Good morning and good evening. Welcome to the Sea Limited Fourth Quarter and Full Year 2019 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Yanjun Wang. Please go ahead.

Welcome to Sea’s 2019 fourth quarter and full year earnings conference call. I am Yanjun Wang, Sea’s Group Chief Corporate Officer. Before we continue, I would like to remind you that we may make forward-looking statements, which are inherently subject to risks and uncertainties and may not be realized in the future for various reasons as stated in our press release. Also, this call includes discussions of certain non-GAAP financial measures, such as adjusted revenue, adjusted EBITDA and net loss, excluding share-based compensation and changes in fair value of the 2017 convertible notes. We believe these measures can enhance our investors’ understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For a discussion of the use of non-GAAP financial measures and a reconciliation with the closest GAAP measures, please refer to the section on non-GAAP financial measures in our press release. I have here with me Sea’s Chairman and Group Chief Executive Officer, Forrest Li and Group Chief Financial Officer, Tony Hou. Forest and Tony will share strategy and business updates, operating highlights and financial performance for the quarter. 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 Forest.

Hello, everyone and thank you as always for joining today’s call. 2019 has been an extremely successful year for Sea and a year when we achieved a number of significant milestones. In particular, we celebrated our 10th anniversary last year. This milestone gave us an opportunity to look back at just how far Sea has come over the last decade. Our business has grown rapidly and has been constantly evolving. In just 10 years, we have grown from being a PC game publisher to a leading game publisher and developer with a diverse mobile and PC game portfolio. We have evolved from being a game platform to a consumer Internet platform that covers digital entertainment, e-commerce and digital financial services. And we have expanded from our humble beginnings as a start-up in a small shop house in Singapore to become a regional leader with strong footprint across global high-growth markets. Observers might be surprised by the pace and extent of Sea’s growth and the evolution over the last few years. While we benefit from economic and the technology tailwinds in our market, we believe the key reason for Sea’s success is our firm focus on identifying what we see as the largest opportunities in the consumer Internet industry and our relentless efforts to capture these opportunities with the right business model, timing and execution. We started our digital entertainment business, Garena, in 2009 because we passionately believed that gamers in our region deserved a better way to access and enjoy top-quality games and esports. Over the past 10 years, Garena has evolved from a PC game publisher in Southeast Asia and Taiwan to a leading global game publisher and developer. Our first self-developed mobile game, Free Fire, is a global hit and was ranked the world’s most downloaded mobile game…

Thank you, Forrest, and thanks to everyone for joining the call. We have included detailed quarterly financial schedules together with the corresponding management analysis in today’s press release, so I will focus my comments on the key financial metrics. For Sea, overall, our fourth quarter total adjusted revenue was $909.1 million, an increase of 134% year-on-year. This was mainly driven by the growth of our digital entertainment business, especially our self-developed game, Free Fire, and our continued monetization efforts in our e-commerce business in the past quarters. Digital entertainment adjusted revenue was $479.9 million, an increase of 107% year-on-year. The growth was primarily driven by the increase of our active user base and the deepened paying user penetration, and in particular, the continued success of our self-developed game, Free Fire. Digital entertainment adjusted EBITDA was $266.4 million, an increase of 153% year-on-year, mainly due to strong top line growth and our self-developed game accounting for an increased share of revenue. E-commerce adjusted revenue was $358.3 million, up 182% year-on-year. Within this, marketplace revenue was $283.5 million, up 224% year-on-year, while product revenue was $74.7 million, up 90% year-on-year. This growth is a result of our commitment to continue enhancing our service offerings as we seek to create greater value for our platform users. E-commerce adjusted EBITDA loss was $306.2 million as we continued our investment to fully capture the market opportunity in the region. We will continue to invest prudently and drive high-quality growth by serving the users’ needs better in the long run. Digital financial services adjusted revenue was $3.6 million, an increase of 18% year-on-year from $3.1 million in the fourth quarter of 2018. Adjusted EBITDA loss was $49.8 million in the fourth quarter of 2019 compared to a loss of $9.8 million in the same period of…

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

[Operator Instructions] The first question comes from Alicia Yap from Citigroup. Please go ahead.

Hi, good evening management. Thanks for taking my questions. Congrats on the strong set of results. The first question is on the e-commerce. Can you share with us currently, what is the percentage of the GMV or orders on Shopee that coming from merchants in China? And have we seen any disruption during this period given the virus outbreak? On the other hand, have you seen increase for the online shopping in countries such as like Thailand, Singapore or even Indonesia as more people are turning into online given the outbreak? And then the second question is on the growth – the adjusted revenue guidance for the gaming business. Is that mainly based on the existing games and should we expect that it does not include any potential new games contribution? Thank you.

Thank you, Alicia. On e-commerce, in terms of cross-border business, we do have a very strong cross-border business. However, our e-commerce marketplace is primarily local to local. In terms of – we don’t give the specific breakdown, but suffice to say, it’s in the range of – overall cross-border business is in the range of low teens from GMV perspective, and part of it also from other countries within Southeast Asia as well as outside of China, inside Asia. And so far, we haven’t seen much of an impact from the virus situation. As you can see from our revenue guidance for e-commerce which we budget for 80% to 90% year-on-year growth still and of course, if this virus situation becomes an extended issue that impacts global supply chain or regional economy as a whole, we might become similarly impacted. On the other hand, we also see that, especially in our region, while people are looking for online alternatives and – to shop for certain things, especially in the FMCG or cleaning categories, and as the market leader, Shopee does take more of a lion’s share in terms of the demand that might come online. So that could also foster some user habit in purchasing things online. But in general, as you can see, Shopee is seeing very strong year-on-year growth in order at more than 100% range. And being the market leader, we actually are growing at a faster pace than our peer companies, which are significantly smaller than us in most of the markets that we are big in and that also shows that the growth is very robust, and continue to be very strong for Shopee and that comes from both the user number growth as well as frequency growth. We mentioned before that Shopee users shopped…

Thank you.

The next question comes from Miang Chuen Koh from Goldman Sachs. Please go ahead.

Hi, thank you for the opportunity. So the first question is, just wondering how we should think about the revenue as well as the cost impact for the gaming business from integrating Phoenix Labs? And the second question is, how should we think about cash burn for both your e-commerce and payments divisions this year? Thank you.

Thank you, MC. So Phoenix Lab is an investment we recently made. It’s a AAA lab-based studio based in Vancouver with also operations in both Canada and the U.S. They have about 100 developers with 10, 20 years of experience from creating AAA titles across different platforms and diverse markets with a key focus on developed markets. We believe their skill sets and focus and expertise are highly complementary to our existing skill sets and experience across global emerging markets. And so the acquisition is more of a talent acquisition and we’ll look long-term in terms of developing more IP and strengthening our self-development capabilities as opposed to more of an IP acquisition where we just look at a single game. So in terms of that, I think it would really strengthen our development capabilities in the longer run. And I mentioned that we are looking at the next decade in terms of our development capabilities and generating top IP across the globe. In terms of cash burn for e-commerce and DFS, so on the e-commerce side, I think our position has been very consistent. We have a strong market leadership and our market leadership has been strengthening over time. And for e-commerce, as we all know, it enjoys very strong network effect and, therefore, strong market leadership eventually leads to better profitability and competitive moat in a longer run. So we will continue to invest to maximize our market leadership and also continue to invest to provide better services to our sellers and buyers to build a better ecosystem to serve them over time. By that, we generate more value and derive more profitability over the longer run So on that front, I think our investment is highly efficient. If you look at our EBITDA – adjusted EBITDA loss…

The next question comes from Thomas Chong from Jefferies. Please go ahead.

Hi, thanks management for taking my question and congratulations on a strong set of guidance for Shopee. May I ask about the take rate trend across different geographies such as Indonesia, Singapore and Taiwan going into the next couple of years? And on the other hand, going back to the gaming business, can management comment about the performance of Call of Duty as well as any new titles from Tencent in 2020?

Thank you. As we mentioned, we were – we’ve deepening monetization of Shopee platform as we continue to grow the platform. And we will continue to raise take rates across different markets over time, as we provide more services and enhance our services to our sellers as well as buyers and grow the platform. While we don’t give a specific guidance on the rates, as you can tell from the guidance we have given on Shopee’s fully adjusted revenue that this also incorporates increased deepening monetization on the platform. In terms of digital entertainment, we see very strong performance on Call of Duty: Mobile so far in our region. We share also a better spot among the global region, we believe. And it’s still at very early stage since it was launched October last year, and we’ll observe how we continue to perform and work closely with Tencent division to continue to improve the game and tailor it to our markets. In terms of new titles from Tencent in 2020, of course, under our close partnership with Tencent as well as the right of first refusal arrangement, we have full visibility of the pipeline. As usual, we don’t specifically talk about any game pipeline, but you can rest assured that we’ll continue to work with Tencent as well as all our partners to bring the top titles that we think are highly promising to our markets over time.

The next question comes from Mike Olson from Piper Sandler. Please go ahead.

Thanks for taking my questions. Just two questions, specifically, on competition. On the SeaMoney side, what competitive environment would you describe is there relative to the competition that you see in your other core markets of gaming and e-commerce? And then on the e-commerce side, are you seeing any increased competitiveness or aggressiveness, I should say, from competitors from the standpoint of free or subsidized shipping or other marketing spend? Thank you.

Thank you. In terms of SeaMoney, we think that at this stage, the market is still highly underdeveloped and fragmented. We have seen some players in the market who have spent to educate the market grow the pipe of us, which we think we also stand to benefit, as we look to serve more users and use cases who have already been educated on digital wallet. Ultimately, we think our core competence and advantages in owning the – 2 of the largest use cases is going to help us drive growth and also build out a comprehensive digital financial services ecosystem. And I think the – of course, the competitive landscape in e-commerce for us is quite different. We are the market leader and we continue to – as mentioned, we continue to grow at a faster pace in our markets despite being larger than our competitors. As, for example, Indonesia, we mentioned our order number actually doubled – more than doubled year-on-year to reach more than 2 million per day. And for some of the competitors, who also announced their growth rates, while they are significantly smaller than us, their growth rates are also significantly lower than ours. And we also start to see some of our peers switching gear towards focusing more on profitability and cost-cutting over time. I mean we fully respect our competitors and believe they are doing the best for their business, but while we continue to see great potential opportunity for us to maximize our market share as well as increasing the – building up the full ecosystem under the e-commerce business.

The next question comes from John Blackledge from Cowen. Please go ahead.

Alright, great. Thank you. On SeaMoney, could you help us think about some key targets or metrics for SeaMoney in 2020? And kind of what should investors be looking for in terms of progress of SeaMoney as we get through the year? And then on Shopee, I know there has been a couple of questions on cash burn EBITDA loss, was 2019 the peak EBITDA loss year for the segment and how should we think about longer term EBITDA margins for Shopee? Thank you.

Thank you. In terms of SeaMoney, I think we will continue to integrate our e-wallet services with our Shopee platform across the region. And at the same time, with the large captive user base we already have, we also have been approached by third-party merchants and other partners wanting to work with us, and we’ll continue to expand into other third-party use cases and the merchants. So on that, we’ll continue to focus on growing the user space as well as user frequency and quality of use case on the SeaMoney side. And in terms of the e-commerce, as mentioned before, we don’t give guidance on adjusted EBITDA loss, and we also think it is against competitive – our competitive interest to specific item on that part. But on the overall, as you can see, we have been growing with increasing efficiency. And the EBITDA – adjusted EBITDA loss per order has actually been dropping quite rapidly, and we are very much focused on growth efficiency, as always. And the EBITDA loss from e-commerce is mainly actually covered by our internal cash flow generated from operations. And also, more importantly, if you think about the longer term, we think e-commerce, once you achieve strong market leadership, it brings high profitability. One example we have given is Taiwan market where we have achieved a very strong market position quickly in that market and as we mentioned in earnings that in the fourth quarter, our adjusted EBITDA before common expense allocation for Taiwan already exceeded 20%. We first announced our adjusted EBITDA for Taiwan, excluding common expense, being positive at the beginning of 2019. So within the course of 1 year, the margin expansion has been quite rapid. And we continue to grow the Taiwan market and deepening monetization there. The take rate in Taiwan market is actually not significantly above the group level, so we continue to see strong monetization potential over time. And that’s a good example of how profitable the business could eventually be when we turn on the tap. So at this time, I would say it’s our choice in deciding how fast we can grow the market and, of course, always keeping a close tab on the market natural pace of growth so that we are not going at an inefficient level, but always ahead of the market.

The next question is from Ranjan Sharma from JPMorgan. Please go ahead.

Hi, good evening. It’s Ranjan from JPM. Congratulations on the achievements over the last decade. Maybe I can start the first question on the – with regards to Dauntless and what it means for you. I see that it’s a very high-spec game, going into mobile launch. Is this game going to be more geared to the developed markets rather than emerging markets like India or Indonesia? The second question is on the e-commerce business. I know you have shared previously that Brazil is a market, which was being targeted more as a bottom-up project of your cross-border team, but have your aspirations been changing recently? Because I think you’ve been hiring more people for Shopee Brazil? Thank you.

Yes thank you. In terms of Dauntless, it’s a product by Phoenix Labs which we recently acquired. And as mentioned, they are a AAA studio focused on AAA titles and developed markets across different platforms. And that is why exactly we believe their skill sets are highly complementary to ours where we have shown very strong track record in global emerging markets. I think that all is possible that we’ll continue to work with the studio on this and future IP that we collectively might bring to the market across the different markets in the world. And we believe that, our expertise combined, we can address a wide range of markets and further expand our global TAM. In terms of e-commerce in Brazil, we’re – this is a cross-border project and by popular demand of our cross-border sellers who, of course, would always prefer the platform can offer more markets to them for the same amount of work they pretty much need to do, integrating with the platform, and the fact that we have already operational capabilities from the game side and understanding of the market give us a competitive advantage in serving them in this regard. I think our team will continue to serve our sellers as they need us.

The next question comes from Varun Ahuja from Credit Suisse. Please go ahead.

Yes hi thanks for the opportunity I have got 3 questions. First, on the gaming side, so if you look at your EBITDA margin on a sequential basis, it has declined, but it seems to me that Free Fire has been growing. So given it’s your self-developed game, so I just wanted to understand why there is 5% sequential decline in EBITDA margin on the gaming side? That will be helpful. Secondly, if you look at sales and marketing spend as a percentage of GMV, has been growing for the last 3, 4 quarters. Earlier, it was used as a benchmark to show that as you gain, attain scale, you may achieve more towards profitability. So I wanted to understand the dynamics. How should we think about the sales and marketing spend? Are you spending more to kind of continue to grow the market? So that’s – some color will be helpful. And lastly, of the 3 businesses that you have, which opportunity are you more excited about, whether it’s gaming, e-commerce or the digital financial services? Thank you.

Thank you. So in terms of the adjusted EBITDA margin, our Q4 margin is at 55.5%, which is very high compared to – we understand the industry average. And the sequential decline is really related to launch of new games such as Call of Duty: Mobile as well as our e-sports events recently we had in Brazil as well as India and across different markets which, as we mentioned in our earnings release, are highly successful and making us the most viewed game on YouTube for the mobile-only category, and with more than 30 billion views and that allow us to increase our user base as well as engagement with our users, which eventually lead to higher monetization for Free Fire. I think this is a highly efficient spending for us. And we will continue to look for opportunities while being highly mindful of our adjusted EBITDA margin because, of course, we run game highly focused on a cash basis view. In terms of sales and marketing spend as a percentage of GMV it’s been quite stable, I would say, across the quarters at around 4.4% to 4.5% range. And even – but if you look at our Q4, it is a – the shopping season, holiday season, was double 11, double 12 and all kinds of events and we show an extremely strong order and GMV growth as well as revenue growth for the quarter. So I would say the spending is highly efficient. Again, I would guide people to look at adjusted EBITDA loss per order. And as we increasingly spend on branding to promote Shopee brand and affinity with Shopee brand across different markets, we might, again, make opportunistic spending in terms of sales and marketing at different times of year. But we’re very focused on efficiency…

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Yanjun Wang for any closing remarks.

Thank you, operator. Thank you, everyone, for joining today’s call. We look forward to speaking to you all again next quarter.

Thank you.

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