Sea Limited (SE) Q4 2021 Earnings Report, Transcript and Summary

Good morning and good evening. Welcome to the Sea Limited Fourth Quarter and Full Year 2021 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Min Ju Song. Please go ahead.

Thank you, and hello, everyone, and welcome to Sea's 2021 fourth quarter and full year earnings conference call. I am Min Ju Song from Sea's Group Chief Corporate Officer's office. 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 a discussion of certain non-GAAP financial measures, such as adjusted EBITDA and net loss, excluding share-based compensation. We believe these measures can enhance our investors’ understanding of the actual cash flow 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 reconciliation with the closest GAAP measurers, please refer to the section on non-GAAP financial measures in our press release. I have with me Sea’s Chairman and Group Chief Executive Officer, Forrest Li; Group Chief Financial Officer, Tony Hou; and Group Chief Corporate Officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights and financial performance for the fourth quarter and for the full year of 2021. 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.

Thank you Min Ju. Hello, everyone, and thank you for joining today's call. In 2021, we continue to focus on growing and evolving our business to address the fast-changing needs of our users and communities. We have invested with vision and efficiency to capture the market [ph] opportunities available to us during this period of accelerated digitalization. As a result we have greatly deepened our engagement with consumers and small businesses, vastly expanding our total addressable market and extended our leadership across all our businesses. Moreover, our growing scale, leadership and strong cash balance means we are well-placed to leverage efficiencies across our ecosystem. As we look ahead, I would first like to take this opportunity to share with you how we plan to manage sustainable growth going forward. We believe we are now in a strong position to manage the levers of our business to reach profitability across more markets and segments in 2022 and beyond. We currently expect Shopee to achieve positive adjusted EBITDA before HQ cost allocation in Southeast Asia and Taiwan by this year. We also expect SeaMoney to achieve positive cash flow by next year. As a result, we currently expect that by 2025 cash generated by Shopee and SeaMoney proactively will enable these two businesses to substantially self-fund their own long-term growth. At that point, we believe Shopee and SeaMoney will be generating meaningful cash in our existing core markets of Southeast Asia and Taiwan as strong market leaders, while Shopee will also have achieved significant scale and a strong market position in our new growth market of Brazil. On the path to this inflection point, we plan to continue to invest in Shopee and SeaMoney with efficiency. We have around $10 billion of cash, cash equivalents and short-term investments on our balance sheet including close to $7 million raised in last year, which we intend to invest into the growth of Shopee and SeaMoney over the coming years. This is on our current plan. We believe that we have the financial resources required to grow the two businesses to the inflection point without having to heavily rely on cash generated from the digital entertainment business. Of course, any additional growth from Garena will further strengthen our position. And we remain extremely focused on developing the radars global platform, which we see as a key strategic asset in the long run. Next, let me share with you how we are thinking about resource allocation for this period. Broadly speaking Shopee LatAm and Brazil in particular, as well as R&D will be our top two focus areas for investments. Our investments and the overall impact on the bottom line is likely Shopee Brazil but unit economics and profitability for our businesses generally improve its scale. Firstly, we will continue to invest in Shopee Latam with a focus on Brazil. Of course, it'd be much easier operationally for us to just focus on the seven existing core markets for Shopee. However, we strongly believe that by investing prudently and sustainably in Shopee LatAm and Brazil in particular, we will generate significant value for our shareholders in the long run. While we do not underestimate the challenges of any new market expansion. I would also like to highlight that we have established track record seven times in seven highly diverse and complex markets of Southeast Asia and Taiwan. We will start in each of those markets in 2015. We have significantly net resources, experience and the know-how and as a result, find a much more formidable competitive landscape that we currently do in our market expansion. Moreover, our growth trajectory in each existing core market has generally followed certain patterns, whereby we are able to first manage strong user and order growth with improving efficiency and then achieve market leadership and profitability with scale. As I will share in greater detail when we discuss the segment results, Shopee Brazil has already achieved strong user traction meaningful commercialization and fast improving unit economics less than two years after entering the market. This gives us further confidence in managing growth in these markets. Achieving success in Brazil, which is the sixth most popular country in the world, where profitability model for marketplaces has also been locked toward would allow shopping to substantially expand the total addressable market that significantly enhanced its competitiveness as a global e-commerce platform and further diversified its businesses across the world. Secondly, our technology and R&D capabilities are already a strong competitive mode for us. And we aim to invest in deepening this advantage. Our scale market leadership and ability to leverage efficiencies across our entire ecosystem position us very well to continue to build core strength intact. We intend to ramp up investments in R&D to continually provide better and greater varieties of services operation and feature to our users as well as to maximize our long-term growth potential. The result of some of these investments are already visible across our business in fast-evolving operates and features. Such offerings and features range from unit B2 in Free Fire, user engagement features of Shopee, and fintech products under SeaMoney to share technology platforms improve security and risk management structure and intense commercialization and financial underwriting systems just to name a few. These investments are both necessary for our current operations and are highly important to our future growth. We strongly believe that our investment in technology will continue to serve as a key competitive mode across our support systems. As we pass the near to midterm plan, I would also like to share our longer-term view about the future we are working very hard to work. As we look ahead it is clear that consumer activities and experiences are increasingly converging online at the intersection of content, commerce, and community. It is also clear that adaptable company that has successfully tapped into active engaged and social communities will have a unique advantage as we move into this new era. Our three core businesses collectively offer immersive and interactive digital, social, and commercial experiences to a large global community supported by our fast-growing digital financial infrastructure and deep online/offline operational capabilities. We therefore believe that our ecosystem comprises a complete consumer tech and innovation tech that is distinctively relevant to the new opportunities being presented. All the business investment and decisions we are meeting today, our intent is to also factor position us to best serve the changing needs of fast-growing digital native generation. Let us now discuss the performance of our group and each of our businesses in the fourth quarter and the full year of 2021 and our outlook for 2022. At the group level, GAAP revenue increased 106% year-on-year to $3.2 billion and the gross profit was $1.3 billion, up 146% year-on-year for the fourth quarter. Meanwhile, for the full year of 2021, GAAP revenue grew by 128% year-on-year, to reach $10 billion, and gross profit reached $3.9 billion, up 189% from 2020. The rate of bookings for the full year is $4.6 billion and shopping debt revenue reached $5.1 billion. Both businesses performed in line with our recently raised full year guidance. For 2022, we currently expect bookings for digital entertainment to be between $2.9 billion, and $3.1 billion, with many economies reopening further in the fourth quarter and into this year, we have observed some moderation in online activities and the fluctuation in user engagement. Moreover, due to our anticipated government actions, as we previously reported in the press release Free Fire is currently all available in the Google Play and iOS App Stores in India. Our guidance therefore takes into consideration the headwind factors. The midpoint of the guidance of $3 billion reflects our current expectations that our bookings for 2022 will be close to the level in 2020, while also considering the uncertainty in India. While we will continue to assess the longer-term trends that our markets continue to evolve, we remain highly confident in the long-term prospect of our digital entertainment business. Next, we expect GAAP revenue for e-commerce to be between $8.9 billion, and $9.1 billion, representing 76% year-on-year growth at the midpoint of the guidance. This strong outlook, particularly against a very high base of 2021, reflects our deeper engagement with consumers and small businesses across our markets, mostly expanding e-commerce and addressable market and continued improvement in commercialization. I'm also excited to share our 2022 outlook for Digital Financial Services segment for the first time. SeaMoney has made strong progress in 2021 as we continue to scale our mobile wide experiences and launched new products and services, which saw successful adoption of core e-com system. We anticipate that, this trend will continue and still – growth engine for us. We expect GAAP revenue for SeaMoney for this year to be between $1.1 billion and $1.3 billion, representing 155% year-on-year growth at the midpoint of the guidance. Let's now turn to our businesses in more detail. Beginning with digital entertainment in the fourth quarter, the rate has generated bookings of $1.1 billion, an increase of 7% year-on-year. Adjusted EBITDA was 56% of bookings at $603 million. Ordering active users reached 654 million up 7% from a year ago and quarterly paying users were 77 million, an increase of 6% year-on-year. For the full year of 2021, Garena recorded bookings of $4.6 billion, up 44% year-on-year. Adjusted EBITDA was up 40% compared to 2020 at $2.8 billion, representing 50% of bookings. During the fourth quarter, online game momentum moderated somewhat, given the reopening trends in many of our markets. That said, it is worth emphasizing that Free Fire continues to have one of the largest and most engaged user communities of ungating history. According to data.ai previously known as App Annie, for the third year in a row Free Fire was the number one most downloaded mobile game globally in 2021. Free Fire also ranked second globally by average monthly active users for all mobile games on Google Play in the fourth quarter and full year. Free Fire also returned its leadership as the highest grossing mobile games across both iOS and Google Play in Southeast Asia and Latin America for both the fourth quarter and the full year based on data.ai. We have maintained this leading position in Southeast Asia and Latin America for 10 consecutive quarters. Furthermore, Free Fire was the highest grossing mobile battle royale game for the fourth consecutive quarter to the U.S. according to data.ai. We remain committed to investing in content in Free Fire to enhance user experience and uplift user engagement. For that, we have a comprehensive pipeline in sales that includes partnership for original and user-generated content and e-sports activities. For example, this month we have a crossover event with Assassin's Creed, one of the most popular global video game franchises. And we're also excited to have BTS, one of the world's most-streamed artists worldwide enter universe of Free Fire as our global brand ambassador in the coming months. Additionally, we have seen strong engagements with user-generated content through modes like Craftland, our recently introduced map editor feature. Since launch the most popular Craftland maps have subscribed by close to 40 million users so far. We will continue to encourage user-generated content by enhancing greater features and accessibility. We believe that a strong user reception to Craftland is a positive indicator of the initial success to encourage user participation in content creation and to build Free Fire into an increasingly open platform and is well aligned with major emerging industry trends such as metaverse. Besides Free Fire's strong performance, the other games in our portfolio continue to perform well. For example, Arena of Valor has grown year-on-year in 2021 across both active users and bookings. In fact, it is in its fifth year of operation. In 2022 and beyond, we expect to expand our portfolio with more games across diverse general such as multiplayer action, so playing sandbox and casual games. Over the long-term, our priority remains sustaining and growing our existing major franchises, while diversifying our games portfolio. Our strong and growing self-development capabilities will be a key component of this diversification effort. Our teams are working on multiple prototype games across different genres and stages. In due course, we expect to bring more self-developed games to market. We also continue to actively acquire and invest in top talent and game IP to further expand our capabilities of both genre and geographies. Meanwhile, we will keep growing our publishing relationships, leveraging our unique set of strengths across diverse global markets. We believe that this comprehensive approach to portfolio diversification will allow us to identify and execute around the largest game trends in the years to come. More importantly, we see games as one of the most engaging and emerging forms of entertainment, bringing communities from across the world together to play and interact. That will play a vital role in shaping the virtual experiences of users and we are well-positioned to capture new opportunities that arise given our core competency in developing highly social, immersive and interactive global game platforms with live operation and scale. Therefore, we are highly focused on maximizing the long-term potential of Garena. We see it as our key to potentially greater success in the future world where activities, experience, interaction and consumption are increasingly virtual. Now let's turn to e-commerce. Shopee had a great year in 2021 as the business scaled and strengthened its market position across both new and existing markets. For the quarter, Shopee GAAP revenue grew 89% year-on-year to reach $1.6 billion. It’s recorded gross orders of $2 billion, an increase of 90% year-on-year and a sole GMV growth 53% over the same period to reach $18.2 billion. The strong performance contributed to strong results for the full year of 2021 where Shopee achieved GAAP revenue of $5.1 billion, up 136% year-on-year. The full year gross orders totaled $6.1 billion, up 117% year-on-year and GMV reached $52.5 billion, an increase of 77% from 2020. Monetization improved across all revenue components with GAAP revenue as a percentage of total GMV, rising from 6.1% in 2020 to 8.2% in 2021. Our strong revenue growth shows how more merchants across the market trust the Shopee platform and understand the value we deliver to them. Our leading market position is also evident in strong brand recognition and engagement from consumers on Shopee. It was the top e-commerce brand reviewed best global brand in 2021 and ranked fifth overall. In terms of engagement, our buyers shop on Shopee over six times a month on average in the fourth quarter with the initial monthly order frequency existing eight times. We are very pleased with the progress made around engaging our buyers and will continue to deliver more value to them. According to data.ai, Shopee ranked first in the shopping category globally by downloads in the fourth quarter and the full year. In the same category for Google Play, Shopee ranked first globally by total time spent in app and second by average monthly active users in the fourth quarter and the full year. During the same period, Shopee also continues to be the top best app in the shopping category across both android and Google Play in each of Southeast Asia and Taiwan by average monthly active users and the total time spent you have. In Indonesia, Shopee was ranked the number one app across these same metrics with gross orders growing around 88% year-on-year during the fourth quarter. We have also scaled our products in Brazil, serving the local seller and buyer. During the fourth quarter and the full year, Shopee was ranked first by download and the total time spent in app and the second by average monthly active users from shopping category according to data.ai. In the fourth quarter, Shopee Brazil recorded more than 140 million gross orders, growing at close to 400% year-on-year at more than $70 million of GAAP revenue, up by around 626% year-over-year. We believe our offering provides a new and fresh online shopping experience that caters to the underserved segment of the Brazilian market. We see Brazil as a new growth market for us. As we are very excited about its growth perspective and the long-term value we can deliver to the ecosystem. Meanwhile, we continue to see efficiency gains as we sell. For Shopee Southeast Asia and Taiwan, the adjusted EBITDA loss per order before HQ cost allocation was $0.15 in the fourth quarter, an improvement from 21% in the fourth quarter of 2020. As shared earlier, we believe Shopee is on track to achieve positive adjusted EBITDA before HQ cost allocation in Southeast Asia and Taiwan by this year. Our newer markets have also made progress with adjusted EBITDA loss per order before HQ costs allocation improving consistently in every quarter in 2021. Basically in Brazil, our adjusted EBITDA loss per order before HQ cost allocation improved by more than 40% year-on-year during the fourth quarter to below $2 across both of our markets our total adjusted EBITDA loss per order was $0.45 in the fourth quarter an increase from $0.41 for the fourth quarter of 2020. This increase was attributable to the increasing contribution from the newer market which are at a much earlier stage of development. These markets are both growing faster and incurring higher than adjusted EBITDA loss for other than Southeast Asia and Taiwan. For the full year -- our total adjusted EBITDA loss per order across all markets was $0.42 improving 9% compared to 2020. Over the past couple of years, we accelerated the growth of Shopee by quickly adapting and serving our buyers and sellers through the pandemic. We've also successfully strengthened our competitive position in Southeast Asia and Taiwan as well as Brazil. Going forward we expect Southeast Asia and Taiwan to keep growing health healthy, while we order deter our market leadership and execute toward profitability. In our new growth market Brazil, we are focused on efficient and sustainable growth as we continue to scale and improve our service offerings to local sellers and buyers. Finally, our digital financial services business signed performed well in the fourth quarter and the full year of 2021. In the fourth quarter GAAP revenue was $198 million up 711% year-on-year driven by the growing adoption of our product and services. For the full year of 2021 our GAAP revenue grew 673% year-on-year to reach $470 million. Corey active users support our SeaMoney products and therapies reached $45.8 million up 19% year-on-year. In the fourth quarter and full year 2021 we further expanded our digital financial service offerings across credit insurer and digital bank services. For example we launched the SeaMoney in Indonesia during the latter half of the year with strong traction in terms of user growth. We also obtained a bank license recently in the same year. In Indonesia which has the most comprehensive set of products and services among our markets. Over 20% of the quarterly active users have used multiple SeaMoney products and services in the fourth quarter. We view this as a highly positive indicator of the strong efficiencies we can leverage in bringing new digital financial service offerings to the large and fast-growing user base in our entire consumer international systems. In particular we see Shopee and SeaMoney has both highly synergistic with one another and enjoy a strong flight well effect in their gilding. The total payment volume of our mobile wallet was close to $5 billion in the fourth quarter up 70% year-on-year at $17.2 billion for the full year, up 120% year-on-year. In 2021, we grew our mobile wallet services across both on platform and off-platform use cases not reaching our growing ecosystem of products and services. This further drives a positive flywheel impact that allows us to benefit through higher growth and better efficiency as we drive adoption across both consumers and merchants. In the fourth quarter, we expanded our payment acceptance point to include key merchants like AirAsia in the Philippines, 7-Eleven in Malaysia, and Subway in Thailand. We believe there are many other large opportunities within our market that SeaMoney can address. We are looking forward to rolling out more digital financial products and services in 2022, as we continue serving underserved in our ecosystem with technology. At the same time, as the business grows with our communities adopting more financial services and products, we are also excited to see that SeaMoney is on track to achieve positive cash flow by next year. To conclude, I'm proud of the progress our key impact made in 2021, both in scaling our businesses and serving our communities. We believe we are very well positioned to continue strengthening our market leadership, while focusing on sustainable and efficient long-term growth. We are highly confident that the learnings and the resilience begin over the past year will only further enhance our ability to execute on our long-term strategies, and continue to deliver significant value to our community and stakeholders. I would also like to personally and on behalf of the Sea, check our stakeholders and strength for your continued long-term support. We hope to return your trust and investment in us with continued strong execution and focus on the long-term success of the company. With that, I will invite Tony to discuss our financials.

Thank you, Forrest, and thanks to everyone for joining the call. We have included detailed financial Schedule with the corresponding management analysis in today's press release, and Forrest has discussed some of our financial highlights. So I will focus my comments on the other revenue metrics. For Sea, overall total GAAP revenue increased 106% year-on-year to $2.2 billion in the fourth quarter an 128% year-on-year to $10 billion for the full year of 2021. This was primarily driven by growing adoption of products and services across our e-commerce and digital financial services businesses. As we continue to deepen, the engagement with our users, as well as the growth of our digital entertainment business. Digital entertainment bookings rose 7% year-on-year to $1.1 billion in the fourth quarter, and 44% year-on-year to $4.6 billion for the full year of 2021. GAAP revenue was up 104% year-on-year to $1.4 billion in the fourth quarter and 114% year-on-year to $4.2 billion for the full year 2021. Digital entertainment adjusted EBITDA was $603 million in the fourth quarter and $2.8 billion for the full year 2021. On e-commerce, our fourth quarter GAAP revenue of $1.6 million included a marketplace revenue of $1.3 million, up 104% year-on-year and GAAP product revenue of $0.2 billion, up 48% year-on-year. For the full year of 2021, GAAP revenue of $5.1 billion included GAAP marketplace revenue of $4.1 billion, up 156% year-on-year and total revenue of $1.1 million, up 83% year-on-year. The strong result -- the deepening penetration of e-commerce and our ability to capture this significant growth opportunities. E-commerce adjusted EBITDA loss was $878 million in the fourth quarter and $3.6 billion for the full year of 2021 as we continued our investment to fully capture the opportunities in our markets. We remain committed to continue investing in a prudent and sustainable manner and growing the ecosystem to serve our users. Digital Financial Services cap revenue was $198 million in the fourth quarter and $470 million for the full year of 2021. This represents year-on-year growth of 711% and 673% for the quarter and full year respectively. The growth was primarily due to increasing traction as we continue to expand our suite of services offerings. Adjusted EBITDA loss was $150 million in the fourth quarter and $617 million for the full year of 2021. This was primarily due to our continued efforts to drive mobile wallet adoption. Returning to our consolidated numbers, we recognized a net nonoperating loss of $71 million in the fourth quarter of 2021 compared to a net non-operating loss of $124 million in the fourth quarter of 2020. For the full year, our non-operating loss was $132 million compared to a loss of $180 million for the full year of 2020. Our non-operating loss for the fourth quarter and full year ended December 31st, 2021 was primarily due to interest expense on our convertible notes. We had a net income tax expense of $106 million in the fourth quarter of 2021 and $333 million for the full year of 2021. This was primarily due to property income tax and with tax recognized in our digital entertainment business. As a result, net loss excluding share based compensation was $483 million in the fourth quarter of 2021 and $1.6 billion for the full year of 2021. With that let me turn the call to you Min Ju.

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

We'll now begin the question-and-answer session. [Operator Instructions] Our first question is from Alicia Yap from Citi GP. Please go ahead.

Hello. Hi, good evening management. Thanks for taking my questions. I have two questions. The first one on the digital entertainment. Regarding your guidance I believe you are not including any of those new games that you mentioned in the pipeline that potentially you can publish in later the year. So I just want to clarify on that. And then related to that as well besides India, which country do you think we'll also see some declining trend? And then second question is on the e-commerce. With the decisions to exit trends, at what point would you also evaluate some of these cross-border tractions in Poland and Spain that you could maybe prompt you to moving ahead with your next step of the penetration? Thank you.

Thank you Alicia. In terms of digital entertainment, our guidance does take into account of games that we believe might be launched this year. Of course, any new games in the initial launch stage probably will focus more on user growth and management penetration as opposed to immediately focus on monetization. So the contribution probably might come towards the later part of the year or later part of the stage of the development of the game. And in terms of the trends, I think the overall opening up post-COVID is across all the markets. And, therefore, we do start to see the weakening. I think it's industry-wide as well. And we are still evaluating the data in the trend. At the same time, we are very much focused on the long-term success of the Free Fire IP, which we see it as a very important strategic asset to us. While, of course, it is contributing billions of dollars of cash every year but most importantly, we want to build into a long-lasting IP and with hundreds of millions of active users and fully engaged in socializing and playing different types of games MO [ph], and also incorporating more IP over time into this game and platform to go into more of an important franchise, which we will use as also key to the future development of the virtual economy. So I think while there are some headwinds, our focus on the long-term has not wavered and our view towards the game as a long-term play has not changed. Because of e-commerce as they shared, we are focused on Southeast Asia and Taiwan as our core existing markets, which continue to enjoy very strong growth despite the very strong comps versus last year during the height of COVID. And as you can see, we also have gained significant ground vis-à-vis our peers. In Indonesia, we grew more than about 88% year-on-year in the quarter. And also in ASEAN six countries our growth rate is around 80%. So our growth rate is meaningfully, significantly in fact higher than our next year while we are already multiple times their funds. So that is highly encouraging. And at the same time, we are looking at more and more markets turning profitable as we shared in terms of adjusted EBITDA before HQ cost allocation. So this will become – the market will not only a growth engine for us but also potentially down the road contribute to positive cash to fund our global growth. Then another growth area that we focus on is Brazil. Not only we have reached top ranking with downloads and total time spent and second MAU just two years after entering the market, we have also achieved more than 140 million of quarterly gross orders with 170 million revenue in the market. As we also shared for that kind of – when we enter into the market, we focus first on user growth and then order growth and then market leadership and positive unit economics over time with scale. We have repeated that playbook seven times in seven highly distinct markets in Southeast Asia and Taiwan. And we are saying that we are already seeing strong user traction, strong order growth and effective market leadership and also improving fast-going UE Unit Economics in that market, all pointing to another potential market that could essentially double our total addressable market for e-commerce with a highly proven profitability. Now when you look at Southeast Asia and Taiwan, we're probably the first large e-commerce player to show profitability in this market in this region. But in LatAm, all the existing major players are quite profitable. So the profitability model for the market is highly proven. Therefore, we are very encouraged by the results of our e-commerce and its outlook into a global platform. In terms of the other markets that we shared before, these are highly nascent markets, where we might test the water in from time to time. So our asset from funds again shows while we are open minded we're also very disciplined in our pilot exercise. So we'll remain disciplined and open-minded with all our markets. Again, the focus will be on the existing core Southeast Asia and Taiwan market and our new growth market in Brazil.

Our next question comes from Piyush Mubayi from Goldman Sachs. Please go ahead.

I was on mute. Thank you for taking my questions. Can you hear me?

Yes, we can hear you.

Thank you. If I could just ask about what is built into your game forecast for 2022 for bookings that you shared with us. And how does that potentially change if India was to come back on track as an earlier than expected date potentially. So if you could just share with us how you're thinking through that we will be grateful. And the second is if it is all possible in the gaming business to talk about, how quickly you can build up a portfolio of games and move in to be the state of some of those games that would be fantastic to understand how we can expect that trajectory to potentially proceed through the growth of 2022 quarter-by-quarter and then into 2023. And third, this is a general question on the e-commerce business, where we noticed how the momentum is very positive both from the standpoint of rate on account of take rate progression, as well as a progression towards free cash flow and profitability. I wonder, if you could just take a step back and give us a feel for, how much further this business can be accelerated into 2022 versus where the guide is. Thank you.

Okay. Thank you, Piyush. So the line quality wasn't very good, I'll try to answer your question, if it's not clear further, let me now. In terms of the guidance, as we shared in the earnings that given the opening of our markets and the trends we're seeing, and also some unexpected government action, we are facing, we have taken into our listening to consideration. And therefore, we at this point, we our shift game bookings will probably be close to the level of 2020. That means we are giving back some of the gains we made during – partially during the COVID and there also with some additional discounts to reflect, the situation in India, which is highly uncertain. Again, I think at this point given the uncertainties we are facing, this is probably more art than science for us. In terms of the game portfolio, we are very focused on diversifying our game genres. As we shared before, we are looking into different charters such as Sandbox RPG and other more casual games to supplement our existing offerings. Now, I think this will still be early stage games. And also, given the size of game buyers which is the largest and highest growth in global games in history, it is probably hard to come up immediately with other games that can match the size of Free Fire. However, everything we're doing is to, a, diversify our portfolio and capability, and b, at the same time will prepare us for the long run, while we already have such a big platform of Free Fire that we can incorporate different types of modes – game modes and ATV 2, and leverage that platform to introduce more content and more types of games and more IP into our actual user base, which still remains probably one of the largest user bases in the world. So while we have some earnings headwinds on the game side, our focus is really on the long run to make sure that we stand ready to capture the next wave of major opportunities that might come. If you look at our track record, so far it's been quite strong. We captured the mobile links for example on the PC side, with the rise of League of Legends and we are the exclusive publisher that took us to where we initially worked at the time of IPO, as a gatekeeper of Southeast Asia and Taiwan in terms of game publishing. And then we also captured the next mobile wave with the publishing of Arena of Valor development of Free Fire fizzles which expanded our enhanced from Southeast Asia-focused market to a global platform. And then, we also captured the royale wave [ph] with the rise of Free Fire and that significantly enhanced our game side -- the business side of the business and also the overall strength of the business. I think our track record speaks for itself. So what we are doing now is continue to get ready and strengthen our capability to capture the next major wave that might come our way. In terms of the take rate, so we are -- as we shared before, we believe a high single low double-digit rate is achievable in the normal run. We still believe that. And as you can see we are progressing well towards that rate in most of the markets. We're already getting a high single-digit rate and we believe this will continue to rise, although we think a gradual and well-managed progression will be adapted for our business in the long run. And also for the newer markets such as Brazil as you can see the prevailing rate in the market are more at 15% to 18% charged by some of the leading players. So it is a very high take rate market also. So we're not particularly worried about the e-commerce take rates. And in terms of profitability as we shared, we believe our Southeast Asia and Taiwan will achieve positive adjusted EBITDA before HQ cost allocation by this year. That means more and more markets will break even on that term over time this year and maybe going into next year. So that will give us also a strong footing in further growing our other new growth markets as I shared before where profitability has long been proven.

Our next question comes from Jiong Shao from Barclays. Please go ahead.

Hi. Can you hear me?

Yes, I can hear you.

Hi. This is Roger [ph] on behalf of Jiong. So I have two quick questions. First of all is, can management talk a little bit about your view on the 2022 GMV growth? And the second is can the management help to break down the rough mix of Asia and new markets in terms of EBITDA loss this quarter? Thank you.

Yeah. So we don't give guidance on GMV, but we did give guidance on GAAP revenue for e-commerce. We believe that it reflects our view about the potential growth rate. And I also mentioned that in terms of the take rate increase, there will be -- while we will continue to increase take rate, the pace will be moderated and well measured. We don't also do -- give the breakdown in terms of EBITDA, but we have given the order number for fourth quarter on Brazil and also the EBITDA loss previous allocation per order in Brazil. So, I think you can roughly do the math.

Our next question comes from Piyush Choudhary from HSBC Singapore. Please go ahead.

Thanks for the opportunity. Two questions. Firstly on e-commerce, your guidance to achieve positive adjusted EBITDA in your core markets, this would be driven by what key factors? Is it higher take rate or lower sales and marketing? Any color over there would be helpful. And if you can throw some light on the competitive landscape in core markets? Secondly, your cash and cash equivalents went down by $1.6 billion quarter-on-quarter to 10.2. Can you highlight what factors drove that decline? Is there any other investments? Thank you.

Sure in terms of our e-commerce cost of EBITDA in Southeast Asia and Taiwan, this is as a result of both of higher take rates and also cost efficiency as we scale. As we always mentioned the platform the marketplace model that we are pursuing enjoys a strong silo effect and the economy of scale as we continue to grow our business, the unit economics just keeps improvement. And then naturally it comes to a breakeven point. And at the same time, as you can see we have been rarely ramping up the take rate, especially on the margin take rate in terms of transaction-based revenue as well as advertisement, regards broadly charging more types of sellers and gradually raising the take rate each type of sellers might say. And at the same time more importantly, voluntary sellers are adopting more of our free shipping program, advertisement program, and they're actually paying more as our business and their business stay on our platform to facilitate further growth of their business. So, as the marketplace model, its profitability is actually quite prudent. But it takes investment and time to get there. We believe we probably will be one of the first to get there as a major e-commerce player in this region but we are very happy that at the same time we're still growing at a very strong rates, despite the tough comp against the COVID period and also extending our market leadership vis-a-vis volunteers. I'd like to invite Tony to address the second question.

Yes sure. About the cash position we are trying to optimize the cash yield by investing into a charge deposit which are over the period of three months and by that is categorized as a stronger investment and that amount to quite significant to $800 million to $900 million. So, if you add that back actually the cash position is over $10 billion.

Yes, so this is just to say that the cash isn't gone. It's just up to us some savings by us.

The next question comes from Ranjan Sharma from JPMorgan.

Thank you for the opportunity. Two questions from my side. Firstly, if you can talk about new game development, we know there's a lot of talent available in China now. Are you changing your hiring strategies to accelerate new game development? And second question I know it's a bit sensitive but is there a process to get the ban revoked in India on Free Fire? Thank you.

In terms of new game development, I think our strategy has been quite consistent. We have studios globally in the States and also in Singapore, Asia and Korea and other parts of Asia. So we are focused on in-house development. And at the same time, we have been investing globally into strong development teams and IT with partnership agreements tied to such investments that also augments our organic pipeline. And of course there's the publishing side that we continue to work with and we'll discuss partnerships with the global game developers to bring top IP to our region. And in terms of Free Fire in India, so we're still working on it. So other than what's been publicly disclosed we don't have much more to share at this point. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Min Ju Song for any closing remarks.

Thank you. Thank you all for joining today. We look forward to speaking to all of you again next quarter. Much appreciated.

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