Sea Limited

Good morning and good evening to all and welcome to the Sea Limited Third Quarter 2024 Assault 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 record 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 would now like to welcome Mr. MC Kao to begin the conference. Please go ahead.

Hello, everyone, and welcome to SEAS 2024 Third Quarter Earnings Conference call. I am MC, SEAS 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 third 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.

Hello, everyone, and thank you for joining today's call. I'm happy to report that it has been another solid quarter. We are seeing high growth across all our three businesses. Shopee is on track to deliver our full-year guidance of mid-20 year-on-year GMV growth. Ximany's loan book grew by over 70% year-on-year this quarter. while maintaining a stable NPL ratio. And for Garena, we now expect Free Fire's full-year booking to grow over 30% year-on-year. I'm very proud that we also improved our profitability while getting back to high growth. This quarter, Shopee achieved positive adjusted EBITDA in both Asia and Brazil. As we continue to focus on delivering growth, we expect Shopee to remain profitable going forward. With that, let me take you through each business' performance in more detail, starting with e-commerce. Shopee has delivered strong GMV and order volume growth this quarter, sustaining strong market leadership in our Asian markets. user growth remains strong, with average monthly active buyers in the third quarter growing by over 20% year-on-year. We have improved our monetization in both commissions and advertising take-rates this quarter. On commissions, further market rationalization in Southeast Asia has led to industry-wide increases in commission take-rates. On advertising, our ad tech improvements attracted more sellers to our paid ad features. We simplified seller onboarding, optimized the algorithm for traffic allocation, and introduced a dashboard, making it easier for sellers to set their ad spend and ROI targets. This helped our sellers both see the benefits of their ad spend and achieve better returns on it, driving up adoption of our ad offerings. In the third quarter, ad paying sellers increased by over 10%, and ad paying revenue per seller increased by over 25% year on year. Compared to the same quarter last year, Shopee's ad take rate has improved by more than 30 basis points And we see much more upset here. On the operations front, we remain committed to the same three priorities to deepen our competitive mode. Enhancing our price competitiveness, improving our service quality, and strengthening our content ecosystem. Price competitiveness continues to be a key value proposition that we bring to Shopee users. It is a strong anchor of our brand man share among buyers. In a recent survey conducted by Quartrix, Shopee received the highest score among e-commerce platforms for good product prices in our Asia market and Brazil. On service quality, investing in end-to-end logistics integration across our logistics partners has given us a vital and structural advantage over our peers. Our buyers are happy with the cost savings we pass on to them and the better customer service we are able to provide. Our sellers also appreciate it as we give them access to one-stop logistics solutions that are both reliable and cost-effective efficient. XPX Express, in particular, continues to be a key depreciating factor for us. It has become a leading logistics service provider in our market with extensive coverage, fast delivery speed, and cost leadership. In the third quarter, half of XPX Express orders in Asia were delivered within two days of order placement. Cost per order also continued to improve quarter on quarter in both Asia and Brazil. We have also made significant progress on the content ecosystem front. Live streaming continues to be a popular format on both the supply and demand side in our market. Our division in the second half of last year to invest in building Shopee's live streaming capability has paid off. In the third quarter, our average daily unique streamers grew over 50%, and the daily unique live streaming buyers grew over 15%, both quarter on quarter. Average basket size on live streaming has consistently increased over the past few quarters, driving improvements in its unique economics.

Our content efforts have been particularly successful in Indonesia, our largest market in Asia.

We have been the largest live streaming e-commerce platform there by both GMV and order volume since the start of 2024. And our unique economics has improved steadily since then. One recent boost to our content efforts has been a new collaboration between Shopee and YouTube in Indonesia. YouTube creators can now embed clickable buttons in their videos that allow viewers to buy items from Shopee directly. We have just brought this collaboration to Thailand and Vietnam as well, and look forward to extending this strategic partnership into more markets. Looking beyond Asia, we are also seeing good results coming out of Brazil. In the third quarter, average monthly active buyers grew by close to 40% year-on-year. We are encouraged to see that these new user cohorts are purchasing bigger basket sizes than older cohorts, giving us better returns on investment and improving our unit economics. This allowed us to break even in Brazil on an adjusted EBITDA basis for the first time ever. Despite only having been in the market for less than five years, Shopee recently received recognition as the best shopping site in the FUYA Top of Mind Award, which recognized brands with the best mindshare among consumers in Brazil. We feel very excited about Shopee's further growth opportunities there. In summary, I'm very happy with the strength that Shopee continues to show in both Asia and Brazil. Many of our markets still have very low e-commerce penetration rates. This puts us in a great position to continue to grow as e-commerce penetration improves.

Next,

Turning to digital financial services, we continued our strong momentum this quarter, delivering double-digit year-on-year growth in both revenue and EBITDA. Our key driver of growth continues to be credit lending, which is in high demand but still very underserved in our market. Shopee's large user base in our market makes is highly efficient for us to acquire and serve credit users. Proprietary data from Shopee also allows us to better underwrite risk. In addition, we have diversified funding sources, such as innovative asset-backed lending products and our digital banks in local markets that give us access to retail deposits. All of this has led us to scale up our credit business very quickly and profitably. In the third quarter, our loan book grew over 70% year on year, and we added 4 million first-time borrowers. Our consumer and SME loans active users reached about 24 million by the end of the quarter, growing more than 60% year on year. Despite high growth, Our NPL 90-day ratio held stable in the third quarter at 1.2%. One of our risk management practices is to gradually increase loan size and tenure offerings to users. We typically engage first-time borrowers by offering escalator products with small credit limits and short tenure on their Shopee purchases. If the users show a healthy repayment track record, we offer them a higher credit limit, longer tenure options, and other credit products, such as cash loans. This practice underpins our sustainable healthy growth. Right now, our average loans outstanding per user is less than $200, with tenure periods of just a few months. These loans are spread over a very large user base across different markets. Recently, we have been pushing off-Shopee loan book growth more strongly, especially in Indonesia. Off-Shopee loans now account for more than half of our loan book debt. One recent example of an off-Shopee use case was to facilitate consumers' large ticket purchases of mobile phones in offline retail stores. In this case, we offered select users as pay later limit extra credit products with a higher credit limit. This initiative was very well received by our users. We will continue to explore further use cases in Indonesia.

and bring this success to our other markets. In summary, we see plenty of growth opportunities ahead in our market.

Strong synergies with Shopee gives us a unique advantage. And the use cases beyond Shopee are also very compelling. We are well positioned to grow our credit business and offer more financial services

to address the huge underserved demand in our market. Finally, turning to our digital entertainment business.

Garena's strong growth has continued into the third quarter. Total bookings grew over 24% and adjusted EBITDA grew over 34% year on year. This good performance is driven by the strength of Free Fire, which continues to be one of the largest mobile games in the world. Free Fire consistently had over 100 million daily active users in the third quarter, representing an impressive 25% year-on-year growth. In addition to Asia and the Americas, we were happy to see meaningful growth in other regions, such as North Africa, over the past year. We view this region as a sizeable untapped opportunity and have been ramping up both in-game campaigns and all top game events in this market. Recently, we held a major esports tournament in Morocco where thousands of teams participated, attracting millions of views on social media. We believe it was the largest attended offline mobile game event. ever held in North Africa. Our top priorities for Free Fire continue to be attracting, retaining, and engaging our users. In the third quarter, Sensor Tower once again ranked Free Fire as the number one most downloaded mobile game in the world. The number of new users who downloaded and played Free Fire in the third quarter was up 25% year on year. user engagement has also remained high. And while we always try to keep our pool at a healthy level, we saw an increase this quarter thanks to strong item sales during our anniversary campaign update. It is quite remarkable that a game of Free Fire's Vintage is able to grow its user base so steadily, and I believe this has a lot to do with our relentlessly user-centric approach. We make sure to release new content updates and in-game experiences very frequently, keeping things fresh even for seasoned gamers. Many of these updates are inspired by our local market and social media trends. In October, Free Fire was the first online game in the world to collaborate with the Zoological Park Organization of Thailand to bring their hugely popular baby pygmy hippo, Munding, into the game. Our users loved the hippo themed virtual items that we introduced in Free Fire. They shared user generated content on social media that went viral using more than 10 million views. This is just one example of how we leverage local trends to connect with users at an emotional level, making them feel that Free Fire is relevant and interesting. It also keeps Free Fire highly visible on social media, helping to join new users. Beyond Free Fire, Garena launched Need for Speed Mobile in Taiwan, Hong Kong, and Macau at the end of October. Since its launch, it has ranked as the number one most downloaded racing game in all three markets, according to Sensor Tower. We are also strengthening our partnership with Tencent to bring Delta Force, a first-person tactical shooting game, to PC and mobile users in several markets across Southeast Asia, MENA, and Latin America. To conclude, I'm happy that we delivered a very strong quarter, with all three of our businesses posting high profitable growth. We have done well, and we will continue doing so. Thank you, as always, for your support. With that, I invite Tony to discuss our financials.

Thank you, Forrest, and thank you to everyone for joining the call. To see overall, total GAAP revenue increased 31% year-on-year to $4.3 billion in the third quarter of 2024. This was primarily driven by GMB growth of our e-commerce business and the growth of our digital financial services business. Our total adjusted EBITDA was $521 million in the third quarter of 2024. compared to an adjusted EBITDA of $35 million in the third quarter of 2023. On e-commerce, Shopee's gross orders grew 24% and GMB increased by 25% year-on-year. Our third quarter GAAP revenue of $3.2 billion included GAAP marketplace revenue of $2.8 billion, up 43% year-on-year. and GAAP product revenue of $0.4 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues, was $2 billion, up 49% year-on-year. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.8 billion, up 29% year-on-year. E-commerce adjusted EBITDA was $34 million in the third quarter of 2024, compared to an adjusted EBITDA loss of $346 million in the third quarter of 2023. For our Asia markets, we continued to achieve positive adjusted EBITDA following our second quarter of 2024 results. recording $31 million during the quarter compared to an adjusted EBITDA loss of $306 million in the third quarter of 2023. In our other markets, we achieved positive adjusted EBITDA of $4 million compared to an adjusted EBITDA loss of $40 million in the third quarter of 2023. Digital financial services gap revenue was up by 38% year-on-year to $660 million. Adjusted EBITDA was up by 13% year-on-year to $188 million. As of the end of September, our consumer and SME loans principal outstanding reached $4.6 billion, up 73% year-on-year. This consists of $3.8 billion on-book and $0.8 billion off-book loans, principal outstanding. Non-performing loans passed due by more than 90 days as a percentage of total consumer and SME loans was 1.2% at the end of the quarter. Digital entertainment bookings were $557 million, up 24% year-on-year. Gap revenue was $498 million. Adjusted EBITDA was $314 million. Returning to our consolidated numbers, we recognized a net non-operating income of $15 million in the third quarter of 2024, compared to a net non-operating income of $46 million in the third quarter of 2023. We had a net income tax expense of $93 million in the third quarter of 2024 compared to net income tax expense of $62 million in the third quarter of 2023. As a result, net income was $153 million in the third quarter of 2024 as compared to net loss of $144 million in the third quarter of 2023.

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

We will now begin the question and answer session. If you would like to ask a question during this time, seem to press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. In the interest of time, it 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 queue again after your first questions have been addressed. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Pang Vith with Goldman Sachs. Pang, please go ahead.

Hi, thank you very much for the opportunities and congratulations for the solid set of results. Two questions from me, both will be on e-commerce. Number one, could you provide us with more insight into the latest competitive landscape in the fourth quarter that you see currently? We noticed that your social commerce competitor has been increasing its take rate, while we also noticed that the cross-border competitor expanded its presence in the regions. So could you provide some comments around how will this impact your growth projections on both top and bottom lines? And how do you think about the overall strategies? That's question number one. Question number two, it will be related to the advertisement. Can you provide, you know, we do notice that they're seeing a nice uptick, 30 basis point, quarter on quarter, in terms of that advertisement take rate. But what have you done exactly and differently that allow us to see this progress? You also share the insight on the potential ceiling for this ad take rate and the timeline for the ramp-up processes.

I think on the competitive landscape, as Forrest mentioned in the opening, we do see a stable competitive landscape. In fact, if you look at our growth, our growth has been doing quite well while we are improving our EBITDA to be profitable in both Asia and Brazil. If you look at Q4, we do see our Q4 is doing quite well still with all the competitive environment that we are in and that we're maintaining our mid-20s GMB growth guidance for this year. As we shared before, majority of our sellers are local products selling in our local market. As a consequence, the impact from cross-border competitors probably relatively small to us at this stage. If we look at the year as take rate, There is a meaningful improvement of ad take rate if you compare to the last year, same quarter, we grew about 0.3% take rate on the ad side. We have done many things actually over the past few quarters. We did a sizable revamp to our ad systems from a technical perspective. Part of the take rate comes from the algorithm improvement to improve how well we can place ads to a particular user's query. By doing that, we have a better conversion rate for our ads as a consequence that we can deliver better retail investment to the sellers. We also try to improve our traffic utilization algorithm for the ads so that we can have more flexibility in terms of when to display organic ads versus displaying ad products to the buyers. On top of that, we also improved the seller side ad product experience to make the sellers easier to utilize ad products as a consequence we can see that there are more and more sellers using our ads products, which in turn increase the pool of the products that we have in the ads, which also help us in the end of the day to improve our ad efficiencies because the bigger pool that we have, the easier we can match to our users' queries We believe that the potential of the ad product improvement is going to continue in the next few quarters. I think it's too early to comment on what the potential ceiling will be. I think the improvement will come in and we will see the impact in the coming quarters while we are further improving our technology. rolling out new products to sellers, and also rolling out the improvement to our market across our country.

Our next question comes from the line of Alicia Yap with TD Group. Alicia, please go ahead.

Hi. Good evening, management. Thanks for taking my questions. Also, congrats on the strong results. I have follow-up questions related to e-commerce. So how should we be thinking about the sharpest rules entering 2025, especially given a lower interest rate environment and also the resilient economic growth in Southeast Asia? And then related to that is that do you anticipate more intensified competition in Southeast Asia and also Brazil as we head into 2025? If so, how would management balance the market share growth for Shopee versus the profitability if the competition picks up? Given, you know, we actually recently observed that Tmoo in Vietnam has been gaining pretty good traction, even though they just launched recently. So any colors would be appreciated. Thank you.

I think it's probably too early to comment on the 2025. I think we're still monitoring the trend in Q4, and we probably will provide better guidance in 2024 in the coming quarter. But in general, the way we think about this is, number one, we would like to make sure we can grow in a profitable fashion. Number two is, within the profitable range, we would like to grow as much as possible. I think that's kind of how we think about it in terms of when we come into the next few quarters. In terms of competition, as I mentioned earlier, we're seeing a relatively stable competitive environment in South Asia. In Brazil, we didn't see any particular changes in the competitive environment either. As you mentioned, we do see certain players coming to our market through a cross-border business model, giving that cross-border has been a relatively small part of our businesses, and we believe that cross-border has been a small part of the overall market as well. So the impact to us will be relatively limited. Even you look at those cross-border products, that those players are offering, if you compare the pricing for those products to our product in the platform, we still see a relatively good pricing competitive advantage in our platform. So in that sense that, you know, unless there's a dramatic change on the price competitors from these players, we don't see that it will impact buyers' preference on how they purchase our platform too much.

Thank you.

Our next question comes from the line of John Choi with Daiwa. John, please go ahead.

Okay. Thank you. Good evening and thank you very much for taking my question and congratulations on a solid set of results. I have two questions here. First of all, on the first question is what is the latest percentage of our orders handled by SPX in Asia and Brazil? I think I've noticed that we have started to reduce the shipping subsidies and what is the near term? key driver for reducing the logistics cost per order and what is our target going forward. And my second question is about your unit economics. I think if you look at our live streaming unit economics for live streaming versus our peers in the long term, what is our merchant feedback after Shopee raised the take rate and the timeline of a further increase in this area? Thank you.

On the SPX, as we mentioned, We are increasing the STX coverage and also how much percent that STX deliver to a Shopee platform. In general, if you look at Asia, we're probably more than 50% and in Brazil, more than 70%. And this continues to grow, we believe, in the next few quarters. But not only increasing the coverage, we're also working hard on both reducing the cost and increasing the quality. More than half of orders delivered within two days now in Asia. The key thing that we are doing to reduce the cost for SPX coming from all different part of the value chain. For example, if you look at the first miles, we are working hard to match the clocks between how well we can pick up the products from the sellers and how well sellers can prepare for the products. And that involves part of the seller management, part of the fleet management from our side. If you look at the sorting centers, we're increasing the percentage of automations on our sorting centers and also the way that we manage the workers in our sorting center to make sure that their compensation has a closer linkage to their productivity. If you look at line haul, we're spending quite a lot of effort on improving how well we can utilize the line haul to make sure all the trucks are better utilized than it was before. Another thing, as you can imagine, the last mile is very important for our logistic management we are innovating on different formats of last mile hubs that we have. In the more remote area, we have more mobile last mile hubs than the more fixed last mile hubs that we usually have. We're also using technology to improve how many orders one rider can deliver in the last mile by helping them to sequence the package a lot more efficiently and also helping them to figure out the route a lot more efficiently based on the traffic patterns and based on the user behaviors. Again, it's probably not only one thing. It's across all the end-to-end value chains that we have for the logistics. order percentage has, if you look at the penetration to our platform as a percentage of orders, has increased slightly quarter to quarter, and our economics has been improved meaningfully quarter to quarter, actually probably across all our markets. As we shared before, we do believe that live stream economics will continue to improve over the time, and in the long term, it will probably be similar to the platform in economics. If you compare to our competitors for live streams, we generally have relatively good in economics. For the take rate increase, we don't have a fixed timeline in terms of the take rate increase. I think we spent a lot of effort trying to balance our seller ecosystem to make sure that, you know, whenever we increase the tick rate, we are delivering more value to our ecosystem partners. So it's something we will continue to evaluate and hear the feedback from our ecosystem before we conduct any adjustment.

Our next question comes from the line of Thomas Chong with Jefferies. Thomas, please go ahead.

Hi, good evening. Thanks, management, for taking my questions. I have two questions. My first question is about the gaming business. Can management comment about the buyer life cycle and any new games to be expected coming soon? And my second question is on the e-commerce side. Can management provide some updates about the logistics investment spending and its impact on EBITDA margin in coming quarters? Thank you.

Sure. For Free Fire, we are very excited to see the growth, especially after the challenge we face, some headwinds in terms of the post-COVID situation. I think we have been trying very, very hard in the past two years to continually improve the product through the very user-centric approach. And we start to see the pay off, we start with a great result like beginning of this year and extending the trend for pretty much for the whole year. And the Free Fire, in terms of the life cycle, I mean, as we always believe, Free Fire is more like a service and it's more like a platform to stand up like a product. So from that perspective, we do have the ambition and the conviction to build up Free Fire as every green game and every green platform. And this is, we see the very encouraged sign. And if you think about Free Fire has been a seven years old game, and it's still growing. And the new users come into the game. The new user growth is even accelerated. And from all those, we see the battery engagement, and we see the battery retention. So from all those metrics, and it's a very, very strong sign that Free Fire is still at a very, very early stage. I think it gives us the confidence to continually grow the game and through the engagement, through the better intention, and through making the game a more friendly experience for the new users, at the same time to always keep the content fresh, local, and to have a better engagement existing gamers as well.

Our next question comes from with HSBC.

Sorry. Operator, please pause for a moment. The second question has not been answered yet. Give us a moment here.

Regarding the second question, regarding the question on the logistic investment, for our logistic businesses is rather more OPEX-driven rather than CapEx-driven businesses. The core capital investment is centered around our sorting machines and part of the improvement to the hub and to the sorting centers. So in that sense that it's relatively smaller part of our overall spending to build our SGX businesses and It's counted as part of the overall EBITDA as well. So, we don't see that there will be a significant impact to the EBITDA margins from this perspective.

All right. Let's proceed for the next question. We have Rishabh Dhancolya with HSBC. Rishabh, please go ahead. Rishabh, please. Unmute your line. All right, so let's proceed for the next question. We have Divya Kotiyal with Morgan Stanley. Divya, please go ahead.

Yeah, thank you very much. So my first question is just on the e-commerce business. Could you explain what's driven the 13% quarter-on-quarter growth in the sales and marketing expense? And if we look at it as a percentage of GMV as well, it's gone up slightly by about 10 basis points. Just if you can triangulate this with your comments on competition being stable, when do we expect these sales and marketing expenses to start coming off and any outlook for next year on how to think about this number? And the second question is on the DFS business. I mean, the general sense that we got on the DFS business is that the growth was being, a more measured approach was being taken on the growth. But in this quarter, we've seen the growth actually accelerate quite a bit. Could you talk beyond Indonesia, you know, how the growth has really been panning out and what specific company initiatives have been taken to drive this growth?

Thanks. For the first question, so typically there are two things that might impact the sales marketing growth, especially in Q3. I think one is if you look at our revenue growth, There is a meaningful growth on the revenue side as well, so in the way that we take a bit more from the seller side on the tick rate. So typically when we see that, we will spend a bit more to make sure that we compensate some of the seller tick rate increase on our sales and marketing side. I think that's one. Second one is Q3, if you compare with Q2, Q3 is relatively more promotional season for e-commerce, where Q2 this year is more a lower season, if you count the dates. I think that's the two core drivers for the self-marketing movement, rather than reaction to the competition side. On the second question regarding the digital financial services, We're seeing growth not only in Indonesia, but also in the other markets. For example, we see relatively good growth in Thailand, Malaysia, and also we see early signs of well penetration in the Brazil market where we started very late. We see a meaningful penetration on Shopee from our Expellator product. So part of the driver for the growth is that we penetrate more Shopee users through various formats. So we can take more users to our digital financial service side. That's one. Second one is we optimize our existing products to the users. For example, if you look at our both Aspilator and our cash loan products, We are doing a lot more risk-based pricing. We also provide a new type of product to target more prime users. For example, we launched a term loan in Indonesia to target more prime users to make sure that we can address their needs as well. On top of that, we also spent quite some effort to build user scenarios use cases beyond the Shopee platform. For example, in Indonesia, as we shared in the opening, that we roll out the escalator for the offline payment through the national QR code, the same initiative we have rolled out in Philippines, in Malaysia as well. We also roll out the escalator for the specific use cases offline, like the cell phones, home appliance, et cetera. Some of this will continue in the next few quarters while we are expanding to more countries for those products and expand to more user cases. All those will help us to grow the digital financial services to a broader segment of users and penetrate to more use cases for those users.

Our next question is again from Rishabh Dhankalia with HSBC. Rishabh, please go ahead. Hi, am I audible?

Hello. Yes. Hello. Yes, we can hear you. Thank you for the opportunity. Two questions, please. What are your key priorities across each segment for 2025? And secondly, what are the initiatives undertaken in DFS segment to drive user growth and deepen penetration of various products, and outlook for growth and margins in this segment, in the DFS segment.

For the key priorities for 2025, and so overall we feel like the entire marketing is a strong tailwind from the macroeconomic perspective. And there is a very, very strong growth potential. And I would say without jumping to very, very specific in each business, overall, we'll still maintain a very, very strong growth mindset. And so the growth will be the focus. And we have a very, very strong momentum at this moment. And if you see all our three businesses on the very good growth trend at this moment. We hope this trend will continue into 2025. And meanwhile, as we mentioned, we also focus on the quality of the growth. And I think for all of our three business have gotten to the stage and with the strong foundation to deliver not only the high growth rate, but the very profitable growth as well. So that will be in the very big picture of process in terms of the priority for 2025.

Yeah, if you look at the CMS part of the businesses, as I shared just now in the previous questions, we are further penetrating to the shop user base. We are optimizing our product to cover more users in our ecosystem and also building more use cases outside of Shopee ecosystem to serve our users better. I think that all will contribute to the growth over next year, not only for Indonesia, but also for many other countries we have our financial service businesses in. We don't observe any particular trends in terms of the margin shift in this quarter or in the next few quarters.

Our next question comes from the line of Ranjan Sharma with JP Morgan.

Ranjan, please go ahead.

Hi, good evening, and thank you for the presentation. Two questions from my side. Firstly, on e-commerce, can you share your thoughts around how much profitable growth is left in Southeast Asia? Because we presume that the penetration of the major urban centers is already quite high in Southeast Asia. And the corollary to that is with you becoming profitable in Brazil, could Shopee look at further expansion out of Asia? The second question is on your cash and investments, which are close to $10 billion now. How much capital do you need to keep on the balance sheet? Or is there a case for you to return some money back to the shareholders? Thank you.

In terms of the e-commerce penetration, if we look at the current e-commerce penetration in our major market, we still see that it's quite a lot of room that we can grow if you benchmark that with more advanced e-commerce market. So overall, if you look at the market in a top-down way, we do believe that there's still meaningful room to grow the e-commerce penetration. Even in the cities, like for example, if you look at Indonesia, you look at the Jakarta area versus Java versus outside of Java. Even in the Java cities, in Jakarta, around Jakarta or in other Java cities, we do see that the meaningful penetration potential will be, part of that will be driven by the cost of optimization that we are doing. For example, by further reducing the cost for our SP deliveries and Part of that will come from a better experience of buying from e-commerce, like the service improvement that we are working on. Part of that will be driven by natural progressions of the population. Some of the younger population were getting slightly older, so they have better purchasing power. And some of the other users who don't use e-commerce before, they will try e-commerce and be more a frequent purchase over time. So all in all, we do believe that there are still meaningful rooms in terms of the penetration. For the expansion outside of Asia, our core market out of Asia is Brazil right now, which we do believe there is a huge potential there. In the near term, let's say in the next, it's very hard to predict anything too long term, but in the near term, we don't have any particular plans besides what we have right now.

In terms of the capital allocation, to start with creating value and maximizing value for our shareholders is always the thing on top of our mind. We remain very open-minded and actually we constantly look at all the opportunities and review all the options, how to create better value, how to maximize value, maximum value for our shareholders i mean definitely uh buyback is one of the ways right there's other there's other options as well i think when there's certain opportunity uh appears uh we will we will come out the plan and we will communicate with the shareholders uh timely and accordingly

Our next question comes from the line of Sachin Sangalkar with Bofar.

Sachin, please go ahead. Thank you for the opportunity and congrats on a good set of numbers. First question is on Brazil. Clearly and congrats for achieving an EBITDA margin break even out here. How should we think about the margins going ahead? Should it continue to hover around these levels given the investments you're looking to make out here? Or should we see an improvement in margin going out here? Related question, of course, is how do you look at the credit business evolving in Brazil going ahead? And second question is, when you think about incremental investments, now that all your businesses are a bit break-even, where do you see maximum amount of investment being made? Is it more towards logistics? Is it more towards DFS or anything else? Thank you.

If you look at the Brazil market, it's our newest market, and we've been very happy that we achieved EBITDA even in the market in this quarter. It's still a very dynamic market. Generally, we are hoping that we can further grow in the market with a profitable manner, although there might be some fluctuation from time to time. But generally, I think we would like to use that as a base for thinking. If you look at the credit businesses in Brazil, as I shared in the earlier questions, we started a few quarters ago and we see very good penetrations in Shopee through our escalator. We also launched our cash loan product in Brazil with a very good take rate that we observed. More importantly, we're fine-tuning our risk modeling in Brazil to a stage that we're a lot more comfortable with to grow further in the market. So generally we are quite optimistic by the potentials of our digital financial services in Brazil in the coming quarters. And if you look at the investment to various businesses, We take a very prudent approach for the investment. For example, if you look at any investment to logistics, we typically have a payback period, let's say, between nine months to 36 months in the range. It typically can contribute to our EBITDA quite quickly through those investments by optimizing our cost structure. If you look at the DFS side, DFS has generally been quite powerful businesses as you can see from the numbers. The core investment for the DFS is probably on the user acquisition side to make sure we are attracting the right user to the platform. The way we look at it is we measure the profitability for each users we bring in to make sure that each user we bring in has a meaningful profit in the coming year. The other type of investment, for example, on the e-commerce side, we do invest in acquiring users as well. For that, we also take a quite prudent approach in terms of measuring each user's customer lifecycle value against the cost to acquire the users. In most cases, the Unixnomics for those customer lifecycle value work break even in a year time, in general, if you compare with the cost we spent on acquiring the users for most of the market.

Our final question comes from the line of Cheung Hsiao with Barclays Strong. Please go ahead.

Thank you very much for taking my questions. Congrats on the very strong results. My first question is on the DFS business. You have made a tremendous progress in this business over the last few quarters, and your growth accelerated quite a bit this quarter, both for revenue and for the loan book. I was wondering if you can unpack that, just talk about what are the main drivers for the next couple of years to grow this business. Is that regional expansion, product expansion, any key things we should look out for for the continued sort of accelerated growth for this business. And second question is on the leverage in your e-commerce business model. Again, congrats for being profitable in Shopee again. And for this business, Is that sort of gradual improvement in profitability or once you reach certain scale, the leverage will just play itself out and the improvement in profits could be meaningful at times? Thank you.

So in terms of the digital finance service businesses, I think you're absolutely right that it's businesses that we've been very happy with in terms of the growth And if you look forward, the growth will essentially come from number one, the user growth. We would like to convert more of our e-commerce user to our digital finance service users and over time attract our non-e-commerce users as well to become our digital finance service user in our platform. That's number one. Number two is, of course, to essentially get more users to use our products. both from the existing product to optimize our offerings to different segment of users with the different risk profiles and also expanding our product assortment to address more financial needs that the user might have across their life cycles. I think it's going to be both approach, the user growth plus the product optimization plus the product assortment addition for our users. In terms of the country mix for DFS, I think we start with Indonesia. As I shared earlier, we see a very good growth in some other countries over the quarters, and I will expect the trend to continue, that the newer countries will benefit from the experience we learned from the earlier countries, so that we are able to attract users more efficiently and also roll out more targeted sessions. On the e-commerce possibilities, I think it's probably both, whether it's a gradual improvement or potentially there is a big jump on possibilities. In a natural environment, in a more stable environment without any external shocks, you will likely see a gradual improvement on the possibilities. As we grow our ecosystem and as we reduce the cost to serve our customers in our upstream, downstreams, and we are also able to optimize our own operating expenses to serve the customers. For example, if you look at the customer service that we have, we have been growing orders quite a lot in the last few quarters, but we manage it with the same amount of people, even smaller amount of people to serve those customers from our platform perspective. So all those will contribute to a gradual improvement in profitability. But as the market becomes more stable over the years, there is a possibility that we see that is relatively sizable jump in profitability in future. I think, yeah, to your question, there's both possibilities, but the base case we're working on right now is that we're able to gradually improve the probabilities over the next few quarters.

This concludes our question and answer session. I will now turn the call back over to Mr. Amsika for closing remarks.

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