Sea Limited

Good morning and good evening to all and welcome to the C-limited first quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, press star and one again. For operator assistance, please press star and 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. Elson Choi to begin the conference. Please go ahead.

Hello everyone and welcome to C's 2025 first quarter earnings conference call. I'm Elson from C's investor relations team. 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-GAP 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 GAP disclosure. For a discussion of the use of non-GAP financial measures and reconciliation with the closest GAP measures, please refer to the section on non-GAP financial measures in our press release. I have with me C's 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 first quarter of 2025. 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. We have delivered another great quarter of strong growth with improving profitability across all three businesses. Our businesses are now all self-sufficient and cash generating, positioning as well to capture future opportunities. Our strong start to the year gives us more confidence of achieving our full year guidance. Five days ago on May 8th, we celebrated C's 16th anniversary. On the same day, we rebranded our digital financial services business from C-Money to MONEY, spelled -E-E. We chose the name MONEY because it is simple, cute, and just like our company's name C, easy to write and pronounce. MONEY also resonates well with the name of its sister brand, Shopee, reflecting the seamless, synergetic connection between the two ecosystems. Our digital financial services business already has a decade-long history. From AirPay to ShopeePay to S-Pay later and to all of MONEY's other products and services today, we create solutions that are simple, accessible, and inclusive. We use technology to enable all our communities to join the digital economy and manage their money more easily. We remain grounded in these principles as we move forward. Today, MONEY is already one of the largest unsecured consumer lending businesses in Southeast Asia, and I believe we are only at the start of realizing its full potential. We have expanded beyond Southeast Asia to Brazil, and we are moving beyond payments and credits to every aspect of people's lives relating to MONEY, such as banking, investment, and insurance. When we help people achieve their financial goals, it can be life-changing not just for them today, but for their children and grandchildren as well. We are excited and committed to creating financial freedom and empowerment for consumers and small businesses with technology, both for this generation and the generations to come. With that, let me take you through each business's performance. Starting with e-commerce, Shopee has delivered a record high GMB and gross order volume in the first quarter. We sustained market leadership with improved profitability across both Asia and Brazil. Unique economics improved, largely driven by our continued scale expansion, cost optimization, and enhanced monetization, especially from advertising. Ad revenue grew by more than 50% -on-year in the first quarter. Our operational priorities remain consistent to enhance price competitiveness, improve service quality, and strengthen our content ecosystem. Our strong execution of these priorities has continued to make Shopee competitive and depreciated. On price competitiveness, our diverse product range and competitive pricing continue to resonate well with buyers. Our ability to deliver a clear price advantage over our peers comes from our closer collaboration with sellers and a deeper integration with upstream suppliers. In Qualtrics survey, we continue to rank as best in market across Asia and Brazil for offering good product prices. This has done a lot to build our brand man share of being the most price competitive e-commerce platform in our markets. In the first quarter, our average monthly active buyers on Shopee grew by over 15% -on-year. Our service quality has been good. Logistics continue to be integral to our ability to deliver better and more reliable service to our customers. We further strengthen this value proposition in the quarter with both cost reduction and service quality improvements. In the first quarter, we reduced the Shopee's overall logistics cost per order by 6% in Asia and 21% in Brazil -on-year, while continuing to improve delivery times and expand network coverage. These efficiencies enable us to pass on greater savings to buyers while providing a seamless and reliable shopping experience. In addition to these broad measures, we constantly explore and pilot new initiatives delivering value targeted at specific customer needs. For example, in some of Indonesia's major cities, we offer an instant delivery option that delivers orders in just a few hours. In the first quarter, we also piloted a Shopee VIP membership program in Indonesia to better serve our most loyal users. This paid membership program includes benefits such as unlimited free shipping, upside the discount vouchers, and priority customer service. Adoption has been encouraging with more than 1 million users subscribing at the end of March. Members purchased more than three times as frequently and spend more than four times as much as regular buyers. These are just some examples of how we continue to experiment with value-adding features to strengthen buyer engagement and sickness. We also continue to improve service quality to our sellers by empowering them with intelligent tools and optimized ad tech solutions. For example, we introduced Shopee AI Assistant to help sellers handle routine customer queries, making their daily operations on Shopee more effortless. Our upgraded ad tech product called GMV Max has also made it easier for sellers to launch campaigns, reach the right audience, and maximize their returns. In the first quarter, the number of sellers who spend on our ad products increased by 22% and average ad spend increased by 28% year on year. We continue to make good progress with our content ecosystem and it is playing an increasingly important role in driving buyer engagement and conversion. In Southeast Asia, content-driven orders, including those from live streaming and short videos, accounted for about one-fifth of our total physical goods order volume in the first quarter. Unit economics also continued to improve, supported by growing scale, larger average basket size, better marketing efficiency, and higher adoption of Shopee live ads. We are also seeing strong traction from our partnership with YouTube, which we have expanded to all six of our Southeast Asian markets. As of March, over four million YouTube videos had Shopee product links embedded and average daily orders attributed to YouTube content continue to rise steadily. This partnership has strengthened our relationship with creators who can now more easily monetize their engagement, while also allowing our sellers to tap on the high traffic YouTube platforms for sales. Beyond Asia, Brazil continues to show encouraging results. The pace of our user-based expansion continued to outpace the market average as we gained market share and we remain at just the EBITDA positive. This was driven by our strong execution. We expanded to serve more underserved market segments, onboarded more sellers, diversified into higher ticket size product categories, and improved delivery speed while maintaining our logistics cost advantage. Looking ahead, we see plant-off runway for further growth in Brazil and we remain committed to capturing the long-term opportunities in this market. In summary, Shopee has started 2025 on very strong footing, delivering high growth while improving profitability across our markets. With solid first quarter results, we remain confident of achieving our full year GMB growth guidance of 20% with improving profitability. Next, turn to digital financial services. In the first quarter, money delivered another strong set of results with both revenue and just the EBITDA growing more than 50% -on-year. This growth was delivered while maintaining stable asset quality, reflecting our continued commitment to prudent risk management. In the first quarter, our loan book grew by over 75% -on-year to reach $5.8 billion, mainly driven by the healthy expansion of our user base. In the first quarter, we added over 4 million first-time borrowers, and we see new user cohorts continuing to generate positive profit over time as we scale. By the end of the quarter, active users for our consumer and SME loan products exceeded 28 million, representing more than 50% growth -on-year. At the same time, our overall portfolio quality remains healthy, with our 90-day NPL ratio staying relatively stable at 1.1%. Risk management remains our top priority. We take a proactive and dynamic approach to credit risk management, leveraging live insights from our ecosystem and closely tracking repayment trends across user cohorts. Our deep roots in local markets serving a massive user base gives us the unique advantage of first-hand data, letting us evaluate market conditions in real time. With short loan tenures of typically three to six months, we can adjust underwriting thresholds, credit limits, and pricing parameters quickly in response to microeconomic changes. In the first quarter, we made good progress across various markets. In Thailand and Malaysia, SPay later campaigns with Shopee effectively drove new user acquisition and further increased penetration on Shopee. By the end of March, Thailand's loan book surpassed $1 billion. Brazil also delivered robust loan book growth in the first quarter, driven by both SPay later's higher penetration on Shopee and a growing contribution from buyer cash loans. Such strong growth across different markets diversifies our overall loan book and reduces our exposure to any single market economic cycle, giving us a more stable and resilient loan portfolio. We also continue to roll out new products and strengthen our underwriting capabilities enabling us to serve a wider range of users across different risk profiles and credit needs. For example, in the first quarter, we saw strong growth from credit products with lower interest rates, higher credit limits, and longer tenures in markets such as Indonesia and Malaysia. These products are helping us attract more higher income users who may be more selective in their adoption of credit products. Having a larger cohort of premium users gives us significant cross-selling opportunities and a higher customer lifetime value. Taken together, as we continue to grow our credit penetration in more markets serving more users, we are consciously constructing a loan portfolio with better diversification across markets and user segments. This lets us maintain good asset quality which benefits our long-term growth and profitability. While the Shopee ecosystem remains an effective funnel for user acquisition and asset acquisition, underwriting insights. Money is steadily expanding its reach beyond Shopee. In Malaysia, off-Shopee usage of S-Pay Later has grown meaningfully by leveraging Shopee Pay's merchant network and through targeted marketing campaigns that strengthen consumer man-share of our credit products. Off-Shopee S-Pay Later loans now account for over 10% of our total loan book in Malaysia. We are seeing healthy repayment behavior with off-Shopee S-Pay Later loans and the unique economics continue to improve. In Indonesia, off-Shopee growth has also been boosted by the standalone Shopee Pay Financial Services app which has surpassed 30 million downloads as of March. The app supports everyday payments beyond the Shopee platform. It seamlessly integrates S-Pay Later functionality to enable the use of credit for off-Shopee purchase. We continue to enhance the app with new features to drive user engagement and position it as a central hub for daily financial activities. This lays a strong foundation for cross-selling a broader suite of financial products and services in the future. In summary, money is on the right track to continue delivering strong loan book growth while maintaining sound credit quality and we are confident of achieving our full-year guidance. As we scale, we remain focused on risk management as a top priority. Given our unique business model and the strong support we have from our Shopee ecosystem, we are confident that we can grow money in a way that is resilient to credit cycles and profitable into the long term. Next, turning to digital entertainment. Garina had a stellar start to 2025 with its best quarter since 2021. In the first quarter, Garina's total bookings grew 51% and adjusted EBITDA grew 57% -on-year. In addition to Freebar, our other games such as Arena of Valor, EA Sports for FC Online, and Call of Duty Mobile have also had a good start in the first quarter, giving Garina a strong growth outlook for the year. In January, we launched a Freebar collaboration with Naruto Shippuden. This was our biggest ever anime IP collaboration to date. We spent over two years with the IP partner preparing for this major campaign. We came up with a comprehensive suite of content and features such as special moves, character-inspired variables, and recognizable things from the animation. Our development team put a lot of effort into upgrading our character models to introduce the intricate finger movement and hand signs that are iconic to the anime. This went a long way to bringing authenticity and the sensation of the anime into Freebar. The Naruto campaign was a resounding success with extremely positive feedback from our gamer communities around the world. Official video impressions gathered over 300 million views since the launch of the campaign, and the player feedback made it clear. The Naruto campaign stands out as the highest rated collaboration Freebar has ever done. The collaboration's strong social phenomenon allowed Freebar to not only capture new users, but also reactivate turned players. Thanks to the huge success of the collaboration, Freebar's average DAU in the first quarter was close to its peak quarterly average DAU during the pandemic. This further reinforced the Freebar's position as the world's largest mobile game by average DAU and downloads, according to Sensor Tower. Beyond the Naruto campaign, our focus on hyper-local content continues to drive strong user engagement by connecting with players through their culture and daily life. In the first quarter, Freebar celebrated Ramadan through specifically designed in-game missions in Indonesia, allowing players to contribute real-world donations of clothing and food, turning the gameplay into a shared act of generosity during the holy month. This resonated very positively with our gamer community. In Arena of Valor, we brought community spirit to life by organizing offline floaters in Taiwan during the culturally significant Mazu Pibrip Edge and lighting blessing candles at temples on behalf of users during Lunar New Year. The responses to these events on social media have been overwhelmingly positive. These initiatives show how our local teams proactively transform our games into platforms where culture relevance meets social impacts. Beyond our existing games, we are growing our portfolio to deepen our capabilities and skills our market presents. In April, we published Delta Force Mobile, a first-person tactical shooting game across markets in Southeast Asia, MENA, and Latin America. Since launch, the game has seen good traction with over 10 million downloads. We have also started pre-registration for Free City, a self-developed open-world adventure game, and will launch it in phases beginning in May. We are confident that these new launches will deepen user engagement with our gamer community across our markets. In summary, Arena had a very strong start to the year. We will continue to drive Free Fire's popularity and longevity and expand our game portfolio for overall sustained growth. We remain confident of delivering our guidance of double-digit growth for the game. In closing, we are very happy with these strong starts to 2025. All three of our businesses have shown strong growth and improving profitability. We remain committed to executing well and driving greater efficiency. We look forward to delivering a strong 2025 and beyond. Thank you, as always, for your support. With that, I invite Tony to discuss our financials.

Thank you, Forrest, and thanks to everyone for joining the call. We'll see overall. Total gap revenue increased 30% -on-year to $4.8 billion in the first quarter of 2025. This was primarily driven by GME growth of our e-commerce business and the total adjusted EBITDA was $947 million in the first quarter of 2025 compared to an adjusted EBITDA of $401 million in the first quarter of 2024. On e-commerce, shop-ease growth orders grew 20% -on-year to $3.1 billion in the first quarter of 2025, and GMB increased by 22% -on-year, 28.6 billion in the first quarter of 2025. Our first quarter gap revenue of $3.5 billion included gap marketplace revenue of $3.1 billion, up 29% -on-year, and gap product revenue of $0.4 billion. Within GAP's marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues was $2.4 billion, up 39% -on-year. Value-added services revenue, mainly consisting of revenues related to logistic services, was $0.8 billion, up 4% -on-year. E-commerce adjusted EBITDA was $264 million in the first quarter of 2025 compared to an adjusted EBITDA loss of $22 million in the first quarter of 2024. Digital financial services gap revenue was up by 58% -on-year to $787 million. Adjusted EBITDA was up by 62% -on-year to $241 million. As of the end of March, our consumer and SME loans principal outstanding reached $5.8 billion, up over 75% -on-year. This consists of $4.9 billion on book and $0.9 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% at the end of the quarter. Digital entertainment bookings were $775 million in the first quarter, up 51% -on-year. Gap revenue was $496 million. Adjusted EBITDA was $458 million. Returning to our consolidated numbers, we recognize a net non-operating income of $89 million in the first quarter of 2025. Compared to a net non-operating loss of $18 million in the first quarter of 2024, we had a net income tax expense of $136 million in the first quarter of 2025, compared to net income tax expense of $79 million in the first quarter of 2024. As a result, net income was $411 million in the first quarter of 2025, as compared to a net loss of $23 million in the first quarter of 2024.

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

We are now opening the floor for question and answer session. If you would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to draw your question, please press star and number 1 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 for more questions, please request to join the question queue again after your first question has been addressed. At this time, we will pause for a brief moment to wait for the questions to come in. Your first question comes from the line of Pang Viet of Goldman Sachs. Your line is now open.

Hi, good evening, management. Thank you very much for the opportunities and congratulations for a strong set of numbers. Two questions from me, number 1 on Shopee. You deliver a very strong improvement in profitability this quarter. What drives that uptick and how should we think about margin strain in the coming quarter? As these profits grow, how do you think about the risk to Shopee GMV growth amid this uncertain macro environment and what gives you the confidence to maintain that 20% outlook? That's question number 1. Question number 2, can you also share more color around the strong performance at money as well? What do we see that drives the uplift in loan book, whether it's new geography, new products, and how should we think about the return and margin on these new loans?

Starting from the Shopee side, there are a few factors driving the good growth for Q1. Part of that comes from seasonality. I think this year, Q1 is the first year that Ramadan falls fully in Q1 and the holiday falls in Q2. In the past, it's always either in Q2 or partially in Q1. That contributes to part of the numbers. Second one is we do improve take rates over time. I think as we shared in the opening that if you look at the ad take rate, we grow 50 base points from last year. That helps on our take rate side. The other side of that is we also optimize our costs over time. Our shipping costs, for example, has dropped meaningfully from last year. We also optimize our sales and marketing over time as well. On top of that, we also optimize our operating costs through many of the initiatives. For example, we're using a lot more AI solutions to automate many of our customer service and listing management, etc. All those contribute to better cost structure and as a result, contribute to our margin improvement. If you look at the rest of the year, we believe the top line guidance of 20% growth still stays. If you look at the profit side, the long-term trend, we still target on to 3% of the EBITDA over GNV. Of course, in the short term, we're not squeezing our ecosystem as much as possible. We're still focused very much on the growth side to make sure that we have a good growth while improving the EBITDA over time. Although if you look at quarter over quarter, there might be some similarities as I shared just now. From the macro perspective, we have not seen a material impact to our shopping growth from the macro side. I think part of that is because we are very much local marketplace. Our cross-border business has been a relatively small percentage of our entire businesses. The cross-border trade impacts from any aspect will not impact our overall business materially. Also, if you look at our businesses, we are very much a price-driven, in a way, we are a price-leading platform in our market. If any users who would like to seek any alternative for that purchase for a lower price element, typically they will come to us. Giving the low penetration of the e-commerce in most of our markets, this will potentially help us to advance the e-commerce penetration while our users are looking for a cheaper alternative versus their other channels. On top of that, shopping is also a more intent-driven marketplace where the impulse-driven purchase has a less percentage. It is less impacted by the fluctuation on the discretionary spending. All those will help us to grow well even with macro opportunities. The only thing that might impact our number in a way is the forex. As you are probably aware, in some of our markets, the forex rate can fluctuate quite a lot from time to time. I think we are still okay right now if you look at the number, but we will monitor closely on the forex side. Again, that shouldn't impact our operation too much in our local market because we are very much a local marketplace rather than depending on the cross-border trading. If you look at the money side, the money growth has been driven primarily both on the penetration of shopping through SPL. We see a higher percentage of SPL penetration on the shopping side. Also, we are seeing a very good growth on the non-shopping side, especially on our BCL products. We have seen a pretty good growth from our BCL products and also for SPL offline. For example, we have been growing our SPL limit extra with cell phones. We are also starting two-wheel financing as well for motorbikes in Indonesia. The offline spending through the National QR code has grown very well in the past few months as well. If you look at the country mix, all countries are growing well, although we see that some newer countries have a slightly faster growth rate versus bigger countries by nature of the face of the market. In terms of the margins, we have seen a pretty good margin in Q1. Part of that is driven by optimizing some of our sales and marketing during Q1, giving the good momentum on the net. There might be some fluctuation over time on the margins, giving the country mix might change over time. Also, giving that the product mix might shift over time as well and also giving that our target segment might expand over time and also some of the sales and marketing spending. Overall trend, we should still have very good margins and the absolute amount of the margin percentage might go down a bit, giving the country mix and product mix and expanding of the base.

Thank you. Question comes from the line of Piyush Sudari of HSBC. Your line is now open.

Hi, thanks. Congratulations to the management team on stellar results. Two questions. Firstly, how are you thinking about incremental capital allocation? It seems in the first quarter, majority of cash flows have been invested into money segment to drive credit business. Incrementally, would you use own capital for money segment or would you like to diversify sources of capital in the future? Second question is on gaming. 1Q booking was very strong. What's the outlook for booking growth in gaming business? Can the current run rate be maintained or there could be quarterly volatility? I understand your full outlook on double digit growth, but can it be upward of 25% or any kind of range if you can talk about on the booking growth? Thank you.

Yeah, for the first question, yes. For all our three business now, it's self-sufficient and constantly generating cash quarter by quarter. We are actively monitoring our cash position and really think through what is the best way in terms of the capital allocation from the shareholder perspective. Actually, this has been a constant leader, the topic, not only for the operations, but only on the board meeting and on the board level. Specifically, in terms of if we are going to continually using our own money for our long book growth, we have been very, very cautious on that. In general, we would prefer to diversify our source of funding and we would rather, like instead of using our own cash, although it's probably in the short term, from the short term perspective, it may make more economic sense, but we want to build up a more sustainable and healthy source of funding by collaborating with the third party financial institutions and by exploring different ways of our source of funding. This is including work with other banks in terms of the channeling arrangement and including, like even we explore some structured product like ABS and some other channels as well. That is what is primarily our focus in terms of the source of funding for diversification. In terms of the question on the arena, we have a very, very strong first quarter and we are very excited about that. I think this is an extension of our strong growth momentum starting from a year ago. 2024 has been a very, very strong year for Free Fire and the arena in general and we are very happy to see entering into Q1 this year that growth is even accelerated. I think that is a very, very positive sign that Free Fire itself will be continually to be a very, very long-term focus and could be, as we always aspire, and build it as an every spring franchise and platform. In terms of the quarterly volatility, yes, Q1 historically in most of the years because of the seasonality has been a strong month because a lot of holidays end up like this quarter. For example, the Lunar New Year and this is a big holiday across a lot of our markets. As Chris just mentioned, even for this year, Ramadan is also being in the first quarter, like many in the first quarter as well. Specifically for Q1, the great performance is also contributed a lot by the IP collaboration with Naruto. That is a super successful collaboration. Of course, this gives us a lot of inspiration and it gives us a very, very good back practice. We should explore more for the capital collaboration along these lines, but this probably will not happen every quarter, so we expect some volatility. Looking at from the whole year perspective, we still remain very, very optimistic and we feel very confident about the growth perspective for Greenland for this year. I think at this moment, we are excited by Q1 results, but I think we also should be cautious and be more focused on the product itself rather than just say, okay, what is the financial number we can deliver? When we have a better visibility across the year and if we have a better sense of how the year will look like, we'll come back to the market and give more detailed update on that.

Thank you very much.

Your next question comes from Alicia Yap of Citigroup. Your line is now open.

Hi. Good evening, management. Congrats on the strong set of results. Thanks for taking my questions. Two questions here. First, it seems like Shopee and also your peer in Brazil continue to grow really well this quarter, so can management share with us the main driver for the sustainable fast growth stage in Brazil and how long do you anticipate the fast growth stage to last? Second question is on the overall Shopee BAS revenue. With the subscription membership, given it will be driving higher frequency purchase order, will that actually put a pressure on your BAS revenue growth in the short term? How should we think about overall monetization rate over the next few quarters? Thank you.

On the Brazil question, we do see Brazil has very good potential for us and for some of our peers as you can see. For Brazil, the key thing that we are growing well is similar to what we shared before. Number one is we have been a leading pricing advantage in the market. We always focus on to make sure that in our platform the user can get the best pricing and that has been very welcomed by our core mass user groups. The second one is we have been working a lot on our infrastructure, especially on the SPX logistics. Not only lowering down the cost, but we also shorten our delivery time quite a lot over the time. For example, if you look at Q1 2025 versus last year, our delivery time has been shortened by two to three days, which is quite meaningful impact to the experience. We also have a same day delivery in Sao Paulo as well, which helps us to penetrate better in the cities. We are also starting fulfillment services for some sellers, which we just started, but we are seeing very good feedback from our sellers. All this essentially helps us to serve our users better with the better pricing, with the better service and logistics, with the lower shipping cost. I think that's kind of what drives our Brazil growth. We will foresee that if we can continue to improve on those aspects, we will still be able to grow the market, giving the penetration of e-commerce in Brazil is still relatively low even compared to South Asia market. We will try to essentially improve on those as I shared, as far as we can. On the second question, on the VIP memberships, we do see a very good take-up of the VIP memberships, as far as shared in the opening, that we're seeing quite a lot of users subscribe to it, 1.5 minutes also as we shared. The purchase frequency is a lot higher compared to the non-VIP users. We also see better retention for those users in general. I don't think this conflict with the VS revenues per se, I think we see this as a decisive factor. Our VS revenue contributes a lot from the SLS, SPX, those shipping services and other types of services. Of course, ads are on the topics as well. If you look at the overall monetization, the commission side of the monetization, we will probably not increase as much as you have seen last year, but there might be still some potentials. We will adjust in different markets based on the feedback from the sellers. We have not seen any negative feedback from the seller yet in terms of the commission side, so we'll monitor very closely based on the marketplace to adjust on the commission side. But on the ad side, as we shared a few times, we still see there are meaningful potentials for us to increase the ad take rate through both optimizing our efficiencies on the ad placement in our marketplace and also the seller adoption. To increase seller adoption, we both make it easier for sellers to invest in our ads, but also make the return of investment better for the sellers. By doing all this, this will help us to increase the ad take rate. If you compare where we are right now versus the other marketplace similar to us, we still have meaningful room there. That will help us in general on the monetization side.

Your next question comes from the line of Divya Kosiak of Morgan Stanley. Your line is now open.

Thank you very much. Two questions from me. The first one on e-commerce is competitive landscape. Could you please comment on how you're seeing the competitive landscape in ASEAN and Brazil and how does that tie into the margin expansion that we're seeing? Specifically on Brazil, if you could comment on the launch of TikTok shop and how we are planning to showcase shopping life there, what's your initial sense on the likelihood of live streaming becoming big in Brazil as it did in ASEAN and what would our strategy be versus TikTok? That's the first question. My second question is again on fintech, specifically in Brazil. Could you give us some sense on how big Brazil is now relative to GMB there? How big is it as part of the loan book? What are the differences in the returns margin profile that you see for Brazil versus your ASEAN market? How differently do we need to manage asset quality there given these differences? Thanks.

On the competitive landscape, in general, we're seeing relatively stable competitive landscapes. There's always fluctuation here and there but largely, strategically, we didn't see a big movement on that. I think our margin improvement largely comes from, as I said earlier, a better air take rate, better cost structure, and just better operations from our side. We will probably don't see any big impact from that front in our market, both in ASEAN and Brazil. I think as you rightly pointed out, TikTok shop launched in Brazil actually just a few days ago. We will closely monitor the development. I think the core for us in Brazil is we would like to make sure that we have a good pricing, we have a good infrastructure to deliver lower cost and better experience. We believe those things, if we do well, we can continue to grow as I shared in the last comment. The Shopping Live has been available in Brazil for quite a while, although the ecosystem development of entire Brazil for live streams during early stage. Actually, not only us, as you can probably see that Mali also has live streaming features here and there, and also the other social media platforms also have live streaming features. It's not completely new to the market, but although the overall development of the live stream echoes in the market during the early stage. We will monitor it quite closely. If you compare to Asia, the live streaming behavior, as we see right now, is probably not as prominent as we have seen in the Asia market. But again, just like what we did in Asia, if we see that it's a good trend of ecosystem development, we have the capability, we have the experience, we have the technology to capture where we need it. On the think-tank side, as you probably know, Brazil is the country we launched much later compared to the Asia market. So we have seen a very good growth on the penetration of SPL on shopping GMVs. Although the absolute amount is still much lower than what Asia is, which shows that there's much larger potential in the coming quarter to grow in Brazil as well. If you look at the overall margins, if you look at the EBITDA margins, it's somewhere in the middle among our market. It's probably better, higher than some of the markets, but lower than the other markets, so somewhere in the middle. The difference is in Brazil, the interest rate is in general a bit higher. It's a high interest market, and the high interest are able to cover slightly higher risk as well in the market, just the nature of the market rather than anything we did very differently. We have been quite well profitable in the market since quite a while ago. It took us quite some effort to figure out how to do risk assessment in Brazil, which is slightly different than Asia, because the data source and the user behaviors, etc. are slightly different. But I think we find a path, and we have a good grasp on the risk of the market. We also integrate a lot more data over the last few quarters, and we'll continue to integrate more data in the coming quarters, leasing on the open finance framework that the president, Central Bank, has set up, which we think that we can leverage a lot on. In general, Brazil, we believe that is a good market for us, and there is quite a good potential for us in the coming months and years.

Thank you. Your next question comes from the line of Zhong Xiao of Workplace. Your line is now open.

Thank you so much for taking my questions. Congrats on the very strong results. My first question is on your Shelby EBITDA margin as percentage of GNV. You have made a lot of comments on that. You have said that your long-term target is 2 to 3 percent. I was hoping you can comment on the timing to achieve that target. It's a bit lower than some of your peers in other parts of the world. Do you think there could be other potential upside to that target? A second question is on your spending. The takeaway for VAS came down a little bit sequentially. Was that because of the shipping subsidies? Have you made a sort of decision tweaking in how you spend your money, sales marketing, -a-vis, shipping subsidies? Is that sort of seasonal in Q1, or is that sort of a strategic decision you made for this year or in the foreseeable future? Thank you so much.

I think on the EBITDA margin, as we shared before, I think the 2 to 3 percent, we think that's a meaningful range we can look at. Although, if the market is right and if the growth is well, it could be better than that. I think we are not constrained by the range that we shared. I guess that's what I'm trying to say. As you already pointed out, the R Global peers have a higher range. I think that's a good aspiration for us to look at. It's something that will evaluate time goals depending on how the competitive landscape is and how the market growth is fundamentally, and also how the seller responds to what we do. At this point in time, we still see that there's a lot of growth potential in our market. The penetration of e-commerce is still low and we still see more than 20 percent growth in the market last year. We are sharing that we will have 20 percent growth this year as well. We don't want to take the last hand off the market at this stage. Growth is still more important to make sure that we can penetrate the market. On the spending side, the tick rate, as you can see on the revenue side, is more driven by the gap accounting as you probably guessed it. If you look at our absolute tick rate in the gap terms, we subtract out the subsidy that we give out. It's true that in Q1, we have more shipping subsidies that cancel out the number of them more. If you take that out, our tick rate should be increasing rather than decreasing. We do see shipping subsidy as a good way of driving the user growth. Part of that is because we do have a cost advantage on our SPX side. We dynamically adjust on how we deploy different types of subsidies, either it's shipping or it's other forms. It's a more dynamic process and we do this test every day, every week based on the of the market. We do believe that shipping subsidy is useful and effective as we showed in Q1, but it's not something we set on stone. We will measure this based on the testing results. We do it very dynamically when we operate the businesses.

Your next question comes from the line of John Choi of Daiwa. Your line is now open.

Thanks for taking my question and congratulations on a strong set of results. I have two questions. First of all, on money or the fintech business, we're talking about driving off shoppy growth. Can you comment on what kind of investments are required here given that there will be much more compared to your previous shoppy platform and how this will impact our current margin going forward? That's my first question. The second question is related to the AI investments. How are you deploying this AI? What kind of investments have you been doing? What's the plan? How is this helping our business efficiently at the current stage? How do you expect this to improve our business down the road? Thank you.

If you look at the off-shoppy growth, there are a few types. I think the first type is the cash loans. The second type is the as-paid later offline, off-shoppy platform. If you look at the cash loan side, cash loan is actually very powerful business. The return of assets is probably even better than the as-paid later on shoppy. We've been growing this quite well in the past. We don't think that we need a particular investment to grow this that can impact the margins for this part. For the as-paid later off-shoppy, for example, the scanning national QR code or specific type of categories for cell phones or for motorcycles, the investment is very much on the teams that we have to build to deploy these services. We have been running these businesses in a very prudent approach. We've been trying to make sure that for all the services that we roll out, in general, we have a positive return rather than require a big investment upfront. Given the nature of our businesses, the way we run this is rather than you launch a new product and you try to do a big marketing, you try to attract a lot of new customers for that particular product, we first always leverage on our existing user base, especially the user base we've been built through our as-paid later. We target the new product to the existing user base, which will help us to save on the marketing cost and also help us to manage the risk very well for any new product we launch, even for this off-shoppy product. By doing all those, typically we will have a positive return when we add a new product to our assortment. The impact of IPIDA is less from the upfront investment but more from, as I shared earlier, as time goes, there will be a country mix. A certain country has a higher profit margin than others. Also, when we expand to different segments, and this can be across all different products, it doesn't matter if it's on-shopping or off-shopping. For certain off-shopping products, it might have slightly lower margin by nature. For example, if you look at the big ticket items, like we talked about the motor loans, typically will have slightly lower margins versus the small ticket loans if you look at a pure percentage of outstanding basis. But still, if you look at absolute terms, it will still bring us positive IPIDA as absolute terms. So it will be a good product to have if you think about the absolute returns. For the AI investment, we believe that AI will make a big change to our industry, both from consumer-facing side and also from our internal productivity improvement. I think we shared a little bit on this last time. As an example, one of the big improvements that we did is our search recommendations and our ads. So we're deploying an AI solution to help us to target our users a lot more efficiently when users search on us and when people come to our app so we can recommend more accurate products and also help us to have better efficiency on the ads product. That's why we can improve the ad take rate over time. Another example is the AIGC production that we can help our seller to create for their product descriptions. We have been increasing the video coverage for our product description a lot over time, and part of that is driven by the way enabling the seller to create videos based on the images based on some of the descriptions. Typically, for this investment, we always have a very clear ROI measurement for any of the investments I shared before. Whether we are spending our AI resources on better ads, we're spending our AI resources on better product descriptions, we measure the rate, and most of our investments so far, anything meaningful size, has been positive return for any investment we did AI resources. Besides those consumer phasing, we are also investing quite a lot on improving our internal productivity. For example, that we're using AI to help our internal listing team to filter the product, our marketplace, a lot more efficient so we can discover the contested, the fraud, etc., in a lot cheaper way. Again, for all those things we measure based on ROI as well for our AI investment versus the savings that we have, typically bring a positive return. We still see there's a lot of applications that we can do on both fronts, but again, we do this in a very prudent way.

Thank you. This concludes our question and answer session. I would now like to turn the conference back to Mr. Elson Choi for any closing remarks.

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

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