SEA：Seize the time window and invest heavily in live streaming and logistics facilities.

Here is a summary of the conference call for SEA's third quarter. For a review of the financial report, please refer to the article "SEA: Playing Themselves into Trouble".

1. Management Remarks

1. E-commerce Shopee:

We have made significant progress in these two areas in the past quarters. In the third quarter, Shopee's user base, total orders, and GMV growth rate accelerated MoM. With an increase in order frequency and improved buyer retention, the average monthly active buyers grew by 11% MoM.

Our livestream hosts have also become more engaged, with the average livestream duration per host increasing by over one-third during the same period. In Southeast Asia, our daily average livestream order volume has exceeded 10% of the total order volume in October. For livestreaming investments, we have specifically focused on key categories such as fashion, health, and beauty. These categories often benefit more from this form of user engagement and tend to enjoy higher profits.

We have made significant progress in reducing logistics costs and improving user experience. In the third quarter, logistics costs per order in the Asian market decreased by 17% YoY. The decrease in logistics costs also led to a YoY decline in value-added service revenue. We believe this is an example of economies of scale, where we reduce logistics costs through scale and pass on the benefits of lower transportation costs to our sellers and buyers.

2. Digital Entertainment Garena:

In the third quarter, Garena's booking volume grew MoM, while quarterly active users and adjusted EBITDA remained stable MoM. We view these results positively as we achieved this despite the reopening of schools in many of our key markets this quarter.

We are pleased to see that "Free Fire" has maintained a stable trend in terms of user engagement and monetization indicators.

The new content for "Arena of Valor" has received very positive user feedback, resulting in the game reaching a new peak in quarterly active users. Another game we released, "Call of Duty Mobile," achieved the highest quarterly booking volume. This is the result of our continuous efforts to improve player gaming experience through better optimization and successful content collaborations. We will continue to evaluate new development and release opportunities for Garena.

3. Digital Financial Services SeaMoney:

SeaMoney achieved strong revenue and profit growth, primarily driven by stable growth in our credit business MoM. As of the end of the third quarter, our credit investment portfolio amounted to $2.9 billion, a 5% QoQ increase. This portfolio includes a total outstanding loan amount of $2.4 billion on the balance sheet.

The remaining approximately $500 million of outstanding loan principal comes from channels, i.e., loans from other financial institutions on our platform. In terms of credit product types, $1.4 billion of the credit portfolio consists of Pay Later consumer loans used for transactions within and outside the Shopee platform. Remaining balance mainly provides cash loans to Shopee buyers and sellers. Our loan portfolio remains healthy.

The proportion of loans overdue for more than 30 days and 90 days to the total receivables on the balance sheet is 5.2% and 1.6% respectively, showing improvement MoM. We are also continuously expanding our funding sources. In fact, the majority of the funds for the total receivables on our balance sheet come from bank deposits and asset-backed loans from third-party financial institutions. We will continue to further diversify our credit portfolio in the markets and products within and outside the Shopee platform, optimize our funding sources to reduce costs and mitigate risks.

Analyst Q&A

Q: How long is Shopee expected to continue making losses, what is the specific market share level, or what other KPIs does Shopee hope to achieve before expenditure normalizes? What has caused the weak MoM growth in paying users in the digital entertainment sector? What are the prospects for the paying user base? Lastly, in the DFS field, can you talk about the prospects for loan growth? Is there room for improvement in the loan user penetration rate, or will it grow with the growth of Shopee GMV?

A: For e-commerce, as we have demonstrated in the past few quarters, we have the ability to quickly turn the tide and achieve breakeven if we choose to.

However, to maximize our long-term profitability, we will maintain organizational agility and flexibility, and adjust our operations based on the dynamic market conditions. For example, we focus on both market growth and quarterly profitability. We also pay attention to the dynamics of market share. In terms of investment plans, we focus on both overall investment efficiency and specific growth opportunities in each market.

For example, in the live streaming opportunity, we believe it is a great time to invest in developing this part of the business. Our goal is to be prudent with our spending. We want to always maintain a strong cash position rather than rely on external funding.

We do see the potential for Shopee GMV growth and credit penetration. Of course, this depends on each quarter, depending on the risk situation we want to control and the growth we want to achieve. Overall, both Shopee GMV and credit penetration are growing.

Q: Can you talk about the investment focus of Shopee in the third quarter and whether it has achieved the desired results? What are your considerations for expenditure and GMV growth targets in the fourth quarter? Can you provide an update on the latest progress of the priority purchase rights agreement with Tencent, which was supposed to expire this month? Can it be automatically renewed? How will this affect user channels? Can you discuss the credit quality of your loan portfolio?

A: We primarily invest in two areas. First, expanding our market share, especially in core categories such as fashion, health, and beauty. The second area we invest in is seizing market opportunities in developing the content ecosystem, especially live streaming. From the perspective of market share growth, now is the best time to invest. We do see that the growth in market share reflects the tremendous attractiveness of our investments. In terms of content, we believe this is a profitable and very important business, and it presents a great opportunity for us to capture market share.

When we first started building the ecosystem, there were some costs involved in establishing it. However, we quickly saw the economic benefits improve month by month, actually much better than we had imagined before starting the plan. In our market, the fourth quarter is usually the best time to acquire new users, gain market share, and strengthen our content ecosystem.

Regarding the issue of Tencent's right of first refusal, the agreement has also been renewed based on existing terms. Committed to strengthening our gaming channel, we have seen strong trends in "Free Fire" and we will continue to make it a powerful evergreen series.

In terms of credit quality, we do see that credit quality has actually improved over the past year. We are more conservative in managing our credit business to ensure that we protect non-performing loans while expanding our investment portfolio.

In terms of long-term profitability of the credit business, we continue to expand our credit investment portfolio across products and markets. We also continue to diversify our sources of funding to reduce the risk exposure of our own cash on hand.

Q: What is the long-term GMV growth that e-commerce can achieve? Given that live streaming is increasingly contributing to Shopee's GMV, will this situation change? What is the user engagement and purchase behavior stickiness related to subsidy spending?

A: In terms of long-term GMV growth, given our competitive advantage, we can lead the market. The e-commerce penetration rate in our market is still very low. We are far from market saturation. Therefore, there is still a long way to go for long-term GMV growth. Southeast Asia is still underdeveloped compared to many developed e-commerce markets.

In our Latin American market, for example in Brazil, the overall penetration rate of e-commerce orders is still much lower compared to our Southeast Asian market. There is no particular change in our goal regarding long-term profitability.

Product categories that perform well in live streaming are often high-profit categories. Generally, the profit margin of these categories is still better. Therefore, we can achieve better monetization through the platform. Live streaming is also a good tool for sellers to promote more interaction with buyers or potential buyers, increase conversion rates, and drive more sales during specific product promotions or when testing new products or clearing inventory.

Overall, during this period, we see higher buyer retention rates and order frequencies on our platform. In the past few years, we have demonstrated outstanding performance in expanding the Shopee platform.

Q: How would you describe Shopee's competitive advantage relative to all the newcomers in the markets you are in? Why do you think this advantage is sustainable in the long run?

A: In terms of growth for this quarter, I don't think we have detailed monthly breakthrough numbers. But overall, we have indeed seen better year-on-year growth in the past few months. We see this trend continuing into the fourth quarter. So far, the growth level from the third quarter to the fourth quarter is showing a similar trend. However, if we consider constant currency, we are actually growing better.

Considering the market in Indonesia, we believe a range of around 20% to 30% is a reasonable range to consider. It is still lower than what you would see from China, and it may be slightly lower than other markets besides Indonesia, but not by much. However, again, it is still early stages for us in developing the market, and we will see how it evolves.

Overall, our view on the potential of these businesses is positive rather than negative. Of course, for Indonesia, mathematically speaking, with the closure of TikTok's store, everyone's market share has increased a bit. We do see sellers and creators joining our platform with good appeal. I do believe they have joined some other platforms and are looking for growth opportunities.

So, overall, we have seen this behavior. In terms of the breakeven level, I think we are satisfied with achieving breakeven for the group. But as Forrest mentioned early on, we do hope to strike a balance between total market share and profitability.