Sea Limited (SE) Q4 2023 Earnings Report, Transcript and Summary

Good morning, and good evening to all, and welcome to the Sea Limited Fourth Quarter and Full Year 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] And finally, I would like to advise all participants that, this call is being recorded. Thank you. I’d now like to welcome Miss. Minju Song to begin the conference. Please go ahead.

Thank you, and hello, everyone, and welcome to Sea’s 2023 fourth quarter and full year earnings conference call. I’m Minju Song, from Sea’s 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 Chief Executive Officer, Forrest Li, President, Chris Feng, Chief Financial Officer, Tony Hou, and Chief Corporate Officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights, and financial performance for the fourth quarter and full year of 2023. This will be followed by a Q&A session in which we welcome any questions you have. With that, let me turn the call over to Forrest.

Hello, everyone, and thank you for joining today’s call. I am happy to share that we have achieved our first full year of annual profit since our IPO. In 2023, we achieved profitability, strengthened our market leadership for our e-commerce business, grew our digital financial services business, and stabilized the performance of our digital entertainment business. We have emerged with a much stronger balance sheet with our cash position increasing to $8.5 billion as of the end of 2023, demonstrating the discipline and prudence we have applied in our investments over the past year. Looking ahead, we expect 2024 to be another profitable year. Let me recap our performance at the individual business level in 2023, and share the key strategic focus for each business in 2024. Starting with Shopee. First, Shopee’s investments since July last year have paid off. I am pleased to report that, despite an environment of intensified competition in Southeast Asia, we believe we had a meaningful gain in market share between the start and the end of 2023. We are happy to have solidified Shopee’s market share in the region, and we intend to maintain our market share in 2024. We expect Shopee’s full year GMV growth to be in the high-teens range and its adjusted EBITDA to turn positive in the second half of this year. To retain and strengthen our competitive advantage, Shopee’s three operational priorities in 2024 are improving service quality for buyers, enhancing the price competitiveness of our product listings, and strengthening our content ecosystem. On service quality for buyers, we will do more to optimize key aspects of the buyers’ experience such as delivery speed and consistency, return and refund processes, and customer service. These are areas we already excel in, and will continue to improve on. On keeping our product listings price competitive, we will continue to work more with sellers who have more upstream supply chain access, and provide more fulfillment, marketing, and shop management services to our sellers. On content, we will deepen and broaden engagement with creators, sellers and partners across the content ecosystem and better integrate live streaming and short form video into the shopping experience. Let me now highlight some of Shopee’s achievements in the fourth quarter. During the quarter, Shopee delivered strong results with both top-line growth acceleration and bottom-line improvement. Shopee’s GMV and orders grew 29% and 46% year-on-year and 15% and 13% quarter-on-quarter, respectively, resulting in solid market share gains across our markets. Meanwhile, Shopee’s adjusted EBITDA loss improved by 35% sequentially. Adjusted EBITDA loss per order improved by 43% quarter-on-quarter. On logistics, we opened five new sorting centers and 385 new first and last mile hubs across our Asia markets and extended our logistics network further to improve our coverage. Through more automation, tighter planning, better routing and other operational improvements, our platform logistics cost per order in Asia decreased by 12% year-on-year in the fourth quarter. This was partly driven by our own logistics network cost per order decreasing by 20% from the same period last year. We are also seeing good progress made on delivery speed. In Indonesia, in December 2023, more than half of the orders from buyers in Java were delivered within two days. We will continue to improve logistics service quality in terms of both speed and consistency. At the same time, we are also expanding premium services such as next day delivery and introducing new features. For example, we commenced return-on spot services in Indonesia and Vietnam. This initiative has resulted in higher trust and increased product frequency – purchase frequency from our buyers, particularly those who are new to Shopee. Our e-commerce logistics network is now one of the most extensive and efficient in our markets, and a strong competitive moat for us. We have rapidly ramped up live streaming e-commerce, which accounted for around 15% of our physical order volume in Southeast Asia last December. With the scale and leadership achieved, unit economics of the segment also improved meaningfully quarter-on-quarter. Shopee Brazil continued its strong performance in the fourth quarter. Its contribution margin loss per order improved by nearly 90% year-on-year. This was driven by improvements in both user monetization and cost efficiency. We believe we have achieved cost leadership in logistics through scale and operational efficiencies, which have been and will be key to our success in the market. Turning to our Digital Financial Services segment. SeaMoney has delivered a strong year in 2023, primarily attributed to our consumer and SME credit business. Our journey to build the credit business dates back to 2019. We initially started by introducing SPayLater consumption loans in response to Shopee buyers’ strong need for such services. Subsequently, we extended our offerings to cash loan services to both buyers and the sellers on Shopee. This underscores our user-centric approach, and the unique advantage offered by the Shopee ecosystem for SeaMoney to quickly achieve critical scale and profitability. 2023 was the first year of positive profit for SeaMoney, with full year adjusted EBITDA of $550 million. As of December 31, 2023, our consumer and SME loans principal outstanding was $3.1 billion, a 27% increase year-on-year. $2.5 billion of that was on the book. Consumer and SME loans active users for the fourth quarter, defined as credit users with loans outstanding by the end of the quarter, was over $16 million, a 28% increase year-on-year. In 2024, we will continue to invest in user acquisition for our credit business, both on and off Shopee platform as we see significant upside in our markets. As we scale, we will remain prudent on risk management. In addition to our credit business, SeaMoney is also growing our digital banking and insurance services to capture future business opportunities in the digital financial services segment. We expect SeaMoney to continue its robust growth in 2024. In digital entertainment, Garena has done well in enhancing and optimizing game experiences for its players For instance, we have continuously introduced fresh and highly localized content to Free Fire. In the fourth quarter, we collaborated with Lamborghini to allow players to drive their cars in-game. We also recently announced our collaboration with JKT48, an idol group from Jakarta, as our Indonesian brand ambassador. These partnerships excite and delight our players, and enable us to nurture our local communities. I am happy to share that we are seeing improved user acquisition and retention trends for Free Fire. In 2023, Free Fire was the most downloaded mobile game globally according to Sensor Tower. We are pleased that these positive trends are continuing into 2024. In February, Free Fire achieved more than 100 million peak daily active users. It remains one of the largest mobile games in the world. With this positive momentum, we currently expect Free Fire to grow double-digits year-on-year for both user base and bookings in 2024. To conclude, we are pleased to see positive trends in both growth and profitability for all three of our businesses. We will continue to invest for the future with discipline and focus. I would also like to take this opportunity to thank our employees, users, investors, and partners for your continued support throughout this journey. With that, I will invite Tony to discuss our financials.

Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 5% year-on-year to $3.6 billion in the fourth quarter, and 5% year-on-year to $13.1 billion for the full year of 2023. This was primarily driven by the improved monetization in our e-commerce and digital financial services businesses. Our total adjusted EBITDA was $127 million in the fourth quarter of 2023, compared to an adjusted EBITDA of $496 million in the fourth quarter of 2022. For the full year of 2023, our total adjusted EBITDA was $1.2 billion, compared to an adjusted EBITDA loss of $878 million for the full year of 2022. On e-commerce, our fourth quarter GAAP revenue of $2.6 billion included GAAP marketplace revenue of $2.3 billion, up 23% year-on-year, and GAAP product revenue of $0.3 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues was $1.6 billion, up 41% year-on-year as a result of platform growth and improved monetization. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.7 billion, down 5% year-on-year as a result of higher revenue net-off against shipping subsidies. For the full year of 2023, GAAP revenue of $9.0 billion included GAAP marketplace revenue of $7.9 billion, up 27% year-on-year, and GAAP product revenue of $1.1 billion. E-commerce adjusted EBITDA loss was $225 million in the fourth quarter of 2023, compared to an adjusted EBITDA of $196 million in the fourth quarter of 2022. 2023 full year adjusted EBITDA loss improved by 87% year-on-year to $214 million. For our Asia markets, we had an adjusted EBITDA loss of $193 million during the quarter, compared to an adjusted EBITDA of $320 million in the fourth quarter of 2022. In our other markets, the adjusted EBITDA loss was $32 million, narrowing meaningfully from last year, when losses were $124 million. Contribution margin loss per order in Brazil improved by nearly 90% year-on-year to reach negative $0.05. Digital financial services GAAP revenue was up by 24% year-on-year to $472 million in the fourth quarter and up by 44% year-on-year to $1.8 billion for the full year of 2023. Adjusted EBITDA was up by 96% year-on-year to $148 million in the fourth quarter of 2023 and up by 341% year-on-year to $550 million for the full year of 2023. Digital entertainment bookings were $456 million in the fourth quarter and $1.8 billion for the full year of 2023. GAAP revenue was $511 million in the fourth quarter and $2.2 billion for the full year of 2023. Adjusted EBITDA was $217 million in the fourth quarter and $921 million for the full year of 2023. Returning to our consolidated numbers, we recognized a net non-operating income of $32 million in the fourth quarter of 2023, compared to a net non-operating income of $35 million in the fourth quarter of 2022. For the full year, our non-operating income was $208 million, compared to a loss of $13 million for the full year of 2022. The improvement was mainly due to higher interest income for the full year of 2023, as compared to the full year of 2022. We had a net income tax expense of $77 million in the fourth quarter of 2023, compared to net income tax credit of $43 million in the fourth quarter of 2022. For the full year, our net income tax expense was $263 million, compared to $168 million for the full year of 2022. As a result, net loss was $112 million in the fourth quarter of 2023, as compared to net income of $423 million in the fourth quarter of 2022. For the full year, net income was $163 million, as compared to net loss of $1.7 billion for the full year of 2022. At the end of the fourth quarter of 2023, cash, cash equivalents, short-term and other treasury investments were $8.5 billion, representing a net increase of $566 million from the previous quarter. The increase includes proceeds of approximately $370 million from lower securities purchased under agreements to resell relating to our banking operations. From the first quarter of 2024 onwards, we will include this as part of other treasury investments as these are highly liquid marketable securities. With that, let me turn the call to Minju.

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

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from a line of Pang Vitt from Goldman Sachs. Your line is open.

Hi. Good morning, management team. Thank you very much for the opportunities, and congratulations for the solid set of results. Two questions from me. Firstly, on Shopee. Can you please provide a little bit more color on the guidance you gave out for 2024? What is the assumption behind in terms of competitive landscape and market share, especially in Indonesia? When it comes to high-teen growth, how do you plan to achieve this? And on the margin size, what gave you the confidence that we can go back to breakeven by second half of this year? And what kind of EBITDA margin we can expect as well for Shopee to achieve in the near-term? That's question number one. Question number two, related to SeaMoney. Can you provide some color on why EBITDA was weaker quarter-on-quarter? We noticed that you spend more on marketing this quarter. Should we expect this to be the new run rate? What kind of growth outlook can we expect for 2024 and can we still expect to see EBITDA growth here? Thank you.

I think the, let me address the first question first. I think in term of the Shopee, we do believe that we are able to grow high-teens for the full year 2024 as we shared in the opening. For particular for Indonesia, we do see Indonesia is a good market for us in the Q4. And we will believe that the trend, likely, the growth trend, like, you're considering Q1 and in line with the other market in the following quarters. If you look at the overall competitive landscape, we have seen a more stable competitive landscape in the past quarters. Again, we cannot sort of control, I guess, our competitors, but if you look at the past, we have been competing with the similar set of competitors for quite a while. And even with the most intensive competition during the past few quarters, we're able to gain market share while improving our unit economics. They are contributing by a few factors. I think number one is, we are a clear market leader in the market. This translates to the economic scale benefiting by both having better monetization capabilities and also better cost efficiencies. And if you look at the scale, we are in a much better position now compared with a year ago. We do believe that we have gained market share in Indonesia if you compare the beginning of the year or last year and now. The second one is, I do believe that we have a strong local leadership team and operating team to execute on what we set up to execute and also make the right judgment based on what we see in the market. I spent probably most of my time, if you compare all countries, I spent most time in Indonesia. And many of our management team, including myself, learned to speak Bahasa Indonesia over time as well to understand the market better. Number three is, we have built infrastructure for the market over time. For example, our logistics coverage in Indonesia has been larger than before. Our cost has reduced significantly over the past few quarters for shipping one order. Also, the quality has been improved. But most importantly, by having our own logistics in the market, enabling us to offer differentiated services. If you follow the market closely, we have recently started the return on the spot for the users, which had very good feedback, not only for Indonesia, but also for Vietnam. We also started differentiated return services that we're going to allow the user to ask for return anytime during the shipping process. And we can intersect the orders even during the shipping, which is not offered by any other one in the market so far. And also, on top of that, we have our strong integration with our digital financial services businesses. This not only enable us to reduce the cost for transactions, for example, on the payment side, but also allow us to untapped cycle potential by offering the SPayLater to a broader segment that we have never seen in the market before. All of this help us not only to reduce cost but increase the conversions in the market. We've been doing all this in the past few quarters and we do believe across all dimensions we're able to do better over this year. So that even with whatever competitive landscape that we're facing, we're able to outperform our competitor in the market, be more efficient in the market. I think that's kind of like, how we see the market so far and how this is going to evolve in the future. In terms of the margins, as we shared in the openings, we believe that overall, business with Shopee, we're able to breakeven in the second half of the year, while with the intention to at least maintain our current market share in the market and this apply to Indonesia as well. I think as I shared earlier compared to a year ago, we gained size of the market shares. And we are going to execute even better over this year, giving the foundations we've built during the last year. On top of what I mentioned just now in terms of other things we're doing, there are a couple of other things we are doing further even over the year. One is the price comparison is, we do believe we are the most price competitive platform in the market, as you can do benchmark externally. We're going to deep dive -- we're going to deep dive on that even further over the year. In particular for, not only for Indonesia, but for the other markets as well, but yeah, Indonesia is the key market for us. They were also going to further drive the service quality, I shared earlier, not only on the logistics, but also on the after procurement, like the return on services, the customer service quality, etc. And all this will essentially put us into an even better position in the future. Not only sort of maintaining our growth trajectories, but also improving our EBITDA. For the live stream that we talked about in the past earning call, we have seen quite fast growth on the live stream in this quarter as well. As we share in the opening, we have -- across the region, we have about 15% of our orders come from live stream. For Indonesia, it's even bigger percentage. Indonesia is the first country we started. In some of the market (ph), we believe that we are probably the largest live stream platform in the market. Not only the scales, but while we're growing it, we have been reducing the economics quite significantly in the past few months and continuing Q1 essentially. This also enables us to compete effectively with our competitors, which is like just from a year ago, if you look at it. If you look at a year ago, we probably don't have this ecosystem. We have to invest to build this ecosystem. We are now in a very different status for that. I think this is sort of probably concludes on the first question for Shopee. Moving to the second question on the SeaMoney EBITDA for Q4. So I think we probably should put into perspective on the overall SeaMoney businesses. The SeaMoney has seen the first positive in 2023, and the trajectory has been doing well, if you look at Q1, Q2, Q3, and extend to Q4. We have seen very healthy margin in our SeaMoney businesses. And given the very healthy margin in the businesses, we in Q4 leveraging on the facilities we spent, we invest more to acquire new user to the platform and this essentially will bring us a better possibility in long term. We measure our use acquisition costs very prudently. Every user requires will bring positive profit over the time. Thank you.

Your next question comes from the line of Navin Killa from UBS. Your line is open.

Hi. Thank you for the opportunity. Actually, I had a couple of questions. First, I just wanted to understand a little bit about competition in the e-commerce space, particularly in Indonesia. I suppose Q4 numbers might have benefited from the fact that TikTok was not in the market for a large part of the quarter. So since the relaunch of TikTok, and as we probably come close to the end of the trial period, have you seen the intensity from the combined TikTok, Tokopedia entity evolve in a different direction over the course of the quarter? So that's my question number one. And second question, I guess, given the strong cash balance and your expectation of, I guess, positive profit for the full year for the group. How do we think about use and allocation of this cash going forward, potentially for buybacks and other use cases? Thank you.

For the first question, I think I shared quite a bit in the last answer as well. Generally, we compete with both competitors you mentioned for quite a long period of time. And you are right that it does benefit us in some extent in Q4, that TikTok wasn't operating for the period of time, for five full period of time during the quarter. But I don't think that's the only reason that would grow well in Q4. We have seen similar growth trends continued in Q1 as well, even the landscape have changed. A typical e-commerce transactions, as we can see across globally, it might not necessarily 1 plus 1, plus 2, greater than 2 situations. I think for us, the most important thing is to focus on what we are great at. As I mentioned earlier, our scale advantage, our local leadership and operating teams, our infrastructure build over time, our integration with DFS. And all this give us the competitive advantage in the past few quarters as you can see and will continue to give us the advantage in the coming quarters. And with that, I think we have shared that we're expecting a good growth for Shopee over this coming year, in 2024 and in the coming quarters.

And regarding our cash balance, we think for a company of our size, it's a prudent to maintain a strong cash balance. And we're also very disciplined and focused in deploying our capital to capture future opportunities to maximize our long-term shareholder return. We do not rule out any options for using our cash balance in this regard.

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

Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid result. I have two questions. First is that obviously with the Ramadan’s coming, do you anticipate your competitors in Indonesia to further step up the spending? And in the event, if your competitors in Indonesia are catching up on the market share, would you step up your spending that might actually prevent your EBITDA to regain profitability in the second half of this year? Second question is, what are the main reasons for your confidence in growing the Free Fire in double-digit in booking and user, this year. What have you done or plan to do to regain your user traction and monetization? Thank you.

For the first question, so in a way, Ramadan started already in Indonesia. We are comfortable with vesting (ph) so far, let's put it this way. So in a way, we cannot see market share as a stacked number. Market share is always dynamics. And the most important for us is to make sure that we always have a flexible leadership compared to our next competitors, so that we can sustain our scale advantage and that's number one. Number two is, we're able to build up our long-term mode compared to competitors who are more efficient when we compete with the competitor in the market. I think again, as I shared earlier, given all the things we have done, even with the most intensive competition in the past few quarters, we're able to reduce our cost while increasing our market shares. I think this reflects of the mode we have been over time. And we do believe that we'll be able to continue in the future.

And regarding Free Fire, as we shared earlier, we're encouraged by the positive trends we have seen so far this year, in terms of active user base and monetization across our various markets. As a result, we share that our current expectation is for the game to achieve double-digit year-on-year growth for both user base and bookings. As a self-developed game, Free Fire also enjoys better margin for us. In terms of what we have done and will do in the future, I think our focus has been quite consistent. It's on building better user experience, such as easy access to users, file download size, and data requirements, introducing more engaging content, and strengthen esports communities to further develop the game into a strong evergreen franchise.

Your next question comes from the line of Piyush Choudhary from HSBC. Your line is open.

Yeah. Hi. Congratulations to the management team on great set of results. First question is on Shopee. If I analyze your fourth quarter GMV, that itself is implying around 18% year-on-year growth in 2024 GMV. So why does company expect to grow only high-teens range and not more than that? What is driving conservative guidance? And also for Shopee EBITDA, as you expect to turn profitable in second half, would it mean that on a full year basis, adjusted losses for Shopee would narrow year-on-year in ‘24? Secondly, on gaming, what led to fourth quarter quarterly pay users decline despite of strong seasonality and your outlook for Free Fire is strong, would that mean consol Garena will also grow double-digit and what's the margin outlook for Garena business? Thank you.

In terms of the guidance we give out, I think the high-teens for the year, we believe that is a reasonable estimate that we've given out based on both the market growth rate and also the EBITDA goal we set up to achieve. And on top of that, the most important thing is, with this, we're able to sustain our market leaderships while building up all the competitive modes that we've been building over the past years. On top of that, even started a few other new initiatives during the year. So we are comfortable with what it is. In a way, we are not chasing for growth for the growth. We are trying to grow in efficient and prudent fashion with the long term probability in mind. In term of the second question, whether the full year were narrow over time. I think this is something we haven't given a guidance on. We probably wouldn't comment too detailed on that. But generally, I think what we set to achieve, again, is to have Shopee as the overall business breakeven over the second half of the year.

Regarding Free Fire, I think that quarter-on-quarter user fluctuation can be many reasons including seasonality and game launch for Garena as a whole or eSports events. But for Free Fire overall, I think we have shared earlier. We are very positive based on the trends so we have seen so far. And therefore, we want to give market some indication of what we also have seen. Regarding the rest of our portfolio which are third-party games published by us, we will continue also to work closely with our partners to bring more content to our game communities as well.

Your next question comes from a line of Thomas Chong from Jefferies. Your line is open.

Hi, Good evening. Thanks, management for taking my questions and congratulations on a strong set of results. My question is, first, on Shopee, given we are looking for Adjusted EBITDA to breakeven in the second half and we have built up our competitive mode. I just want to ask about in terms of the take rate trend for Shopee in 2024? How should we think about the advertising and the commission trend? That's number one. And then number two on the fintech side, given the strong growth momentum that we are seeing, I just want to get some color with respect to our user acquisition strategies. What kind of channel are we getting new users other than the organic one? And on that one, how are we thinking about the long performing loans expectations as a percentage of our loan book. How is our technology or our data insights, which can make it at a low level? Thank you.

On the first question regarding the take rate trend, as you have seen that we have adjusted our commission side continuously over the past few quarters. We are actually reviewing every month in terms of what makes sense for our user base in terms of commissions. I think overall, the most important thing is, we want to make sure there's a healthy ecosystem that our seller has a reasonable margin to operate, but also are able to support the overall marketplace to grow healthily. So we will probably see some adjustment on the commissions over the year. Some of them can be for specific categories, some of them for specific countries. Yeah, I think it's probably going to be a fine tuning, I guess, over the year. On the second part, on the ad take rate, we do believe that there is a sizable potential on the ad side for the take rate, comparing to many global peers, we still have a sizable room to grow there. And we have done quite a few technical events in the past few months And this will be deployed and fine-tuned in the coming quarter, which will enable us to further grow our ad take rate. The second question regarding the C SeaMoney growth, if you look at the SeaMoney, the majority of business are in the credit business at this point in time. Of course, we also have digital banks and insurance, but still in the relatively growing stage. There are a few passes we're looking at here. One is to further penetrate our Shopee ecosystem through our Shopee PayLater. The penetration of e-commerce platform has slight room to grow. We started in Indonesia first and other countries later. Even for our earliest market, we still see a potential to further penetrate the user base. I think that's the first one. The second one is, we also believe that outside of the Shopee ecosystem, there are many users that we can onboard to our digital finance platforms. This is still in a very early stage as we started much later than penetrating the Shopee ecosystem. But essentially, I think you can imagine that in a big country like Indonesia, where credit card penetrations are relatively small, single-digit stage. We are probably the first ones that are able to offer a credit service to the broader mass market. And of course, this helped by the Shopee’s penetration in the mass market. But there are still many other users out of the Shopee ecosystem in the mass market that we believe that we can target on. And of course, there are many channels to do that. We have offline QIS payments. We have very product-based, theme-based consumption loans that we are working on, which is not uncommon in many other markets. So that's another part of the equations in the credit businesses. The third equation in the credit businesses is to cross-sell other financial products to our ShopeePay Later user base. I think you asked about NPL as well. The great thing for our business is here is that giving the data we have from the e-commerce transactions and also over years, we build up the external data besides our Shopee system that we are able to credit rate user a lot more efficiently and effectively. And if the user onboarded to our ShopeePay Later platform, we have even better credit data based on the ShopeePay Later performance. This will enable us to sell them many other credit products over time. For example, we mentioned earlier on the cash loans that we offer to the users, which unlock more use cases. Basically, the user can use the credit for many other use cases besides the Shopee scenarios and other products we're rolling out over time. And I think as we grow, the scale will also enable us to lower down the cost of service as well, so that economics can be even better. As time goes, this will go to a positive cycle that we have a better cost of service, better risk management, so that we are able to target even broader segment in the market. So we can grow even further in the market. I think that's probably how we look at the growth side of the story. On the MPL side, we're seeing a relatively stable MPL, as Tony has shared in the opening over the time, of course, that's – that’s based on the number one, the data we have, as I mentioned in the previous descriptions. But also because I do believe that we have probably the best, if not one of the best credit modeling team in South Asia to utilize the data to be able to credit rate our users. On top of that, it's also about how we measure this overall. We measure this in a very prudent way. We're not rushing for growth, for the growth. We want to make sure that our financial services not only have a profitable business now, but have a profitable business in the very long term, even in the credit cycle situations. So, putting all these things together, we will probably see a pretty high, pretty good upside for our financial services. And 2024, we would like to further grow our user base and maintain our credit risk in the market. Thank you.

Your next question comes from a line of Sachin Salgaonkar from Bank of America. Your line is open.

Hi. Thank you for the opportunity. I have two questions. First question, if we could help get a bit more clarity on improving unit economics at live streaming. Can you give some color in terms of the difference between normal e-commerce and live streaming in terms of AOV, the margin perspective and also any thoughts on steady state EBITDA margin at live streaming? Second question, I also wanted to understand a bit more on Free Fire. i.e., is the expected launch of India baked in the expectation of a double-digit growth? And are there any specific markets which is driving your optimism in terms of overall growth? Thank you.

In terms of unit economics for live stream, it has improved cyclically in the past few months. Of course, at this point in time, comparing to the non-live stream part, it has a lower economics simply because we just started and it takes some effort to invest for the growth. But we do believe in the long term, the live stream probability wouldn't be too different, would be quite similar to what we see in the other part of the marketplace platform. In term of the AOV that you asked earlier, we started live stream with a low AOV compared to the marketplace. As time goes, it will start to convert and now in some market it's very similar, some market even a little higher, some market a little lower. So it's a bit mixed at this stage, but eventually in the big market it will converge as time goes. In the smaller market, it might have different variations, but I don't think it's significant for the purpose of discussion here.

And regarding Free Fire, so far the positive trends we have seen across various different markets for our global operations and currently no material development in India. We are still making changes to the Free Fire in here to best accommodate our users' preference locally. And we'll update the market when there's more material development.

Your next question comes from a line of Jiong Shao from Barclays. Your line is open.

Thank you very much for taking my questions. My first question is about your growth trend in the near term. You have returned back to growth over 20% for the first time in the last year and a half. You changed your strategy a couple of times during that period. Usually this kind of momentum doesn't sort of change very quickly. So based on what you are seeing and also given what you have said so far about Indonesia, could you talk about your near term growth momentum right now in the first quarter? Should we expect sort of similar to what you saw in Q4? My second question is about your sort of the mix between core marketplace and the VAS. I know you talked about the VAS, which is the logistics. Sort of decline your VAS, at least partially, mostly due to the subsidies for shipping. But over the last few quarters, it looks like your core marketplace growth has been very, very good, right? 30, 40%, and your VAS growth has been relatively low, very low, and negative in Q4. Other than the subsidies, are there other reasons behind, or strategic reasons behind these pretty meaningful differences? And if you add subsidies back, what does the VAS growth being somewhat similar to your core marketplace growth? Thank you.

I think for the growth trend for the near terms, I think we have seen pretty good growth in Q1. I mean, you probably can see from the external data as well, although it's not very accurate. But bear in mind that Q1, there's a Ramadan season for Indonesia in particular. And we have 10 new year in some other markets. So we do have to stick into the conservation personalities. But yeah, all in all, we're pretty happy with what we see in Q1 so far.

The VAS versus core marketplace, I would encourage you to look at core marketplace more closely to measure our overall platform growth, as well as monetization. The reason for VAS top line growth to deviate from that is because of accounting treatment that has a contra revenue effect caused by shipping subsidies. So that actually does not only affect the bottom line, but also affects the top line for that revenue segment, causing a departure in over trend. We cannot discuss the non-GAAP revenue, adjusted revenue, but if you add that back, I think the overall growth is consistent with the platform growth.

Your next question comes from a line of Ranjan Sharma from JPMorgan, Singapore. Your line is open.

Hi. Good morning and thank you for the presentation. Two questions from my side. Firstly, for Chris on live streaming, is there any co-host (ph) analysis that the team has done on the impact to live streaming GMV as incentives are removed for buyers? The second question is for Forrest, if he's there. On Garena still the discussion is around Free Fire, but are there any developments to move away from a single title franchise to a more broader studio? Thank you.

For the live streams, on the co-host, yes, we do look at the co-host for live stream and we're seeing pretty good retentions and repurchase rate for live stream. But on top of that, I think more importantly for us actually for live stream is we're seeing very good news percentage coming to live stream, which means that it does help us to reach out to segments that we might not completely reach out to before, which help us to grow the marketplace further as time goes. And we also observed that the news coming to live stream also cross purchase from the long live stream platform as well. I think these are the encouraging signs we see and that's also how actually we have been reducing our unit -- improving our economics in the past few months.

Yeah. Regarding Garena, I think Garena is definitely not a single franchise platform. We have multiple titles, both self-developed and published across different genres, including Battle Royale, MOBA, sports, casual, RPG, etc. It's just that the super successful Free Fire franchise seems to dwarf in comparison the other titles which are also highly successful and very long lasting for Garena so far. Thanks to our global teams, very strong operations and ability to build a strong pipeline in content, in partnership with our partners, as well as self-development, and also in growing our global eSports communities. I think that being said, as always, we're very focused on building future pipeline in terms of expanding our portfolio of genres and type of content, including more user-generated content, deploy more AI tools in building, in following new models of interaction with our users. All of these things are going on in the background that our teams have been very much focused on. So, we are very excited about the long-term prospects of Garena, again, as a leading global game company.

Here our final question comes from the line of Elly Zhang from Macquarie. Your line is open.

Great. Thank you so much for taking my question. I just have kind of two questions on the e-commerce side. Just now, management, you talked about our price competitiveness. Just wondering how do we maintain this level of the supply chain sustainability and how do we see our merchants general overlap compared to the other e-commerce apps in Indonesia. Also, in the slightly longer term, what is the end game for, I guess, overall e-commerce dynamics and how do we really evaluate longer term profitability level on the EBITDA side? Thank you.

Yeah. I think for the price competitiveness, I think the platform, we are generally most competitive in the market, as you can benchmark from external numbers. The key to sustain price competitiveness are from few angles. And number one is, we have the scale. So scale does bring advantage. So assuming that the same seller sell 100 items, our platform sell 10 other platforms, clearly, we have a fairly better bargaining power in terms of how much price that can be set. I think that's number one. Number two is the cost to serve from a seller perspective. We would like to make the process for a seller to transact to make their businesses successful on our platform much simpler compared to the other platforms that come with the tools, policies, and the fundamental concept of how the marketplace operates. I think the third one is to be able to identify the right skills, right sellers, through our traffic allocation algorithms and policies, of course. It's about how can we make sure the sellers with the good performance and with the good price competitiveness will be presented – will be rewarded with the better traffic in our platform. So they can sell more, so they can reduce the price further, because the scale they achieved. And they can also reduce the operation cost to serve the customers. And then this will flow to a very positive direction and the win-win for everybody from the both buyer and seller perspective. I think that's probably on the price competitive side. Just to add to that, I think another part of price competitiveness is to be able to offer differential services to different type of selling in the platform. There are sellers who operate the full value chain. There are sellers who are very specialized in part value chain, for example, on the production side or the importing side. It's very important for us as a marketplace platform to serve them well, to enable them to sell well our platform. So we can leverage on their strengths, rather than sort of, they need to be better on everything. And it makes it harder for many of the sellers to excel in the platform. But again, these are detailed operation methods that we have to work on to make sure that this works out smoothly. I think in terms of the long term probabilities, my feeling is that our market is not too different from the other major e-commerce platform that we have seen before. I think similar part of the level that is reasonable. In some market maybe a bit better because our market position, because the nature of the retail margin in the market, some market might be a bit more competitive, but in general, we don't see our market too different compared to the other market. And the market leader and the, as a market leader in the platform we will be able to achieve similar possibilities as a market leader in the other market.

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

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.