Sea Limited (SE) Q2 2023 Earnings Report, Transcript and Summary

Good morning and good evening. Welcome to the Sea Limited Second Quarter 2023 Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Minju Song. Please go ahead.

Hello, everyone, and welcome to Sea's 2023 second quarter earnings conference call. I'm Minju 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 the discussion of certain non-GAAP financial measures, such as adjusted EBITDA. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For a discussion of the use of non-GAAP financial measures and reconciliation with the closest GAAP measures, please refer to the section on non-GAAP financial measures in our press release. I have with me 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 second quarter of 2023. This will be followed by a Q&A section 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. In the second quarter of 2023, we delivered strong results, building upon many of the key initiatives we shared previously. We are pleased to see positive developments across all three segments of our business during the quarter. Shopee continued to enjoy significant improvement in margins and strong growth in revenue year-on-year. As we started to ramp up growth for Shopee, it saw double-digit increase in gross orders quarter-on-quarter. Garena showed sequential active user and paying user growth with bookings demonstrating more signs of stabilization. Moreover, Free Fire also started to see quarter-on-quarter growth in bookings. SeaMoney continued to achieve both strong growth and profitability while maintaining a relatively stable risk profile. As a result, at the group level, we saw not only top-line growth but also significant bottom-line improvement from the previous year, with our cash balance, which includes certain short-term and treasury investments, further strengthened to $7.7 billion. In the past couple of quarters, we have not only achieved self-sufficiency, but also demonstrated the profitability of our model and our ability to manage fast and significant shifts in operational focus as we see fit. Given this, we have strengthened our execution capabilities and increased the stickiness of our ecosystem. We believe we are now on firmer footing to better serve our communities. Meanwhile, the economies of our region have remained resilient with inflation largely under control. This further boosts confidence in the long-term growth prospects of our markets. We are also excited to see recent ecosystem developments in diversified user engagement through live streaming and short form videos as well as affiliate programs, which already brought new growth to Shopee. Such developments in our ecosystem offer us further opportunities to expand our long-term profitable TAM. Given these positive developments and trends, we have started, and will continue, to ramp up our investments in growing the e-commerce business across our markets. Such investments will have impact on our bottom-line and may result in losses for Shopee and our group as a whole in certain periods. However, this does not change our unwavering emphasis on self-sufficiency and improving cost efficiency as a key competitive moat. Moreover, we believe that the efficiency gains and stronger footing we have achieved through our past efforts have further strengthened our ability to invest efficiently in growth. Most importantly, we will remain highly agile and prudent by closely monitoring the conditions of each market and adapting our focus and pace accordingly from period to period. As I discuss Shopee’s performance later, I will further elaborate on some of our focus areas in the near-term. With that, let us now discuss each business segment in more detail. Starting with e-commerce. As we mentioned in past quarters, we have been highly focused on reducing our ecosystem’s cost to serve and improving the user experience for both our buyers and sellers. During the second quarter we made important progress on both fronts. In the quarter, we further improved the efficiency of our logistics operations and expanded our network and capabilities across our markets. New initiatives such as improved digitalization of scheduling and tracking of orders also enhanced the user experience. More delivery options have been launched to address user preferences as well. For example, in Singapore, we have recently added an additional 600 collection points across a variety of retail locations to the existing 1,000 self-collection lockers to offer more delivery options to users. In Taiwan, we installed lockers with 24-hour access at around 150 convenience stores with plans to scale this pick-up option across the market. These efforts have resulted in lower logistics costs including manpower costs, and better delivery experience across our markets. We believe that a highly cost effective and seamless logistics operation can serve as a key competitive advantage for us. Our efforts certainly go beyond logistics and include all parts of our users’ e-commerce journey, which have become our competitive moats as the leading integrated marketplace in our region. We will remain highly focused on lowering the cost to serve for the entire ecosystem while continuing to improve user experience over the long run. We also improved our user engagement metrics this quarter, further cementing Shopee’s position as the ecommerce platform of choice. For example, we have focused on growing our live streaming feature, driving significantly higher participation from buyers, sellers and creators in the second quarter. The feedback from our efforts was highly positive, reflecting the strong demand and high satisfaction for this feature from our users. Indeed, during July’s [7.7] live streaming focused campaign in Indonesia, we recorded a 12x growth in transaction volume and a 10x increase in the number of buyers during the campaign, as compared to a normal day. For the [8.8] shopping campaign, around one quarter of our Indonesian buyers watched live streams on Shopee Live and made close to 5 million orders in a single day. In fact, Shopee has already become the leading live streaming e-commerce platform in Indonesia based on a report by Populix. We also significantly grew the pool of influencers and content creators through our Shopee Affiliate Program. This in turn enables us to efficiently attract more buyers to our platform. These affiliate partners are carefully recruited by our team and can choose to work with us directly or with the sellers on Shopee to promote products to their communities. Feedback from our efforts has been very positive and we are starting to see a tangible boost to our GMV and revenue from this initiative. Indeed, over the course of the second quarter, over one million influencers registered with the program. Meanwhile, we have been attracting more new users to our platform, especially including those from the less accessible areas of our markets. We believe we are unique in having the full capabilities to service the mass market with the broadest coverage with our low cost to serve and strong owned infrastructure. We have also broadened our assortment of products for our core categories such as fashion, health and beauty to further enhance our competitive moat in the long tail categories. As a result of our user-focused efforts, buyer Net Promoter Score on Shopee improved by 10% over the course of the second quarter. For sellers, we continue to improve support by upgrading our services and tools to provide a more seamless onboarding process, more attentive seller management and better seller tools and services. We also provide our sellers with more upskilling and training opportunities to improve their competitiveness. For example, we have conducted hundreds of daily classes and camps to train our sellers, and organized knowledge sharing events this year in Malaysia. Our Shopee on the Road initiative brings free in-person training to sellers across Brazil. We partnered with Thailand’s Creative Economy Agency and other industry participants to help introduce artisan products produced by local Thai communities to our global buyers and provided business training and marketing support to these Thai sellers. In summary, as we look back on the past few quarters, I am very pleased and highly encouraged by the progress made. Having significantly improved our efficiency and unit economics over the past few quarters, we have become the first and only e-commerce marketplace in Southeast Asia with a proven profitability record at scale. This track record shows our ability to manage profitability and growth in each market as we see appropriate, based on market conditions. More importantly, this ability puts us on a much stronger footing and positions us well for maximizing our long-term potential in each market. We now have a more adaptive and efficient organization, supported by our strong market leadership and financial position, and underpinned by a resilient macro-outlook. As shared earlier, we believe now is the right time to start reaccelerating our investments in growth. The early signs are encouraging. Gross orders in the second quarter grew by more than 10% quarter-on-quarter driven by growth in both active buyers and buyer purchase frequency. Looking ahead, as we reaccelerate investments in growth, our strategic focus to build cost leadership and continually improve user experience remains key to our long-term success. We believe that the learnings from the past help us to be even more effective in executing our strategy. We plan to stay highly agile in adapting to user preferences as well as the ever-evolving industry and competitive trends to strengthen our leading position. Moving on to digital entertainment. Garena’s performance in the second quarter was encouraging as the positive trends in the previous quarter continued to play out. During the second quarter, both quarterly active users and quarterly paying users grew quarter-on-quarter as Free Fire showed sustained signs of improvement in user retention and engagement. Bookings for the game also grew quarter-on-quarter for the first time in the past seven quarters. These recent trends are encouraging signs of Free Fire stabilizing while remaining one of the largest mobile games worldwide and we will continue to closely monitor if this is the beginning of a longer term stabilization of the game. In recent months, we have continued to improve core user experience and optimize features and content to ensure a more seamless gaming experience for all users. We also refreshed the gameplay of Free Fire, particularly around characters and maps. We recently celebrated Free Fire’s sixth anniversary with many community events that our growing user base found highly engaging. There have been sustained healthy trends across our existing long-running franchises, and we will continue to build upon these successes. One of Garena’s key competitive advantages is our ability to bring best-in-class game experiences to users across diverse markets. We have repeatedly demonstrated how we build deep, lasting engagement with our users, particularly through games involving complex genres and gameplay, even if they are using low spec devices. And we are confident that we can further capitalize on this as we bring more new games to our key markets. Lastly, on our digital financial services business. SeaMoney’s second quarter performance was strong as we continued to expand our features and product offerings across the business. We are also increasingly seeing growing benefits from the synergies between the Shopee and SeaMoney ecosystems. More importantly, our progress has enabled us to provide underserved segments of our markets with better access to financial services and products. In the second quarter, GAAP revenue grew 53% year-on-year, driven by our credit business. Profitability in terms of adjusted EBITDA also continued to improve meaningfully on both a year-on-year and quarter-on-quarter basis to reach $137 million, while we maintained a stable and healthy risk profile with nonperforming loans past due by more than 90 days remaining at around 2% of our total gross loans receivable. Over the past quarters, we continued to refine our risk policies with respect to customer credit and selection. Alternative funding from third parties for our credit business also grew as a portion of our loan book as we continue to diversify the sources of funding. We have seen progress made in further developing our digital bank offerings. Our bank in Indonesia has expanded its service offerings, making our services even more convenient for our users. For instance, the bank app is now compatible with QRIS, a local QR code standard, and connected to BI Fast, a real-time simplified bank transfer service, to enable easier and faster payments and transactions for our users. Users can now purchase digital products such as mobile data, and pay utilities or credit card bills through our bank app. Meanwhile, we have further integrated the bank into our broader ecosystem through our direct debit feature where Shopee buyers can make payments on Shopee directly from their bank account with us. As a result of our user-friendly UI and UX design, the rating for our bank app reached over 4.8 stars on both Apple and Google app stores, one of the highest among banks. With our expanded offerings and products, we continue to focus on serving the underserved financial needs across our markets and collaborating closely with our ecosystem partners to ensure the healthy and sustainable growth of our business over the long run. To conclude, we have made strong progress over the last quarters in our efforts to enhance our efficiency, improve user experience, and solidify our market leadership. As we ramp up growth with efficiency, prudence and agility and continue to strengthen our fundamentals, we are better positioned than ever to capture the sustained opportunities across our businesses and markets. We believe our efforts will translate into even greater defensibility and profitability for our business as a whole over the long term. 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 schedules together with the corresponding management analysis in today’s press release. So, I will focus my comments on the key metrics. For Sea overall, total GAAP revenue increased 5% year-on-year to $3.1 billion. This was primarily driven by the improved monetization in our e-commerce and digital financial services businesses. Our group total adjusted EBITDA was $510 million, compared to an adjusted EBITDA loss of $506 million in the second quarter of 2022. On e-commerce, our second quarter GAAP revenue of $2.1 billion included GAAP marketplace revenue of $1.9 billion, up 28% year-on-year, and GAAP product revenue of $0.2 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues, was $1.2 billion up 38% year-on-year and 7% quarter-on-quarter as a result of both increases in advertisement uptake by sellers on our platform and commission rates. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.6 billion up 11% year-on-year. On a quarter-on-quarter basis, value-added services revenue declined 7% as we began to reaccelerate growth during the quarter and increased investments in shipping subsidies programs. E-commerce adjusted EBITDA was $150 million in the second quarter of 2023, compared to an adjusted EBITDA loss of $648 million in the second quarter of 2022. The improvement was driven by increased monetization and greater operating cost efficiencies. For our Asia markets, we achieved an adjusted EBITDA of $204 million during the quarter, improving substantially from a loss of $316 million in the same period last year. In our other markets, the adjusted EBITDA loss was $54 million, narrowing meaningfully from last year, when losses were $332 million. Contribution margin loss per order in Brazil improved by 83% year-on-year to reach $0.24, reflecting better monetization and higher efficiency in our operations. Digital entertainment bookings were $443 million and GAAP revenue was $529 million. Adjusted EBITDA was $239 million with quarter-on-quarter growth partly driven by the sequential increase in Free Fire bookings, which has higher margins. Digital financial services GAAP revenue was up by 53% year-on-year to $428 million. Adjusted EBITDA was $137 million in the second quarter of 2023, compared to an adjusted EBITDA loss of $112 million in the second quarter of 2022. On credit, as of the end of the second quarter of 2023, the total loans receivable on our balance sheet was $2 billion, net of allowance for credit loss of $279 million. Non-performing loans past due by more than 90 days as a percentage of our total gross loans receivable remained stable at around 2%. We recognized a net non-operating income of $108 million in the second quarter of 2023, compared to a net non-operating loss of $33 million in the second quarter of 2022. The year-on-year increase was mainly due to higher interest income in the second quarter of 2023 and investment losses recognized in the second quarter of 2022. We had a net income tax expense of $62 million in the second quarter of 2023, compared to net income tax expense of $65 million in the second quarter of 2022. As a result, net income was $331 million in the second quarter of 2023, as compared to net loss of $931 million in the second quarter of 2022. With that, let me turn the call to Minju.

Thank you, Forrest and Tony. We are now ready to open the call to questions. As usual, our Group Chief Corporate Officer, Yanjun Wang, will lead this part.

[Operator Instructions] Our first question comes from Pang Vitt from Goldman Sachs.

Two questions from me. Firstly, on e-commerce. Any comment on GMV take rate in second quarter you can provide? Can we also have a better understanding of your e-commerce strategy right now? What exactly did you see and prompt you to be more aggressive on spending now? Any change in competitive landscape? Where do you spend right now as well? Is it on price subsidies, shipping subsidies or brand campaign overall? Why is that lagging as well for this to show up in top line and objective to try to achieve, any guidance you can provide? And importantly, what is the line here, will we potentially see you go back to cash burn mode or negative EBITDA on e-commerce again on a group level? That's question #1. Question #2, on gaming. We start to see a better trend on QAU and also clear ratio. Is it safe to say that the worst is over for Free Fire, and we will likely to see some positive momentum hit forward to brought again. Any one-offs due to seasonality, due to summer holiday? And can you also walk us through the improvement for your EBITDA margin here as well? Is this a new run rate we can expect?

Thank you, Pang. There’s a lot of questions in queue. So on the e-commerce side, regarding GMV and take rate, we see a sequential growth in GMV, and we did mention that we saw double-digit growth in order number quarter-on-quarter. So that's an initial positive sign in relation to our ramp-up investments in Q2 already. Why we -- in terms of take rates, as Tony probably already observed, we continue to see uptick in terms of advertisement and also so much spending on our platform, and therefore, the core marketplace revenue continues to grow as a result. But of course, there is some impact on the VAS revenue because of our ramp-up investment in logistics spending which affects due to GAAP accounting and netting off effects VAS GAAP revenue. And I think that might be an ongoing trend. So if we want to highlight that in terms of take rate, we would like to get people to look more at core marketplace take rate because VAS take rate will be affected by accounting treatment of shipping subsidies we may provide from time to time. And in terms of the -- what's going on that why we are reaccelerating our growth and investment in growth during this period of time? I think as we look at the past quarters, we have become the first and only e-commerce platform in our region that has achieved profitability at scale and that shows the strength of our operations as well as our ecosystem. I think also looking at the financial position we have achieved and the resources we have, overall, we think we are in a much stronger position and a much stronger footing now to refocus on growth. I'd like to remind all that we keep during that entire lifespan, we've been talking about the growth potential of our markets and our markets remain important growth markets for e-commerce and the significant opportunities that we think are ahead of us. So that should never be lost regardless of shift in focus. But the past few quarters' efforts in focusing on cost efficiency improvement, overall cost management of the organization as well, as we mentioned, the continuing efforts to focus on cost leadership for our ecosystem as a whole has significant benefit to us to grow further more efficiently in this period of time. So I think this is one benefit we can leverage as we shift to back to reinvestment into growth. And the second thing is when we look at the macro environment in our ecosystem, we've seen resilience in fact, in the local economy and consumption so far. And more importantly, we also see new opportunities for growth, in particularly relating to live streaming as well as e-commerce related to -- with video content. We think these are interesting new opportunities that we are in a great position to capture given: A, that we are an e-commerce platform. And from that angle, in terms of commerce side, we have advantage in actually converting buyers in serving their orders more efficiently and effectively with better quality and experience with our integrated logistics and payment services as well as our overall e-commerce capabilities. And B, don't forget that we are a social commerce platform in our DNA, so we're one of the first platforms -- e-commerce platforms in our region to tap into social sellers. So this has always been part of our core competencies and strengths. And C, given our larger -- significantly larger scale, the all new platform, other platforms and also the profitable position we have already achieved, we're in a better-than-ever position to actually capture a larger slice of growth in the pipe that we already see in the market. As Forrest previously shared just now, we actually already started to see some progress and benefits from our focus on this content-based e-commerce activity in our region, and we have attracted a significant number of top influencers and sellers to stream on our platform. As a result, our Shopee platform in Indonesia has already, we believe, become the largest live streaming platform in the country. So this has been a focus area that we are ramping up investments in as well. Also, we also started to ramp up investments in free shipping again to capture more of the growth opportunities we are seeing in the market. So overall, I think given our stronger operational and financial position, given the relatively strong market conditions, and also given the new opportunities that we see in the market that we have a significant advantage in capturing, we do believe that now is a good time to start to invest in growth. And in terms of where the investments will be made, I think it probably covered by my answer just now. And how would it affect the top line and bottom line? I think it remains to be seen the effect on the top line. Of course, we would expect and we hope to see more growth from the investments. And at the same time, in terms of value into SE, as we explained, while we do see more dollars taking up investment on our platform, the impact on the VAS from the free shipping program may have an accounting impact on the total revenue. So we remain -- the net effect remains to be seen. In terms of the bottom line, also as shared by Forrest earlier, it will have an impact on our bottom line for Shopee and the group as a whole. But we think given our capability and ability also that we have proven to shift focus and to manage growth as well as profitability from period to period and time to time, we believe that we will be able to manage in a very responsible, efficient and prudent manner. And we'll closely monitor each market and its conditions and growth potential and potential areas for investment from period to period. It's going to be a very much a bottom-up and closely monitored pace of investment. Now turning to games. So yes, as you pointed out, we are very happy to see positive trends on QAU, QPU, and -- as well as start to see signs -- positive signs for our Free Fire specifically on the booking number. But as we also shared earlier, we think this is a strong sign. On the other hand, we continue to monitor and observe the trends ongoing to see whether this is the beginning of a long-term stabilization. In fact, if where we see games to show more seasonality, usually, that is also a positive sign that's more stabilization of the given seasonality. And from an EBITDA margin perspective, as we explained, the Free Fire bookings increased vis-a-vis the other games in the portfolio, we do see a boost to our EBITDA margin. But generally speaking, during this -- over the past periods, our EBITDA margin has remained at a very generally high level compared to the industry average.

The next question comes from Alicia Yap from Citigroup.

Management. I have two questions as well. First of all, a follow-up on the gaming. Can you share with us what have you done that has been working on reengaging the user? And do you expect this user and booking growth could sustain? How should we reconcile the use of metrics in the GAAP revenue and the EBITDA trend into the second half? And then for the e-commerce is also to follow up. Can management share with us what kind of results or achievements that you hope to obtain with the reacceleration of the investment. What are the cushion level of the loss that you would want to maintain along with your investment step-up? And then is there a specific country that will account for higher proportions of the investment spend?

Thank you, Alicia. Regarding the game, I think all the efforts we've shared before on our earnings calls we think are paying off over time. And we focus on the game communities, focus on generating content that is tailored to our communities and focus on better engagement with them and also better user accessibility and user experience. So all these, I think, have been helping us building up demand for our content and user engagement. As we explained before, from a gaming perspective, we focus on active user base first and before monetization. And usually, when you see positive trends in user base, we will generally have been able to convert that down the road into better monetization as well. So I think this is a trend that has been playing out. And again, we hope that this is again a beginning of a long-term stabilization trend for Free Fire, our largest game and one of the largest game in the world. But also on the other side, we remain cautious and we want to continue to observe for a few more periods. In terms of GAAP versus booking, we believe generally they will start to track in direction. Of course, from time to time, there could be differences due to changes in recognition periods, et cetera, from an accounting perspective. So -- but on the whole, I think we generally expect the big picture direction should be similar. In terms of the e-commerce, the KPIs we look at, of course, overall, in terms of the user engagement, active user base and in particular, user engagement in areas that we are focused on such as live streaming and as well as some core categories we are focused on such as fashion, health and beauty, home and living and these are high-margin categories that have been traditionally our core focus areas. And of course, that hopefully translates into higher order number and GMV. These are some of the key metrics you can expect us to track consistent with our past practices.

The next question comes from Piyush Choudhary from HSBC.

Let me continue to answer the previous questions. And in terms of level of profit or loss, we are willing to sustain during these periods. I think that overall, we want to remain as self-sufficient, that self-sufficiency as a core focus has not been changed. And as shared by our CEO just now, that continues to be our mantra and also in terms of cost efficiency improvements over time, we think that these are important competitive moat. And in fact, the fact that we can become profitable so quickly and while maintaining the size of our ecosystem and our market, strong market leadership, and able to now also invest in growth while many of our peers still trying to manage their losses or are incurring very, very significant losses, that shows that the resilience and the strength of our ecosystem is and will continue to be a competitive -- important competitive moat for us. As we shared previously, we truly and strongly believe that in the longer run, the competition on e-commerce, it doesn't matter which angle you cut it and where you come from, it's very much a business that's focused on fundamentals. You need to serve your users as well at lowest cost possible. These are simple rules and principles that we follow. There are many ways to engage our users. There might be new ways to engage with them that we will be able to leverage. There are many different service points we can touch and also continue to improve. And there are also many cost points that we will continue to improve upon and these are the key competencies, I think that brought us here to the current position of strong market leadership with the lowest cost to serve a platform that allows us to be both market leader, but also profitable and one and only in Southeast Asia so far. I think we will not give up that competitive moat and we'll continue to strengthen that. From period-to-period, we may make decisions and execute based on what we see as appropriate opportunities in the market and make investments. And those investments can be significant. But we will continue to focus on our execution efficiency. And also in the longer run, everything we're doing is continuing to strengthen our long-term profitability and market leadership. So those are the principles that we will always stick to in the long run.

Next question comes from Piyush Choudhary from HSBC.

Two questions. Firstly, on e-commerce. Within Shopee Asia, can you talk a little bit about where you see better growth opportunities and where you will invest kind of significantly more? And what is the outlook for Shopee Brazil? Can we expect more investments even in Shopee rest of the other markets and increasing losses there? Or would you aim to reach EBITDA breakeven in rest of markets first? And secondly, on gaming, can you give us some insights on the performance of Undawn post its launch? Is it trending above or below your expectation? And any update on Free Fire game in India?

Thank you, Piyush. In terms of the Shopee Asia, the growth opportunities we are seeing, I shared earlier in terms of overall market conditions being conducive and consumption resilience. At the same time, we see new opportunities related to in particular live streaming and video content-based e-commerce that we are trying to capture. And outlook for Brazil remains strong. As we shared this in previous quarter, we continue to see Brazil as an important growth market for us in the long run and we will continue to invest in growth there. At the same time, we continue to focus on efficiency of growth. We see that on a quarter-on-quarter basis, we saw improvements in the EBITDA loss per order for Brazil as a result of our continuing improvement on cost efficiency, in particular in logistics now in Brazil. We do believe this remains a long-term growth opportunity for us. For the other markets, they are relatively small for us outside of Asia and Brazil. And we believe they are -- at this point, they are mostly contribution margin positive. So it doesn't really require too much investment, but we will continue to observe all the markets' progress down the road. Undawn has been launched and usually with a newly launched game, we first of all are focused on engaging with our user base and try to make sure we have a strong user base and good engagement level from these users. We would not be very much focused on monetization at the initial stage of the game and the performance is still awarding expectations so far. We don't have any update on Free Fire in India at this point. Thank you.

The next question comes from Jiong Shao from Barclays.

First, I want to clarify, when you said order growth double digit, I want to clarify, that's quarter-over-quarter or year-over-year? And if you can comment on order growth, are you seeing higher growth in Brazil vis-a-vis Asia? My question is about the take rate. I think you talked about the -- perhaps the higher shipping subsidies has made an impact on the take rate for this quarter. But over the last few years, it seems you have maintained or grew your take rate pretty much every single quarter. Our back of the envelope calculation is showing the take rate sort of was down quarter-over-quarter. Should we expect the take rate now is kind of becoming more volatile going forward? How should we think about the drivers, the reasons behind the fluctuation in the take rate if there is going to be one going forward?

Thank you. In terms of the order growth, double-digit order growth we're talking about quarter-on-quarter. And Brazil order growth overall is aligned with the group level. In terms of take rate, as I mentioned, our core marketplace take rate continue to increase. However, if you look at the overall take rate, it's affected by VAS due to accounting netting off between -- from top line as we increase the shipping subsidies and VAS revenue is primarily related to logistics. So under GAAP accounting rules, we have to net off shipping subsidies from logistics revenue under VAS at an order level, so that will affect the overall take rates as a result as well as the revenue growth. So this might compound some of the trends you will be seeing down the road. But I think the general trend should still be that we believe on the core marketplace level, we believe our sellers will continue to engage with us more. And commissions, also we do see some increase in commissions from time to time, but it might not be increasing so rapidly as was in the past period. So we don't expect significant increase in the take rate but also in the forward periods, there might be compounding effect from VAS, which accounts for a large part of take rate as well.

The next call comes from Ranjan Sharma from JPMorgan.

Two questions from my side. Firstly, if I just look at the core marketplace revenues, I understand this seemed to be flat as well, right, from first quarter to second quarter core marketplace revenues of around $1.2 billion. If you have higher commissions, ad revenues and GMV, shouldn’t the marketplace revenues have gone up, if you can help explain what's behind these numbers? Secondly, if the focus of the management is shifting towards growth again, are we going to start seeing quarterly GMV being disclosed as well?

Yes. If you look at the core marketplace revenue quarter-on-quarter, actually growth rate has accelerated from -- in Q2 to 7.4% compared to about 2% in Q1 Q-on-Q. So I think there’s slight increase in the growth of the take rates at the core marketplace level. And in terms of GMV disclosure, I think we'll continue to make a decision about it quarter-on-quarter. We may provide certain spot disclosure from time to time where we see relevant. Again, no decision has been made at this point yet.

The next question comes from Thomas Chong from Jefferies.

I have a question relating to the fintech side. Can you comment about how we should think about the strategies going forward in terms of the business model as well as digital bank initiative and how we should think about the margin trend for fintech?

Thank you, Thomas. In terms of the fintech business, we're pleased to see that continue to produce strong cash flow and also a very strong year-on-year growth with a stable risk profile. And as we explained before, overall, we think at this stage, we try to maximize the synergies between our Shopee and SeaMoney ecosystem. And focus on building a strong platform with resilient and strong capabilities and a good service to our users. But it's still very early stage for us at a fintech level. But it's already a very good business, producing stable good cash flow. So we're happy to see how it is. We'll focus on more on the health of the growth and synergies to make sure we maximize efficiency of the business at this stage.

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

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

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