplace categories. Moreover, we have been focused on investment efficiency and driven fast improvement in unit economics. This is well in line with our long-term view that live streaming e-commerce can be both a meaningful part of our platform and profitable. As shared before, we are consistently focused on reducing cost to serve for our e-commerce ecosystem. We made strong progress in continuing to drive down logistics costs while improving user experience. Our platform logistics cost per order for our Asia markets decreased by 17% year on year in the third quarter. Decreases in logistics costs also contributed to the year on year decline in our value added services revenue. We believe this to be an example of scale economics shared, where we drive down logistics costs with scale and pass the benefits of reduced shipping costs to our sellers and buyers. This business model also serves to strengthen the competitive modes of our platform. As we scale the Shopee platform, we also continue to expand the coverage of our logistics network across our markets to reach more sellers and buyers. This will be done through better routing for more efficient and faster delivery, further expanding our network of sorting centers, and improving our last mile coverage. During the third quarter, Brazil continued to enjoy strong growth. At the same time, our unit economics in Brazil improved. we will continue to invest in category expansion and user acquisition in this market. And we will take a balanced approach of investing in growth while driving improvements in operational efficiency, especially in logistics. Our results in Brazil for the quarter speak to our success on both fronts. While we believe we already achieved sufficient scale and cost efficiency to be profitable in Brazil, Our focus remains on capturing the growth opportunity there. Looking into the fourth quarter, we will continue to invest in the holiday shopping season, which we believe is a good time to acquire users, gain market share, and strengthen our content ecosystem. Moving on to digital entertainment. In the third quarter, Garena's booking grew sequentially. while quarterly active users and adjusted EBITDA remained stable quarter on quarter. We view these results positively as this was achieved despite schools reopening across a number of our key markets during the quarter. We're happy to see that Free Fire maintains stable trends across both user and monetization metrics. Many of our initiatives around improving the user experience this year, such as reducing loading time, have shown continued success. We have also further deepened user engagement. For example, we recently revamped Free Fire's guild system to enhance the social experience for our players. With all these efforts, we saw a higher revival of turned users and better user retention. Indeed, Free Fire was the most downloaded mobile game in the third quarter globally, according to Sensor Tower. We are also pleased to see healthy trends for our portfolio of published games. We added fresh, exciting content and enhanced the user experience for these games. New content on Arena Valor received very positive user feedback, resulting in a new peak of quarterly active users for the game. Another of our published games, Call of Duty Mobile achieved its highest quarterly bookings. This was a result of both our continued efforts to improve the game experience for players through better optimization and successful content collaborations. We will continue to assess new development and publishing opportunities for Garena. Lastly, on our digital financial services business. In the third quarter, C-Money delivers strong revenue and profit growth, mainly driven by our credit business, which grew steadily quarter on quarter. As of the end of the third quarter, we had a total credit portfolio of $2.9 billion, growing 5% sequentially. The portfolio included $2.4 billion of gross loans receivable on our balance sheet. The remaining approximately $0.5 billion of principal amount of loans outstanding were from channeling arrangements, which is lending by other financial institutions on our platform. In terms of credit product type, $1.4 billion in the total credit portfolio were as pay later consumption loans, which are used to pay for transactions on or off the Shopee platform. The remaining balance mostly consisted of cash loans to Shopee buyers and sellers. The quality of our loan book stayed healthy. Loans passed due by more than 30 days and 90 days as a percentage of the gross loans receivable on our balance sheet was 5.2% and 1.6% respectively, improving quarter on quarter. We also continue to expand the funding sources. In fact, the majority of the gross loans receivable on our balance sheet were funded by sources such as deposits in our banks and asset-backed lending from third-party financial institutions. We will continue to further diversify our credit portfolio across markets and products both on and off Shopee platform and optimize our sources of funding to improve costs and diversify risks. Our digital bank offerings have made good progress during the quarter. For example, our banks in Indonesia, the Philippines, and Singapore have seen strong user adoption of the direct debit services, where buyers can make payments on Shopee directly from their accounts with our banks. The service has driven an acceleration in user acquisition for our banks and improved transactional experience on Shopee. This is also another example of our strong ecosystem synergies. To sum up, C-Money has become an increasingly important pillar of our core businesses. It is contributing meaningfully towards both our top line and bottom line. It has enjoyed a healthy and improving risk profile and strong ecosystem synergies. Under C-Money, we will continue to strive to develop more comprehensive products and services to meet the financial needs of our users across the market. With that, I will invite Tony to discuss our financials.

Thank you, Yanjun, and thanks to everyone for joining the call. We have included detailed financial schedules together with the responding management analysis in today's press release. so I will focus my comments on the key metrics. For T overall, total gap revenue increased 5% year-on-year to $3.3 billion. This was primarily driven by the improved monetization in our e-commerce and additional financial services businesses. Our group total adjusted EBITDA was $35 million compared to an adjusted EBITDA loss of $300 and $58 million in the third quarter of 2022. On e-commerce, our third quarter gap revenue of $2.2 billion included gap marketplace revenue of $1.9 million, up 18% year-on-year, and gap product revenue of $0.3 billion. Within gap marketplace revenue, core marketplace revenue mainly consisting of transaction-based fees and advertising revenues, was $1.3 billion, up 32% year-on-year, as a result of both increases in advertisement uptake by sellers on our platform and commission rates. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.6 billion, down 4% year-on-year. E-commerce adjusted EBITDA loss was $346 million in the third quarter of 2023, compared to an adjusted EBITDA loss of $496 million in the third quarter of 2022. For our Asia markets, we had an adjusted EBITDA loss of $306 million during the quarter. compared to an adjusted EBITDA loss of $217 million in the third quarter of 2022. In our other markets, the adjusted EBITDA loss was $40 million, narrowing meaningfully from last year, when losses were $279 million. Contribution margin loss per order in Brazil improved by 91% year-on-year to reach 10 cents, reflecting better monetization and higher efficiency in our ecosystem. Digital entertainment bookings were $448 million and gap revenue was $592 million. Adjusted EBITDA was $234 million compared to $239 million in the second quarter of 2023. Digital financial services gap revenue was up by 37% year-on-year to $446 million. Adjusted EBITDA was $166 million in the third quarter of 2023, compared to an adjusted EBITDA loss of $68 million in the third quarter of 2022. We recognized a net non-operating income of $46 million in the third quarter of 2023. compared to a net non-operating loss of $9 million in the third quarter of 2022. The year-on-year improvement was mainly due to higher interest income in the third quarter of 2023. We had a net income tax expense of $62 million in the third quarter of 2023 compared to a net income tax expense of $65 million in the third quarter of 2022. As a result, Net loss was $144 million in the third quarter of 2023, as compared to net loss of $569 million in the third quarter of 2022. With that, let me turn the call to Mingzhu. Thank you, Forrest, Yanjun, and Tony. We are now ready to open the call to questions.

Ladies and gentlemen, we are now opening the floor for the question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Piyush Choudhury from HSBC. Your line is now open.

Yeah, hi. Good evening, management team, and thanks for the opportunity. Three questions. Firstly, in e-commerce, can you discuss how long we may continue to be loss-making for Shopee and what is the specific market share level or what other KPIs Shopee may be aiming to achieve before spending starts to normalize? In the digital entertainment segment, what led to quarter-on-quarter softness in pay users despite of new game launch and any insights on the outlook for the pay user base? And lastly, in the DFS segment, can you talk about the outlook for the lending growth? Is there a scope for increasing lending user penetration, or will it grow in line with Shopee GMB? Thank you.

Thanks, Parish. I think it's quick here. I will take the e-commerce question first. Regarding the probability for e-commerce, as we have demonstrated in the past few quarters, we have the capability to turn businesses to break even quickly any time if we want to. However, as far as shared form, to maximize our long-term profitability, we will keep our organization nimble and flexible and adjust our operation based on the dynamic in the market conditions. For example, we look at both the growth of the market, we look at the profitability for the current quarters, we also look at market share dynamics in the market. In terms of an investment plan, we look at both the general investment efficiencies and also the specific growth opportunities in each of the markets. For example, if we look at the general investment efficiency, we look at when we put some investment to market, do we see the returns we wanted? Do we see market share gain, for example, with a better yield economics compared to our competitors in the market? For the specific opportunity in some of the markets, One of the examples we mentioned earlier in the call was the contents ecosystem building, the live stream opportunity in particular, where we see a very good time for us to invest to grow this part of the businesses at this particular time. We target to invest within our means, just to emphasize on that again. We would like to maintain a strong cash position at all times and not rely on the external fundings. It's also important to note that if we look at our investment efficiencies in the past few months, I think we have the quality number as we shared by Andrew and Tony earlier. But if you look at month-to-month, we do see the efficiency are improving month-to-month. If we look at the trend, we see a clear trend for Shopee to break even while achieving our market share and content ecosystem building goals. There are many KPIs to look at. Market share is one of the KPIs, of course, but there are many other things, for example, how is our growth of our user base, how is the growth of our time spent, of our apps, our MAU, DAUs, and also, of course, how much profitability that we achieve during the month. All these are important KPIs to look at rather than looking at market share only. Thank you.

Regarding the question on gain and Q on Q softness in users, I think that this is actually to us some early indication of seasonality we start to see in the gain performance. And when we start to see seasonality, it's also usually a very indication of stability in the gain performance. That's why we do not see it as a negative sign. We also mentioned on the call that in Q3 we saw a lot of school reopening and there are also less holidays. So that does affect the user engagement. But overall, we are very happy to see an improvement in user retention and also in re-engagement of changed users, as I mentioned earlier.

On the last question on the credits for DSS, In general, we do see both possibilities of letting growth on the GMB of Shopee and the penetration of credit in Shopee. Of course, that depends on quarter-on-quarter, depends on the risk profile we want to achieve and the growth that we want to control. But in general, we grow on both the Shopee GMB and penetration. On top of that, just want to emphasize that our credit not only to Shopee ecosystem, we do have a good growth on the credit portfolio outside of Shopee ecosystem. For example, the Shopee Pay channels offline, we do see a good penetration for credit on the offline for Shopee Pay channel as well. We do also have other scenario we're developing over time.

Thank you.

All right, our next question comes from Pang Viet from Goldman Sachs. Your line is now open.

Hi, good evening, management team, and thank you very much for the opportunity. Three questions for me, number one for e-commerce. Can you discuss where Shopee investment went into in third quarter and whether you achieved the outcome you wanted? What are your considerations on spending and GMV growth target for fourth quarter? especially considering some of the recent regulatory changes we see in Indonesia. That's question number one. Question number two, regarding gaming, can you discuss the latest development with regards to right of first refusal agreement with Tencent that supposedly expired this month, had it automatically renewed, and how would that impact future pipeline? That's two. And number three for the FinTech segment, can you discuss about the credit quality of your loan book? We continue to see credit loss provisioning training better every quarter. Will this be your new runway, or how should we think of this margin of this business in the long term?

For the first question about the Q3 investment, There are two main areas that we're investing on. Number one, to grow our market share, especially in the core categories like fashion and health and beauty. The second area we're investing on is to capture the market opportunity to grow the content ecosystem, especially with the live stream first. As far as share earlier, we always balance between the growth probability and market share. We believe that this is the right time to invest in terms of looking at the market share growth. We do see a great traction in our investments reflected from the market share gain even with the better economic compared to our original competitors. On the content side, we believe this can be a profitable and also a very cycle businesses for us over time. If you look at the timing as shared in the previous answers, we do see this is a good opportunity in terms of window of opportunity for us to capture the market, as it has been a lot more educated by having investments from various parties in the past year. For example, the viewers who understand the concept, the sellers who have the capability to offer the content, and also the Eccleson players like the MCNs, etc., In the past few months, since we started to invest more into the area, we have seen very good growth in terms of the adoption of our live stream services, both on the demand side and on the supply side. Not only from the creators, but also from the sellers. We also see on top of that, which is also important to highlight, we see a significant improvement on the e-economics on our live streams. Of course, when we first started building the ecosystem, it takes a big cost to build up, but we quickly see the economics improve month to month, actually much better than we thought it before we started the program. Overall, I guess to answer your questions, we are very happy with what we have achieved. Essentially, we achieved the market share gain as we wanted with much better economics than we thought. We also have seen good traction in live stream. The tick rate has been faster than we thought for the live stream services. To your question on the Q4 outlook, we will continue to invest into the shopping season. It's a holiday season, shopping season, as we all know. Q4 in our market generally is the best time of the year to acquire new users, gain market share, and strengthen our content ecosystem. If we look at in the past one and a half months, we have seen very good traction. For example, I think we shared today that yesterday, essentially, for our W11, we have achieved more than 1 billion GMVs, which is a very good result from better than our anticipated, especially over the weekend as well. Yeah, I think that's the question on the e-commerce side.

Regarding the question regarding right of first refusal with Tencent, the agreement has been auto-renewed under the existing terms. As shared before, we will continue to work on strengthening our game pipeline, both with our self-developed games and published games. And at the same time, we saw the strong trends in Free Fire, and we'll continue to focus on making it a strong evergreen franchise.

I think for the credit quality, we do see the credit quality actually getting a bit better over the year. However, I think we still stay quite vigilant in terms of how the market will evolve. In general, we are more on the conservative side in terms of managing our credit businesses to make sure that we always protect the managed NPL wealth while we're growing the portfolios. If you look forward, we don't anticipate there's a big fluctuation in terms of the credit quality in the short term. But of course, if you look longer term, there are many macro conditions will impact how the credit quality and the NPL look like. But generally, we do believe that our current level is sustainable and our credit businesses will continue to grow well without sacrificing the qualities.

In terms of long-term margins for credit business, Of course, this is still early stage for us, as we mentioned before. We continue to expand our credit portfolio across products and across markets. We also continue to expand our funding sources to reduce the risk exposure to our own cash. So overall, I think we will strive to continue to maintain a very healthy profit life level but while also making sure that we have healthy and consistent growth in the portfolio, as well as the diversification of our products and funding sources.

Thank you.

Our next question comes from Alicia Yap from CT Group. Your line is now open.

hi um thank you good evening management thanks for taking my questions i have two questions first um on e-commerce uh i was hoping management could provide your view as we look beyond um 4q and further out what is the long-term gmv growth we could achieve and i think management have previously shared a potential steady state of the long-term ebda to the gmv margin guidance would that change given the live streaming now being an increasing part of Shopee's GMB. Second question is on your sales and marketing spend. Just wondering the timeline or the inflection point that we are looking for, or is there any sensitivity scenario that we will be assessed the stickiness of the user engagement and purchasing behavior? as related to the subsidy spend. So any colors you could provide on the sales and marketing spend outlook would be helpful. Thank you.

For the long-term GMB growth, generally we believe that we can continue to outgrow the market, giving our competitors advantage. As we see from the Q3, we still see quite a lot of new users being acquired. We also see more or less active users become more active. We also see that the existing users increasing their worry share on our platform, both shifting from other platforms, of course, but also shifting from their offline behaviors. In the opening, I think Forrest mentioned that the e-commerce penetration in our market are still low. We are still far away from the market saturation, so we believe there are still a sizable runway to go in terms of the long-term GMB growth. Compared to many developed markets on e-commerce, I think in South Asia we are still underdeveloped. In our Latin American market, for example, in Brazil, I think the runway is even further. If you look at the entire Brazil e-commerce order, it's still a lot less developed. penetrated compared to even outside the Asian market. Regarding the question on the long-term probabilities, there's no particular change to our previous views. I think you mentioned Livestream. If you look at Livestream in particular, we believe this is a problem built over time. I think we have already seen the EU economics improve a lot in the past few months, as shared in the last remark. It's true that there is a higher content creation cost associated with these businesses. However, there's another aspect to this as well. Number one, the product categories that does well on Livestream tend to be high margin categories. Typically, the room of the margin is still a bit better for those categories, so we have better monetization capabilities from the platform. That's one. Typically, Livestream is also a good tool for sellers to drive more engagement with their buyers or potential buyers, increasing conversions, and also drive more sales for particular products or testing a new product or for the leftover stocks, etc. So generally, it's a good channel for the seller to invest themselves to market their businesses. I think all in all, if you put everything together, we do believe that the e-commerce EBITDA potential that we shared before will stay. For the sales and marketing spend, in terms of the timeline inflation point and thickness and retention, there are many aspects we look at the spend we have. Of course, we look at the retentions, we look at the order growth, we look at the new year acquisition, we look at the CLVs in terms of each new user brings. There are many aspects we're looking at. Regarding the timeline as shared in the previous answers, we look at the long-term investment on both what's the return investment in general, but also on a particular opportunity that we would like to invest on. And we evaluate both the growth and probability and market share in totality, rather than looking at one aspect of it.

I also want to add to what Chris mentioned, As we shared on the call earlier, when we look at our current cohort of new buyers, we actually see very encouraging signs in terms of quality of the buyers. And overall, we see better buyer retention and a higher order frequency on our platform during this period. We have demonstrated a very strong track record previously during the past few years as we scale the Shopee platform. when we do tend to profitability, we were able to have a very healthy profit level for our platform while maintaining the size of the platform and maintaining the user base. That shows that we have built very clear and strong competitive edge and capability in managing user growth and spending efficiency.

Just to add a little bit of color on this, so typically when we look at the users, Each user will assess on each order on the probabilities of the order and also we look at each users on the totality of the probability of the users. And we look at not only now, their current behavior, but we also look at the past behavior. We also have a model to predict their future behaviors. So at the order level or the user level, we have the capability to be able to predict the potential margins we can make from this particular user, which user to drop, which user to take, and all those will come together when we try to monetize our platform. This is why, as Andrew mentioned, last year when we tried to drive the platform, we can do it very quickly. We know exactly what to pull the lever. It also helps us when we try to grow the platform again, which kind of user we want to bring to the platforms from the early acquisition to the early adoption, which one we want to drive them to early adoption stage, to the mature user stage, and to the later stage. And all those were very detailed work that we put into the platform. to make sure we manage our subsidies, manage our user acquisition, manage our CIMs, all these things very carefully to maximize our efficiency of spending.

Thank you.

Our next question comes from Navin Khilya from UBS. Your line is now open.

Hi, thank you for the opportunity. I actually had three questions. The first one is a bit more long term. I guess, you know, looking at all the new entrants across several of your markets, how would you describe Shopee's competitive advantage against them? And why do you think that advantage is sustainable in the long term? The second question I had was with regards to the comments that you made about investments in logistics. How should we think about the quantum of those investments? I guess both as it goes into your capex but presumably also, I guess, as your lease payments. So I guess cash outflow below EBITDA. And the last very quick question, the right of first refusal with Tencent, the new renewal, how long does this stay before the next renewal comes in?

Let me start with the first question you mentioned. In our businesses, there's always competition. It's very hard to be the only one offering e-commerce solution in the market. However, we do see the intent of competition might vary across our market, varies across the time. As we shared in the Q3 presentation, We observe that even in the market with the higher competition, we are able to gain market shares. The key is investment efficiency. This is what allows us to gain market share while having better economics, unit economics than our close competitors in our market. The key for that is our competitive advantage we have built over the past many years. I think number one, if you think about this, will be scale. As a clear market leader, we have a bigger scale that translates to much better monetization capabilities and also better cost efficiencies, of course. Number two is the local leadership and operation teams. We have a deep understanding of our market with a strong localized execution across very diverse market in our region. Our core teams are many of the local talent, mostly homegrown, with us in the past many years compared to our regional competitors with many expert leaderships in almost all the markets. It does make a huge difference when we come into the nuanced decisions we are making to the market. For example, in my previous answers on the very detailed decision I'm making on where to invest exactly, which user to de-prioritize, which user to prioritize, which kind of order to prioritize, which kind of order to de-prioritize. These are all detailed decisions we have to make by our local operation team and the quality does make a difference of time goals, which translates to a better efficiency of the investment The third thing is the e-commerce infrastructure we have built over time in the past many years. It's not a one-year work. We've been doing this for many years. I think one of this is what you mentioned on the logistics. We have seen very meaningful improvement in the cost per order in the past years on logistics. Drive the cost of serve down for our users so we can translate the savings to our buyers and sellers. Not only that, if you look at our payment, Shopee Pay has been able to reduce the friction of payment in all our markets. Besides that, Shopee Pay Later, which is a great offering that we offer to our buyers in the platform, this has been improving the purchase conversions quite a lot as we observed. For example, I met some buyers last week, the week before actually, who used to have the problem of not having enough cash to pay for CODs, et cetera, or pay for the services, the product they want to buy on time. SPayLater will offer them to buy things on time rather than missing it. If they're not able to use SPayLater, they will not be able to buy it on time. All these things help us to build a competitive advantage for long term and all the three elements are not easily built. It's something that's been done in the past almost 10 years, not only for Shopee but for our entire seed group to help us to have better efficiencies on the investment compared to our competitors. The logistic investment, I think it's not a short-term, I guess, investment we're taking. It's something I've been investing over the years for quite a long time. But the degree of investment, it's probably not as huge as most people think. I think a lot of this is investing the networks of the people that we have built over time. Part of the CAFAS you can imagine is the hubs we put into place, but this is a general kind of improvement of the rent that we put. We didn't buy the land, we typically rent the land, but we need to just convert it to the proper hub, and this is relatively small investment in terms of CAFAS. Another type of investment is the sorting centers. We do have a few investments put into place for the automatic sorting machines so we can automate the sorting rather than do it manually. The other part of investment would be the trucks, but we rent most of the trucks, so it's rather kind of like less folks on the campus for this.

Also to clarify, the model of logistics that we have is not a at this point, a CapEx heavy model. We're not looking to build mega warehouses or mega machinery type of logistics in that model. Our model is more about building a large network of small sorting centers, small hubs into many, many neighborhoods, and also build a team capability to extend our last mile coverage across a wider network of areas covered by us. So it's more OPEX. And for the past few years, we have already been consistently investing in logistics which is one of the key reasons that get us to the current position of continuing to reduce the logistics shipping fees and also a key competitive advantage that we have.

I just want to add on this a little bit. Actually, compared to many other logistics providers, if you look at the 3.0 region, our cap has been a lot lower if you compare. And there's a reason for that actually, because we are able to predict our volume in a lot more accurate ways. Imagine if you're a third-party logistics, you have to forecast what your volume will be in the next year or next two to three years in order to invest in CapEx. It's extremely hard, especially in our market. For our own logistics, we have... a good way, let's say, to predict what's the demand in our market, not only for next month, not for next quarter, but in the next two to three years, most likely. As a consequence of that, we're able to CapEx things, not only CapEx, actually, it started from the designing of our networks, as Yanjun mentioned, to design our network in a very flexible way, to design our network in a very optimized way. After designing that in a good way, then you can manage your CapEx in a much more efficient way and every CapEx can be put into use right after you capitalize on it, rather than in some time you have to rush for it or you have to capitalize on things, build something, but you wait to be used. I think in this aspect, we have a good advantage compared to the other offerings in the market. That's also why we can manage our cost down. compared to the other offerings.

Regarding a question on an offer agreement with Tencent, it is automatically renewed every year unless terminated by either party. The agreement is also publicly available.

Our next question comes from Yong Xiao from Barclays. Your line is now open.

Great. Thank you for taking my questions. I have two questions and a follow-up. The first question is, since you pivoted for growth a few months back, it's great to see that GMV now is growing year over year. I was wondering, could you talk about the linearity as you went through the quarter? I suspect the momentum picked up. during the quarter and could you talk about sort of so far in Q4 how that GMV growth momentum has been? Any comments on FX impact, that would be great. Second question is I think you talked about live streaming obviously the key focus for growth. You mentioned 10% GMV, I wasn't sure. Is that for Indonesia or is that for the whole region? My question is about your long-term expectation. As you know, in countries like China, live streaming is quite a 20-25% of total GMV. For the industry, what do you think the number could be or should be for Southeast Asia, I don't know, in a few years and where you are currently for the region? And related to that, since the TikTok sort of shut down in Indonesia, what have you seen, if anything, the impact for your growth for your market share. And lastly, for the follow-up I had, is that you mentioned a couple times that you're committed to investing within your means and will not raise any financing going forward. And in Q3, you did a great job. You grew your GMV, grew your revenue while making some profits for the group. I was wondering, is that sort of a... British English or small profit is sort of the guardrail you meant by investing within your means. Thank you.

Let me start first. In terms of the growth over the quarter, I think We don't have a detailed month-to-month breakdown number shared, but in general, if you look at the year-to-year growth, we do see a better year-to-year growth over the months. For Q4, we do see the trend continues. So far, as we are right now, We see a broadly similar trend in terms of the growth levels floating from Q3 to Q4. The R impact on Forex, generally I think the number we shared is in the US terms, but if you take the constant currencies, we actually grow better. In quite many markets, actually, there is a depression against U.S. dollars. So as operations, if we take the constant currency, we grow better than the U.S. dollar basis. In terms of the live stream percentage, the percentage I think mentioned in the early comments was for the region. If you look forward, I think the percentage of the penetration might be country by country. So if you put everything together, it might not be fair. Let's take a look, you know, if you take the biggest market like Indonesia, the way we look at things is we look at the content e-commerce as a whole, content including live streaming, including videos actually, which is another part of the important part of the content. If you look at everything together, In Indonesia as a market, we do believe let's say somewhere range around 20 to 30% is a reasonable range we look at. The public still a little bit lower than where you see from China, but that has a reasonable sign. In the other market, maybe a slightly lower than that, but the It wouldn't be too far, but again, this is a very early time that we developed the market and we see how it develops. Generally, we are on the more positive side than the negative side in terms of the potential for these businesses. Of course, mathematically, after TikTok closed the shop, the market share, everybody's market share grew a little bit, of course. And we do see good traction on the sellers and creators who joined our platform. I do believe they joined some other platform as well as they are looking for the growth opportunities. Generally, we have seen the behaviors. In terms of the breakeven level, I think we are happy with the fact that we breakevened the group, but I think, as Forrest mentioned very early, we would like to balance between the gross market share and probabilities. You know, we will have to make decisions based on how the market condition moves.

Due to interest of the time, we will be concluding our question and answer session. I'd now like to turn the conference back over to Ms. Minju Song for any closing remarks.

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

The conference is now concluded. Thank you for attending today's session. You may now disconnect.