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spk05: Good morning and good evening to all and welcome to the Sea Limited second quarter 2024 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, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr. MC Koh to begin the conference. Please go ahead.
spk12: Hello, everyone, and welcome to SEIS 2024 Second Quarter Earnings Conference call. I am MC, SEIS Investor Relations Director. On this call, we may make forward-looking statements. which are inherently subject to risk 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. 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 SEAS Chairman and Chief Executive Officer Forrest Lee, President Chris Fung, and Chief Financial Officer Tony Ho. Our management will share strategy and business updates, operating highlights, and financial performance for the second quarter of 2024. 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.
spk11: Hello, everyone, and thank you for joining today's call. I'm happy to report that it has been a solid quarter for us with our strong momentum from Q1 continuing into Q2. All three of our businesses have shown both strong growth and higher profitability. Before I dive into each business' results, I wanted to share some observations of our Southeast Asia market. Generally, retail and consumer spending trends in the region have remained healthy, with domestic consumption continuing to be a main driver of economic performance in many markets. This sets a very strong micro-foundation for our e-commerce business. We are happy with Shopee's market share in Southeast Asia and our sizable lead over our peers in the region. We are seeing more market share consolidation and an industry-wide take rate increase. We believe this will move the industry toward profitability, and sustainability, and we welcome this trend. With the strong results delivered in the first half and our outlook for the rest of the year, we expect that Shopee will become an adjusted EBITDA positive from the third quarter. We are also revising up our guidance for Shopee's 2024 full-year GMV growth rate to the mid-20s. With that, let me take you through each business' performance in more detail, starting with e-commerce. As we have shared before, Shopee's operational priorities are to deepen our competitive modes on three fronts, enhancing our price competitiveness, improving service quality to customers, and strengthening our content ecosystem. This strategy is paying off. Over the past two quarters, Shopee has been able to post healthy, sustainable growth while also improving its profit profile. One area we are placing greater focus on is improving our ad take rate. Currently, our ad take rate is lower than the industry average we observe in more mature e-commerce markets. To us, this represents a good opportunity to improve our monetization. Over the quarter, we have made it easier and more attractive for sellers to join our ad platform. We also have a dedicated tech team working on improving our ad bidding algorithm to help sellers achieve higher returns from their advertising spend. So far, the results have been encouraging. The number of sellers who pay for ads has increased by more than 20% year on year this quarter. We believe there is still plenty of upside, and we will continue to push on this front. We have also launched live ads across our Asian markets, allowing streamers including both merchants and creators, to insert ads into Shopee Live. This feature has been very well received. In Indonesia in June, one in four active streamers paid for live ads. This feature helps streamers boost their sales efficiency while increasing our ad take rate, enhancing our content ecosystem, and improving our live streaming unique economics. On improving our service quality to customers, our logistics capabilities continue to depreciate us. In this way, 50% of buyers in Java, Indonesia cited fast delivery as the reason for choosing Shopee. we have continued to integrate more closely with our many logistics partners to widen our coverage and deliver packages faster. XPX Express, in particular, has managed to improve delivery speed while also reducing its cost. In the second quarter, more than 70% of XPX Express orders in Asia was delivered within three days of order placement, with cost per order declining 8% year on year. Another initiative to enhance customer service quality has been improving the buyer return refund process, a common pain point in e-commerce. Earlier this year, we launched a change of mind returns feature in our Asia market, letting buyers initiate no questions asked returns within 15 days. We paired this with data-driven tech improvements to make the overall return refund process highly predictive and efficient. As a result, in the second quarter, more than half of our return and refund cases in Asia were resolved within one day. Making this process fast-free makes buyers more willing to complete purchase, driving up user stickiness and repurchase frequency. In Malaysia, we saw a more than 10% increase in average basket size among buyers who raised change of mind return requests compared to before the feature was launched. I share these examples to demonstrate how we consistently execute on our operational priorities every quarter. We believe this approach will strengthen our market leadership in the long term. Next, turning to digital financial services. C-Money has continued its strong momentum in growing its loan book and profit while remaining prudent on risk management. Both revenue and adjusted EBITDA have grown very well year on year. Consumer and SME credit business continues to be the primary driver of C-Money's revenue and profit growth. We are making good progress on deepening our credit product penetration both on Shopee and off Shopee. Our large Shopee user base is a unique advantage. It enables us to acquire new customers very cost-efficiently by promoting the right products at the right time to the right users. In the second quarter, we registered over 4 million first-time borrowers of our credit products, a figure that has more than doubled compared to one year ago. We have also expanded our off-Shopee credit use cases. In Indonesia, we partnered with over 1,000 electronic stores to introduce customer minds as pay later loans for mobile phone sales. We were the first player in the market to provide instant credit approval for this category at scale. We will continue to explore more credit use cases in our markets. With all these efforts, We have grown our loan book size to $3.5 billion at the end of June, up almost 40% year on year. Notably, our non-performing loans metric held steady at the end of the quarter. In fact, it improved slightly from the previous quarter. We now have 21 million consumers and SME loans active users. at almost 60% year-on-year. Looking forward, we will continue to invest in growing our user base efficiently and effectively, as our markets are still under-penetrated and present sizable opportunities. A large user base will be a cornerstone of future growth for C-Money, especially as we introduce more product offerings. Finally, turning to our digital entertainment business. Garena's two years of hard work and taking a user-centric approach are paying off. We have delivered a strong quarter with more than 20% year-on-year growth in bookings, mainly contributed by Free Fire. At the end of June, Free Fire released a seventh anniversary version update. our largest in-game event of the year. We brought back classic weapons, made a documentary on Free Fire's history, and hosted a story war where users could share their past experiences with the game. The campaign was very successful. Our players really enjoyed revisiting their fond memories of the game's early years. Free Fire's unique strengths is its large, highly engaged, and loyal gamer base. I'm very proud to share that every single day throughout Q2, Free Fire has more than 100 million daily active players. This reinforces our conviction that Free Fire is an evergreen franchise. Free Fire also managed to keep growing thanks to the strong word-of-mouth effect we see from our large user base. According to Sensor Tower, Free Fire was the most downloaded mobile game globally in the second quarter. Free Fire's organic social pool is highly valuable. Especially in today's world, where getting users to download and try new content can be hard and costly. We are also excited about launching Need for Speed Mobile in Taiwan, Hong Kong, and Macau later this year in partnership with Tencent and Electronic Arts. We are pleased to be able to bring this high-quality game with a classic IP to our gamer community. To conclude, we are happy with the strong results the three businesses have achieved in the first half. Thank you, as always, for your support. Before I hand over the call, I'm pleased to announce that two new independent directors have joined our board. Dr. Silvio Savarese is a leading expert in AI, and Ms. Jessica Tan is a highly accomplished leader in financial services. I'm glad that Silvio and Jessica are willing to lend us their deep expertise and guidance on these two areas which will be critical in shaping this future. In addition, Tony will be stepping down from our board and will continue to serve as our CFO. With these changes, our seven-member board has a majority of independent directors. Thank you very much. With that, I invite Tony to discuss our financials.
spk10: Thank you, Forrest, and thanks to everyone for joining the call. OC overall, total gap revenue increased 23% year-on-year to $3.8 billion in the second quarter of 2024. This was primarily driven by GME growth of our e-commerce business and the growth of our digital financial service business. Our total adjusted EBITDA was $448 million in the second quarter of 2024, compared to an adjusted EBITDA of $510 million in the second quarter of 2023. On e-commerce, Shopee's gross orders grew 40% and GMB increased by 29% year-on-year. Our second quarter gap revenue of $2.8 billion included gap marketplace revenue of $2.5 billion, up 33% 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 $1.8 billion, up 41% year-on-year. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.7 billion, up 16% year-on-year. E-commerce adjusted EBITDA improves quarter-on-quarter, with losses narrowing to $9 million in the second quarter of 2024, compared to an adjusted EBITDA loss of $22 million in the first quarter of 2024, and an adjusted EBITDA of $150 million in the second quarter of 2023. For our Asia markets, we continued to achieve positive adjusted EBITDA following our first quarter of 2024 results, recording $4 million during the quarter compared to an adjusted EBITDA of $204 million in the second quarter of 2023. In our other markets, the adjusted EBITDA loss was $13 million, narrowing meaningfully from last year, when losses were $54 million. In Brazil, unit economics continued to improve as we achieved a positive contribution margin per order of $0.09 for the quarter, as compared to a loss of $0.24 in the second quarter of 2023. Digital financial services gap revenue was up by 21% year-on-year to $519 million. Adjusted EBITDA was up by 20% year-on-year to $165 million. As of the end of June, our consumer and SAE loans principal outstanding reached $3.5 billion, up almost 40% year-on-year and 8% quarter-on-quarter. Non-performing loans passed due by more than 90 days as a percentage of total consumer and SME loans was 1.3% at the end of the quarter. Digital entertainment bookings were $537 million, up 21% year on year and 5% quarter on quarter. Gap revenue was $436 million. Adjusted EBITDA was $303 million. Returning to our consolidated numbers, we recognized a net non-operating income of $56 million in the second quarter of 2024, compared to a net non-operating income of $108 million in the second quarter of 2023. We had a net income tax expense of $61 million in the second quarter of 2024 compared to net income tax expense of $62 million in the second quarter of 2023. As a result, net income was $80 million in the second quarter of 2024 as compared to net income of $331 million in the second quarter of 2023. With that, let me turn the call to MC.
spk12: Thank you, Forrest and Tony. We are now ready to open the call to questions. Operator?
spk05: Thank you. We will now begin the question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. 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 question has been addressed. At this time, we will pause momentarily to assemble our roster. Your first question comes from the line of Peng Bittayamnuekun with Goldman Sachs. Your line is open.
spk02: Good afternoon, management. Thank you very much for the opportunities. Two questions from my side, both on e-commerce. Number one, could you please comment on the latest competitive landscape you have observed? We are seeing all players, including yourself, push for further rationalization into third quarter, especially on the merchant front. How should this translate into your results and your updated guidance? In another word, what factors do you include in your revised guidance? That's question number one. Question number two, specifically on margins, what type of near and medium term margins can we expect Shopee to deliver and how do you plan to achieve that? Any update on long term margin expectation as well?
spk09: On the competitive landscape, I think as far as mentioned in the opening, we do see a more stable competitive environment in the past few months. As you mentioned, there are positive movement in terms of the take rate from various players in our market, and I think we welcome that as a signal of more stable environment for competition perspective. Our longer-term view on the possibility target stay unchanged as 2-3% of the EBITDA as we shared before. However, we believe the market is still quite dynamic. And in the short term, we were likely number one, focusing on the profitability of the businesses. We were, as we shared in our guidance, in Q3 will be profitable as the Shopee businesses. But at the same time, we also like to grow as there's still a good potential in the market we operate in. We would like to make sure that as a business, we can outgrow the market as well in the short term rather than maximizing the profit in the near term. If we look a little bit to the medium terms, we do expect the overall content landscape in our market to continue to evolve and continue to come into a more rational stage, even compared to where we are right now, which will drive the overall industry profitability to improve. If you look at the overall market, as we mentioned, it's still rather dynamic with the more stable competitive environment. But there are things we can control that we cannot control. We would rather focus on the things we can control. For example, the things that we shared in the opening. We want to have better pricing. We would like to have better user experience. We would like to have a better content supply to our users. Together with the larger scale of where we are right now, be better positioned to deliver better value to our consumers and ultimately have better unit economics which will translate to the market share gain over time as well. I think that's kind of like how we probably see the market in the near-term, mid-term and the longer terms.
spk05: Your next question comes from the line of Piyush Chowdhury with HSBC. Your line is open.
spk13: Yeah, hi. Thanks for the opportunity and congrats to the management team on good sales results. Two questions, again, both on e-commerce. As you mentioned earlier, you know, you have been increasing take rates and then industry has also increased take rates during OneEdge. Is it possible to further increase the take rates and are you able to reduce the shipping subsidies? That's the first question. Secondly, can you talk about the unit economics of live streaming business? Has it turned profitable now in some countries? How is the contribution margin for live streaming segment? Thank you.
spk09: For the take rate, We do believe there are opportunities to further increase the take rate. I think part of that comes from commissions and fees. As you probably observed, we do increase meaningfully in the past few quarters. I think there are still opportunities to further increase that, although probably not in the magnitude that we see in the early part of the year. There's another part of take rate which we think that is also having a sizable opportunity is on the ad side. As we shared in the opening, we do focus a lot on the ad side. We spent quite a lot of effort on building infrastructure to the ad side in the past few quarters. For example, we built a standard platform for our recommendations and search. We also built a standard algorithm and platform for our access to organic traffic allocations, all those will help us to be able to allocate traffic more agile and more flexible. And this enables us to offer better edge product to the sellers as well, which we are rooting out in the next few quarters. We believe all those efforts will help us on the app tech rate improvement in the coming quarters. On the UE pool for Livestream, we do see UE improvement quarter-on-quarter. Actually, if you look at all markets, some markets are profitable, some markets are still improving. But I think generally we believe the trend will continue in terms of the UE improvement for our Livestream businesses.
spk05: Your next question comes from the line of Marissa Putri with UBS. Your line is open.
spk03: Hi, management. So I have two questions, firstly on e-commerce. So you've just reported your first CM positive from Brazil, and I think still with ambitions to kind of be number two in the market. How do you plan in achieving this? Should we think of the improved profitability as sustainable? And number two is kind of just to make sure that I'm getting your guidance correctly. So the adjusted EBITDA positive will be just for standalone Q3 EBITDA, but not overall nine months EBITDA positive in Q3.
spk08: Thanks.
spk09: For the Brazil businesses, we're very happy about the improvement on the margins in the market. As we share in the earning the contribution margin for the Brazil market is positive already. And we also see there is a good potential in Brazil market. The core for us in Brazil is, I think number one, we are able to consistently reduce our shipping cost in the market through our own logic network. Number two is we are also improving the user experience in the market over the past quarters. In combination, it drives better user retention and also better user economics to our market. The other thing that's important for our Brazil market besides the user experience and the economic improvement is the ability for us to increase our penetration of the higher basket categories over time. We do believe that we have a sizable potential there to further increase our market share penetration to those categories. Traditionally, we are not as strong as compared to some of other players in the market. So with all that, we do feel that there is a meaningful potential for us to grow further in Brazil market, and we can see the levers that we have, and we are working on those levers. In terms of the EBITDA guidance, I think what we refer to is the third quarter EBITDA posture.
spk08: I think the understanding is correct on that.
spk05: Your next question comes from the line of Alicia Yap with Citigroup. Your line is open.
spk04: Hi. Thank you. Good evening, management. Thanks for taking my questions. Two questions. First, can management share the update on the progress of acquiring on the non-Shopee platform user for the DFS business and the GTV growth for the non-Shopee platform? Will this more from the offline transactions like those offline retailers, the restaurant partners, or, you know, see actually will be open to work with any online partners, including, for example, the online travel agents? So this is for the DFS question. Second question is related to Shopee Express. So how are we going to further optimize the operation efficiency and also further improve the cost structure for the logistic business in the coming quarters. Thank you.
spk09: On the first question, if you look at our credit loan portfolio, there are a few components of that. We have Shopee Pay Later, which is very much quite connected to Shopee, the S-Pay Later, as we call it. It's used as part of Shopee transactions. Besides that, we have Buy Cash Loan, which is a cash loan that's not related to Shopee. Anyone can take loan from it. And on top of that, we also have the Offline Payment through SPayLater. And the same SPayLater that can be used offline can also be used online through a Shopee Pay acquiring network. Besides that, we're also developing different kind of use cases for offline usage. For example, the handphone purchase as we shared in the opening. And similar type of specialized services can be deployed in future as well that we're working on. For example, the potential home appliance purchase offline. It can be online as well.
spk08: For example, the other type of .
spk09: So I think to the question whether it's mainly offline or it's online as well, I think the answer is probably a combination of both. In fact, if you are in some of the market, for example in Indonesia, the user can use our escalator solutions. to pay in an online trouble website already. So we do work with various both online and offline partners to enable S-PayLater for their transactions. And we expect the partner will grow over time for both online and offline. So it wouldn't be only offline. For the second question regarding SPX, we actually have to further improve the efficiency of SPX. For example, number one is the scale. There is still room for us to grow our scale further, which in our state still can reduce the cost and improve efficiencies. Number two is more coverage and more density of the coverage. For example, more hubs. Some of the hubs can be traditional hubs, as you see. Some of the hubs can be mobile hubs through our innovative way of deploying the hubs with low cost. And if you look at Q2, we actually add about 900 hubs in Q2. And sites of them are mobile hubs with low cost operations. Number three is we're also doing more automation through our network. For example, in our SOCs, we are adding more automation solutions. Either it's a full ASM, automatic sorting machines, or it's a hybrid solution when there is a smaller SOC, which will further improve our productivity. We're adding similar solutions not only to SOCs, but also to some of our first mile and last mile hubs when the scale enabled. And number four is better technology supporting our businesses. For example, a better sorting for our last mile drivers. We're deploying a solution that we can also suggest the routing and sequencing We have done in some markets, for example in Brazil, but in some Asian markets that's not easy to do because of the complexity of the maps. We are building out more and more of a solution in different countries because we need to customize all the solutions for different markets. And the last thing just to share is the off-clock, which is very important for us. The off-clock starting from the picking up from the seller side to the first mile hub to the sorting centers to the line haul to the last mile to the delivery. It sounds simple but it's actually quite complex because there are so many handovers along the way and there are so many choices we have to make. Like, for example, when do you set a line for, when do you pick up, and whether you send to the hub directly or you send to a secondary sorting center. So optimizing the op clock here will enable us to further improve our efficiencies in general. And of course, there are many other things we're working on, but just sharing some of the examples for the improvement opportunity we have on the logic side.
spk05: Your next question comes from the line of Ellie Jiang with Macquarie. Your line is open.
spk04: Good evening. Thank you, management, for taking my question. I have two. Number one is a follow-up on e-commerce. Just wanted to ask about the at-take rate the management commented. We talked about the sizable opportunities ahead, but if we look in the next several years, what kind of timeline do we really anticipate? to ramp up this app kind of revenue and potentially get to a level that's similar to the natural market players. So for example, how does it take for us to stimulate more app spending from the merchants? Would it be more efficient marketing tools or coming from more higher ticket size item sales? And the second question is on the gaming segment. So it seems like Free Fire is really regenerating momentum. And according to some third party trackers, the momentum remains quite strong quarter to date. So can you comment on the visibility or the sustainability for the second half outlook? And, you know, for the potential kind of meet for speed distribution that we partner with Tencent, what kind of financial kind of contribution would that be coming from the second half as well? Thank you.
spk09: On the ad tech rate, I think given the foundation we have built, as I shared earlier, we do believe that we will start to gain a benefit in the next few quarters. Probably wouldn't take, you know, a few years. I think we're talking about probably quarters. I think the basic product there, I think it will take some time for the seller to adopt to it. And also, while there's different seller adopters, we have to optimize it for different markets. I think it comes in both in terms of the improved efficiency on how the seller use the ads product and also from our side as a platform how we can allocate the traffic in a more efficient way giving a seller more upside without sacrificing the overall platform conversion rate. I think that's essentially the The technology was built in the past few quarters, and we're trying to roll out and optimize in the next few quarters.
spk11: On game side, as you mentioned, we are very happy and we are very motivated by the trend we have observed on Free Fire. This is across pretty much all the metrics. in terms of the new users, in terms of the existing user retention, and also such as some monetization metrics as well, like paying ratios and overall the growth rate. This is a demonstration of what we have done in the past. It's the right decision we made and it's the right focus we have. And we will continue to do that. And so we'll be very, very focused on the content update, right? And in the past two quarters, we have some very, very successful new content release and around some festival campaigns and some unique gameplay, new gameplay experience. So we'll continue to do that. There will be several big updates already in the pipeline, and we have a pretty strong confidence on the result of those new updates. And on top of that, we are continually seeing Free Fire as a platform, and it's not just an evergreen franchise. is more like a platform. So the way we think about it, as we shared, on every single day, Free Fire can reach more than 100 million users globally. So that is very, very sizable. That is a very, very large scale. I think although you may consider the game, the name is always called Free Fire, in Free Fire so if you log into the game and you start to experience all different type of game experience and like different game mode so it's kind of like a combination of the different gameplay experience within one platform under one Free Fire umbrella so we'll continually explore that as well and some other like a longer term initiative we have been very very focused on and I personally feel very excited is about how to use the AI tools and both on the production side, the game development side, how to make the production more cost-efficient, how to improve the speed and the quality of the production. At the same time, we continually explore what is the type of new game experience for gamers enabled by AI. So this has been a focus of the team. And on the other end, it's related to the platform perspective we have. We are not only building the game content, and we are continually focused on building on the game creation tools within the Free Fire ecosystem, within the Free Fire universe. and gradually we're going to work with the third party content creator game developers to create a different experience within the Free Fire platform to reach to our 100 million daily active user base. I think that will not only make the Free Fire offer a more complete gamer experience, At the same time, this will continually help us on the user engagement and the monetization. So we remain very, very confident for the rest of the year, the momentum. But as we all know, game business, game sometimes have the impact of the seasonality. This is related to the school holidays, related to the certain in certain market. but look like a little bit like a longer term right and from the full year perspective as you asked and we remain confident to deliver the double digit growth for free bar for both the monetization side and also on the user growth side. And we are very excited. We work very, very closely with our partners like EA and the Tencent to work on the new game in our pipeline. But I would say it's still early to comment and what in terms of the revenue contribution. And internally, we have been tremendously still focused on Free Fire. And we'll let the market know and give the more kind of detailed update when we get the new game launched. I think when we get the user feedback and we see the stats, we'll have a better understanding a better sense of how big potential those new games could be.
spk05: Your next question comes from the line of Divya Kosayo with Morgan Stanley. Your line is open.
spk01: Thank you very much. My first question is just on your views on the higher risk from competition from cross-border e-commerce in ASEAN. I mean, given the traction that Timo is seeing in recent months in Philippines and Malaysia and their recent entry in Thailand, do you think that this could also become a credible competitor the way TikTok kind of came to this geography? And how are we planning to respond to this, especially in relation to our positive adjusted EBITDA guidance for the third quarter? And my second question is on e-commerce GMV. Is the higher guidance coming more from the surprises in Brazil or is it from ASEAN? And if you can comment on the trends that you're seeing in July and August, given that second half is slightly tougher based than the first half, and are we seeing any sort of tapering there? Thank you.
spk09: For the CB players, I think you will probably refer to Tmall's businesses coming to Asia. Generally, we have a lot of respect for what Pinduoduo and T-MOS achieved in the past years. However, I think our market will probably monitor, but from what we see so far, I think the impact to our business is probably rather limited from what we see. I think for two reasons. One is CP by nature is a smaller part of our businesses in our market. If you look at the market like the Philippines, Thailand, or Malaysia mentioned, the majority of the e-commerce transactions happen to be domestic selling rather than cross-border selling. There are many reasons to contribute to that, of course, but as a fact, that's how the market landscape evolved for the better efficiency and cost structure that the domestic e-commerce offers. Second one is the great strength for Timor, other cross-border players entering to US or European market is their pricing. They typically carry a significant price advantage compared to the existing players. However, if you compare our pricing to their pricing in the market that you mentioned, Philippines, Thailand, or Malaysia, we actually have a much better pricing advantage compared to them. It was mainly because we actually operate in a very competitive environment for quite a long time. And we have been essentially having a very competitive seller landscape domestically for quite a while. And also compared to a more developed market where the operating cost is much higher compared to the operating cost in China. The operating cost for our sellers in our market domestically is probably cheaper than the operating cost in China. If you take a person in selling things to offer the warehouse or offer a shop, they are probably cheaper than a Chinese person. So many different reasons contribute to the fact that our pricing in our marketplace, which you can benchmark externally actually, is very competitive compared to even the cross-border players you mentioned. To your second question around the GNV guidance, I think generally we see good growth, which are better than we thought before when we gave out the previous guidance in both Asia market and Brazil market. And just in the pure scale, Brazil market compared to Asia is still relatively smaller as a total size as where we are. So the one market would not influence the number dramatically. So when we look at better growth guidance, I think it will imply that both markets in Asia and Brazil will have a meaningful improvement from what we thought before. And as you mentioned that last year our Q2 and Q4 does have a higher base compared to Q1, Q2. But still, I think the core thing is that there are many initiatives we've done from last year, from Q3 and Q2, sorry, Q3 and Q4 on the countryside improvement and also the improvement on the service qualities, improvement on the cost structures, the improvements on the pricing, all those contribute to better retention and the new user coming to our platform, which drives better growth that we're seeing so far, which leads to our race under guidance.
spk05: Your next question comes from the line of Sachin Salgonkar with Bank of America. Your line is open.
spk14: hi thank you for uh for the opportunity and congrats on a good set of numbers i have two questions uh first one on gaming and second one on e-commerce on gaming uh again when we look at your numbers one gets a sense that your bookings are up your users are up but revenue is down and we are seeing the trend for last couple of quarters where arpu continues to go down what happened this quarter is clearly we could see margins almost being at an all-time high so want to understand Is this a specific trend we should look at going ahead where ARPU continues to decline and margins continue to improve or at least stay at these levels? Second question, I understand your earlier comments on competition being irrational, but just want to double click on a couple of markets. One, Taiwan, where we have a new competitor coupon, which is aggressive, so would love to know your thoughts on overall competitive intensity in that market. And second, in Indonesia, where one of the players had increased subsidies in the market. So any specific response from you guys to that? And how are you guys looking at the increased subsidies? Thanks.
spk10: Thanks for the question. I think for the first question, you were talking about the gap revenue. So basically, the bookings actually improved both QOQ and year-over-year. Well, because of the gap treatment we have to defer, more revenues into the future quarters. So that's why we typically see the variations in the gap revenue side that is on the reverse side with the booking side. Well, for our pool, what we see is the average revenue per user is relatively stable. While it might be fluctuating a little bit, but it's more coming from the market mix. We don't see very big fluctuation QOQ for this quarter.
spk09: I think for your question on the competitive landscape in Taiwan and Indonesia, if you look at Taiwan, I think Taiwan, we still enjoy a rather dominant market position in the market. We do see some new entrances and we do look at it seriously, but I think the impact to our business at this stage is relatively small. And the core thing for us, I mean, without commenting too much on specific competitors, of course, the core thing that we are doing in Taiwan is, number one, to shorten our delivery time through our own SBX network. We are covering a lot more next-stage deliveries through our own SBX network, which is are typically done through a 3PL with much more expensive delivery systems. We are able to do a neck delivery with much cheaper, in many cases probably 40% to 50% cheaper than the alternative solution in the market. That's one. Second one is to further increase the efficiency of the supply side. to work with our sellers to fulfill their orders, not only the delivery side, but also the warehousing side, the procurement side, to do it in a more cost-effective way. Number three is to work with more sellers to increase their assortment for those areas that we think can be further enhanced. I think all those things will help us to maintain our competitiveness in the market while maintaining the possibilities in the market. For Indonesia, I think there are different players doing different things in the market, and there will be seasonal fluctuations. We would pay less attention to short-term up and downs on the subsidies you mentioned. I think we look at sort of slightly longer-term, let's say medium-term trend, at least month-to-month or quarter-to-quarter trend. We didn't see any significant changes on that if you look at slightly longer-term rather than focusing on specific campaigns or specific weeks or days.
spk05: Your next question comes from the line of Thomas Chung with Jefferies. Your line is open.
spk07: hi good evening thanks management for taking my question my first question is about our dfs business uh just now i think our management comments a lot about uh bmpl cash along and offshore prepaid later i just want to get some color with regard to the margin trend uh for different categories any color about the margin profile would be great And on the other hand, given the macro uncertainties we are seeing globally, how should we think about the risk management, in particular the ticket size and the tenure success rate? And my second question is more about the overall business. Given our different business segments are seeing a very good growth momentum, how should we think about the longer-term revenue mix profile. Should we expect DFS to become more meaningful in the long term? Thank you.
spk09: On the first one, on the margin trends, if you look at a particular market or a particular product in our portfolio, our margin has been relatively stable. In fact, in some markets, we see better risk profiles for our product which will in turn better our EBITDAs ultimately. But one thing I just want to share on this topic is that given that we have many different markets and we do see that the newer market has probably a faster speed of growth. If you track our histories, we started our lending products in Indonesia first, then we expand to other markets like the Philippines, Malaysia, Thailand, Vietnam, and Brazil. So typically, you will see that, given the smaller base, the latest market has a slightly faster growth than the early market. I think that's the natural trend. In fact, we are very happy with the growth we see in some of the new markets. For example, in Thailand, we see very good growth. In Brazil, we are also saw quite a good growth in the past quarters. On the macro uncertainties, generally, I think there are many macro factors impacting our market. I think there was a big macro impact from the COVID time, the after COVID time. I think since late last year, we're seeing a more stable market environment, in fact, for most of the markets. There are two things that are important for us in terms of managing the market environment. One is the duration of our lending products. The second one is the ticket size I mentioned. So in general, our duration is rather a short duration rather than a very long duration. By short duration, we are talking about just a few months in average. And our ticket size also compared to many other lending products, our ticket size is more on the smaller side. So in the combination of both, it will help us to be a lot more agile in terms of how we manage our portfolio. Manage portfolio in terms of how much lending we give out, how can we do risk-based pricing for different user bases, and also how we do collections and how do we kind of fine-tune our portfolio based on the market environment. So in that sense, I think we're quite comfortable with where we are. Even if there is unexpected market environment change, I think we are probably in a much better position than anyone else that we can see in the market with our size.
spk11: For the long-term revenue mix of three businesses, if you look at each of the three businesses, I think each of them at this moment have some tailwind, right? And for our estimated e-commerce GMV growth, right? And that will be the driver of the potential revenue growth as well. And if we continually work on the take rate and not only on the commission side but also on the ad take rate side, right? And that could be a driver as well. And if you look at the financial services business, as we shared, and if we continually deepen the penetration on Shopee ecosystem, at the same time, the total like a loan book size will be, I think, grow nicely with the overall Shopee GMV growth as well. For game business, as we shared early, right, and we found the right formula for grow the free fire again. and we see a very, very strong momentum. So at this point, I think it's hard to come out. We don't see certain businesses go up and certain businesses go down, and then it's changed how the revenue mix looks like. I would say we'll be continually focused on growing each of the businesses as much as we can. But as Tony just mentioned, but purely from a gap revenue perspective, certain businesses growth of the game business because of how the gap revenue works, it may be a certain delay how to react, to reflect into the gap revenue, right? So that's why in general we use the booking as the like a closer proxy, the benchmark in terms of the growth. From that perspective, maybe we can like see the higher percentage of the revenue contribution from financial services. But again, this is a pure, in our view, because of the gap revenue treatment for the game business doesn't reflect, we kind of, we don't have the confidence on the future growth of the game business, yeah.
spk05: Your next question comes from the line of Jiang Chao with Barclays. Your line is open.
spk06: Thank you very much for taking my questions. I should have a couple of follow-ups. One is back on the take rate. You talked about increasing the advertising take rate to the global comps, global benchmark, in a matter of quarters, not years. In your opening remarks, you also talked about your commission take rate, I think, is below the global comps. Even it's good you guys and your peers are raising your take rate, but your commission take rate is still quite a bit below, you know, the Amazon, the Melly's, the eBay's. I was just wondering, are there structural reasons why you think a longer term your commission take rate won't be close to the global comps? peers and is any timing to reach that sort of sort of goal. The second follow up is back to the gaming booking. I know you talked quite a bit about the the strong booking growth, which was amazing. Second quarter in particular. Previously you have talked about double digit booking growth for this year for free fire. I think the assumption was sort of low teams, but given the particular strength you have seen last couple quarters, Are there reasons to expect the implied the booking growth for 35 for 2024 should be going higher? If not, why not? Thank you.
spk09: For the tick rate question, I think for the ad tick rate I've mentioned, I think we will see the potential growth in the next few quarters of the years. And of course, the base is different in different markets. So ultimately, it might be different numbers in different markets. On the commissions, I think I would rather look at the totality, look at commission and ask, et cetera. I don't think that is the reason they will basically blow the global appears in the market that you mentioned. I think this reflects to our long-term guidance on how the EBITDA will be at 2-3% of the market.
spk11: In terms of the game booking, free fire booking guidance for the rest of the year, I think you are right. We do see strong momentum and continuing. But at this moment, we want to be cautious, right, and think we just have this very, very strong momentum for the past two quarters, and we want to continually just focus on the effort what we have done, which proved to be productive. And if we continually see this trend, and we will update the market, we'll update our our investors timely and accordingly.
spk05: This concludes the question and answer session. I would like to turn the conference back over to Mr. MC Koh for any closing remarks.
spk12: Thank you all for joining today's call. We look forward to speaking to all of you again next quarter.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now
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