Earnings Call: Q3 2019

Nov 12, 2019

Good morning and good evening. Welcome to the Sea Limited Third Quarter 2019 Results Conference Call. All participants will be in listen only mode. 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. Yanxin Wang. Please go ahead. Thank you. Good evening and good morning, everyone, and welcome to Sea's 2019 Q3 earnings conference call. I am Yanjun Wen, Seasp Group's Chief Corporate Officer. Before we continue, I would like to remind you that we may make forward looking statements, which are inherently subject to risks and uncertainties and may not be realized in the future for various reasons as stated in our press release. Also, this call includes discussions of certain non GAAP financial measures such as adjusted revenue, adjusted EBITDA and net loss excluding share based compensation and changes in fair value of the 2017 convertible notes. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For a discussion of the use of non GAAP financial measures and reconciliation with the closest GAAP measures, please refer to the section on non GAAP financial measures in our press release. I have here with me Sea's Chairman and Group Chief Executive Officer, Forrest Li and Group Chief Financial Officer, Tony Ho. Forrest and Tony will share strategy and business updates, operating highlights and financial performance for the quarter. This will be followed by a Q and A session in which we welcome any questions you have. With that, let me turn the call over to Forrest. Thank you, Yanjun. Hello, everyone, and thank you as always for joining today's call. We are happy to announce a strong set of results for the Q3. For Sea as a whole, our adjusted revenue tripled year on year to reach $753,300,000 Adjusted EBITDA improved year on year to negative $30,800,000 compared to negative 100 and $83,800,000 a year ago. We continue to fund our growth primarily with cash generated through operations and are in a strong position to further capture the significant growth opportunities ahead. As we mentioned before, our strategic goal for 2019 has been to strengthen our leadership across different markets and business lines, scale with increasing efficiency and deepen user engagement and monetization. The results we reported today show that we are making excellent progress with this strategy. In view of our encouraging performance in Q3 and our strong outlook for the remainder of 2019, we have decided to once again raise our guidance for our full year adjusted revenue for both digital entertainment and e commerce. For digital entertainment, we now expect full year 2019 adjusted revenue to be between $1,700,000,000 $1,800,000,000 representing 157.2 percent to 100 and 72.3% growth from 2018. This compares to the previous guidance of between $1,600,000,000 $1,700,000,000 We are also increasing our guidance for full year adjusted revenue for e commerce to between $880,000,000 $920,000,000 representing 202.7 percent to 216.5 percent growth from 2018. This compares to the previously stated guidance of between $780,000,000 $820,000,000 I will turn first to our digital entertainment business. This was another great quarter for Garena led by the sustained success of our global smash hit Free Fire, which recently joined the $1,000,000,000 club as one of the highest grossing mobile games in the world. Let's look at some of our key metrics for the Q3. Adjusted revenue for the digital entertainment business grew by 2 12% year on year to $451,000,000 and we continued to deliver an excellent performance on the bottom line with adjusted EBITDA increasing 3 95% year on year to $266,000,000 The increase in adjusted revenue was mainly driven by an increase in our user numbers and the deepening pay user penetration. In particular, our quarterly active user numbers or QAU increased by 82% to 321,100,000 compared to 100 and 76,100,000 a year ago. And the pay user ratio, which is quarterly paying users as a percentage of QAUs increased again in the Q3 to 9.1% compared to 4.1% a year ago. Turning to our games portfolio, Free Fire celebrated its 2nd anniversary recently and it continues to be one of the world's most popular mobile by hroyal games. According to Fannie, in Q3, it ranked among the top 5 most downloaded mobile games globally for the 3rd straight quarter and was the highest grossing mobile game in Latin America and Southeast Asia in the quarter. We believe that Free Fire's continued global popularity also reflects the success of our effort to build a highly engaged global community around the game and keep this community engaged by constantly providing fresh, high quality in game content as well as driving an extremely successful global esports program. Sustaining this level of community engagement is an important focus for Garena. We are convinced that the huge popularity of Free Fire worldwide gives us an opportunity to build a long lasting franchise around this IP. Let me share a few recent examples of our initiatives to drive community engagement. In terms of content, we rolled out a number of new experimental modes of play. The response from our community has been overwhelmingly positive. Our Clash Squad mode, for example, allowed teams of 4 to compete against each other and proved extremely popular with our players. As Free Fire has increasingly become a national pastime in Latin America, especially for its young and social population. We have further extended the game's reach into the local communities with our network of followers, influencers as well as popular icons. For example, we partnered with DJ A Lock, Brazil's most popular DJ and one of the country's best loved music stars for the game. Alok is now a playable character in our game and will also provide one of his songs for Free Fire and our Esports events. Esports is also a key driver of user engagement and stickiness. Over the past several weeks, we have been rolling out our largest ever esports event for Free Fire, the Free Fire Watch Series. In September, we hosted regional qualifiers across all our markets globally for the World Series. This included hugely successful esports events in our newer markets such as India. India's Sports Minister attended our event as our guest of honor. We also partnered on this event with 1 of the country's largest media powerhouses, India Today. We are seeing very strong online engagement with these events. The final match of our Brazil qualifiers recorded over 1,000,000 concurrent viewers online. To date, our World Series events around the globe have accumulated over 100,000,000 viewers across all platforms. The highly anticipated work series will conclude at the ground finals in Rio in a few days' time. We are encouraged by the strength, depth and the strong gamer affinity that Free Fire is demonstrating. By combining this with our unique ability to build and deepen engagement with game communities on a hyper local level in diverse markets globally, we are confident in Free Fire's long term success for years to come. Looking at the publishing side of the Garena business, we continue to work with the world's top developers to bring the highest quality titles to our markets. In October, we launched the Call of Duty Mobile in our core markets in Southeast Asia and Taiwan and the game received an immediate strong reception from our users. It was the most downloaded mobile game on both the Google Play and iOS app stores in each of our markets for the month of October. For the rest of the year and beyond, we will continue to work closely with Activision and Tencent to enlarge the game's user base and deepen user engagement in our markets. I'm pleased to note that we are seeing the strong momentum of the Q3 sustaining into Q4. In October, we hit a new record high for monthly digital entertainment adjusted revenue, which was mainly attributable to the continued growth of Free Fire. Our strategic goal for Garena for this year has been to enhance our position as a leading global game developer and publisher to extend our global footprint and to translate this into sustained business success. Our results for the quarter demonstrate that this strategy is well on track and we believe that Garena is in a stronger position than ever as we head into the Q4 and beyond. Let's look now at e commerce. In the 3rd quarter, Shopee sustained its strong growth momentum and continued to expand its lead at the forefront of the very promising e commerce e commerce GMV in Southeast Asia will grow from US38.2 billion dollars in 2019 to US153 billion dollars by 2025. As the market leader, we believe Shopee is in an ideal position to capture an outsized share of this growth opportunity. And our results for the quarter underline how Shopee's clear leadership is translating into business success. During the quarter, the pace of growth in total orders further accelerated to a year on year rate of 103% to reach 321,400,000 orders. Meanwhile, GMV increased to $4,600,000,000 up 70% year on year. In the Q3, we also extended our lead as the most popular e commerce platform in our region. According to App Annie, Shopee was once again the leading e commerce platform in both Southeast Asia and Taiwan by average monthly active users and the downloads across the Google Play and iOS app stores combined and the top ranked app in Southeast Asia as a whole and in each of our 5 largest markets by total timing app on Android. Shopee is now one of the most popular and the fastest growing e commerce platform globally. In the Q3, it was ranked the 5th most downloaded app in the shopping category worldwide across both Google Play and iOS app stores according to FNE. In our largest market, Indonesia, Shopee continues to solidify its market leadership as the shopping platform of choice. Orders in Indonesia grew 118% year on year to 138,000,000 orders in the 3rd quarter, which we believe makes Shopee the clear leader by orders in that market. That is a daily average of more than 1,500,000 orders compared to a daily average of 1,200,000 orders in the 2nd quarter. Shopee was also the number one ranked app in the shopping category in Indonesia by all key metrics in terms of average monthly active users and the downloads across the Google Play and iOS app stores combined as well as in terms of total time in app on Android according to App Annie. Our leading market position across the region is reflected in our very strong performance during our recent shopping festivals. Building on our successful branding campaign featuring the football icon, Cristiano Ronaldo, we recorded 3 times more orders on September 9 alone than we did a year ago during our Double Night shopping event. Our Double11 big sale, which we concluded yesterday, was also a huge success with approximately 70,000,000 items sold during the 24 hours of November 11. We saw very strong user engagement during the Double 11 festival period with our Shopee live streams recording approximately 65,000,000 views during the 3 weeks of the sales campaign. At the same time, our growing scale and efficiency is translating into improvements in both revenue and our key bottom line metrics. We continued to ramp up monetization during the quarter. In the Q3, our overall take rate in terms of e commerce adjusted revenue as a percentage of GMV increased from 2.6% for the same period a year ago to 5.6% with adjusted revenue rising by 2 61% year on year to $257,200,000 Our overall unit economics for Shopee also improved further this quarter. Adjusted EBITDA loss per order further declined by 41.9% to $0.79 compared to $1.36 in the same period last year. In Taiwan, we recorded positive adjusted EBITDA even after allocation of the headquarters' common expenses in the Q3. To conclude, Shopee is well on track with our strategy to scale with efficiency, capture increasing market share across our region and deepen monetization. It is now formally established as the clear market leader and in a better than ever position to benefit from the rapid growth of e commerce in our region. 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 quarterly financial schedules together with the corresponding management analysis in today's press release. So I'll focus my comments on the key financial metrics. For $763,300,000 an increase of 2 14% year on year. This was mainly driven by the growth of our digital entertainment business, especially our self developed game Free Fire and our continuous monetization efforts in our e commerce business in the past quarters. Digital Entertainment adjusted revenue was $451,000,000 an increase of 2 12% year on year. The growth was primarily driven by the enlarged paying user base as we continue to improve the monetization of our games, especially Free Fire. Digital Entertainment adjusted EBITDA was $266,000,000 an increase of 3 95% year on year, mainly due to strong top line growth and our self developed game accounting for an increased share of revenue. The increase was also partially due to the improved operating efficiencies as shown by the lower sales and marketing expenses as a percentage of adjusted revenue as well as G and A expenses as a percentage of adjusted revenue. E Commerce adjusted revenue was 200 and $57,200,000 up 2 61% year on year. Within this, marketplace revenue was $208,100,000 up 3 14% year on year, while product revenue was $49,200,000 up 135% year on year. E commerce adjusted EBITDA loss was $253,700,000 as we continued our investment to fully capture the market opportunity in the region. We will continue driving the high quality growth by serving the users' needs better and improving operational efficiencies in the long run. Digital Financial Services adjusted revenue was $2,000,000 a decrease of 35% year on year from $3,100,000 in the Q3 of 2018 as we focus our efforts on strengthening the infrastructure to support our existing platforms. Adjusted EBITDA loss was $33,600,000 in the Q3 of 2019 compared to a loss of $7,000,000 in the same period of 2018. This was primarily due to our continued efforts to integrate our AirPay and Shopee platforms. Returning to our consolidated numbers, we recognized a net non operating income of $9,800,000 in the Q3 of 2019 compared to a net non operating income of $30,900,000 in the Q3 of 2018. We had a net income tax expense of $27,400,000 in the Q3 of 2019, which was primarily due to withholding tax and corporate income tax recognized in our digital entertainment business. Finally, net loss excluding share based compensation and changes in fair value of the 20 70 convertible notes was $175,200,000 in the Q3 of 2019 as compared to 200 and $37,600,000 for the same period in 2018. With that, let me turn the call back to Yanjun. Thank you, Forrest and Tony. We're now ready to open the call for questions. Operator? Thank you. We will now begin the question and answer The first question today will come from Ming Chen Kuo of Goldman Sachs. Please go ahead. Hi, congratulations on the results. The two questions from me. Firstly, can we get a sense of Free Fire's revenue contribution this quarter? And along that line, your new gaming revenue guidance implies 4th quarter gaming revenues of $413,000,000 at the low end. Wondering what sort of factors may swing revenues by $100,000,000 or so in a quarter. Is it regarding FIFA's trends as well that may result in that? And the second question is more around Latin America. Can we discuss on the gaming side how Speed Drifters doing so far? Any likely new titles and also e commerce in that then understand that Shopee has started a cross border business there? Can you get clarification on Shopee's ambitions as well in that there? Thank you. Thank you, MC. So in terms of the Free Fire revenue and the new revenue guidance for our gaming business, the reason we're revising the guidance is because we continue to see strong growth on Free Fire both in terms of users and payers of penetration. While we continue to focus on user engagement, the monetization just naturally follows, which is a very positive sign for this game that we see as a potential ability to develop this into a long term franchise and a classic IP. More importantly, we see this game as increasingly become a platform with hundreds of millions of users playing this game and interacting with each other, building up communities online and offline. And an amount of creativity and the connections coming from this kind of community events and interactions within and outside the game give us a lot of encouragement continue to build out the franchise and maximize its long term potential. So for this game, we're not looking at any quarter on quarter or month on month or even year on year short term performance, but we are really looking to build into a long term IP franchise. And so therefore, I think while we reflect the potential monetization potential in the revised gaming revenue guidance, but I would like to touch our investors and community the the platform as well as on monetization that we'll bring with it. In terms of LatAm, it's a very exciting market for us. It is obviously with more than 600,000,000 population. And with our Free Fire in LATAM, we have basically doubled the total addressable markets. So if you look at the population size of LATAM, it's about the same as Southeast Asia and also with a very young population and high growth population size and deepening mobile penetration in those markets. So all the market dynamic present great opportunities for us to grow the digital entertainment business there. And after Free Fire, we have now also introduced Speed Drifter, also the game from Tencent into LATAM markets after its success under our publishing arrangement with Tencent in Southeast Asia. This again is a show of our strength in publishing partnership to extend our footprint globally with our the large user base that we now have from the Latin America based on the Free Fire success as well as our local operation capabilities that we are fast building up in the local markets. So we are very optimistic in the long term prospects of our digital entertainment business in LatAm. As far as e commerce is concerned, as we mentioned before, it's an initiative by our cross border team to cater to the demands of their existing cross border merchants who would like to access more markets globally. And given that we have the capabilities and our team would like to serve them better, we are, as a group, are supportive of such bottom up initiative by our team to service their merchants better. Just to clarify, are you looking at Shopee's engagement in LATAM in a similar fashion as in Southeast Asia or largely just sort of a bit more peripheral to that, yes? So I think for LATAM, I think our approach has been just to, as I said before, to serve the cross border merchants. Our next question today will come from John Blackledge of Cowen. Please go ahead. Great. Thank you. Just curious what the key drivers of the order growth acceleration were at Shopee and also the marketplace take rate was better than what we expected, if you can discuss the drivers there. And then also on Shopee, just curious, is 2019 the peak EBITDA loss year? Thank you. Thank you for the questions. On the acceleration of Shopee's growth, and I think as we mentioned earlier, we believe that we have captured the right market at the right time with the right business model and that's very important. With a 2 sided marketplace model, we enjoy strong flywheel effect and overall economies of scale as we ascend to market leadership and now further extending our leadership vis a vis peers in the markets. So this is actually shown in our results quarter on quarter as Shopee continued to accelerate growth and claim more market share over time. And we think as we mentioned before, we stand in a very good position to gain from overall market growth as well. In terms of the take rate, we've been working with our sellers to improve our services to them, increase their returns at the same time as growing the marketplace. And as a result, that is reflected in our gradual deepening of monetization as well. And we have rolled out more programs for the sellers to advertise our platform and attract more buyers to their shops and services for them. As a result, we are also able to charge a higher take rate over time. As we mentioned before, our investment in the long term growth of the platform, we believe, is highly efficient and will eventually generate long term profitability. And now is for us it's a good time to continue to invest in growing the market, in growing our market leadership and improving in the future our long term profitability. And therefore, we'll continue to invest in the growth. Our next question will come from Mike Olson of Piper Jaffray. Please go ahead. Thanks for taking my questions. So you mentioned strong downloads of Call of Duty Mobile. Is there anything else you can say about how that game is doing so far and just to what extent the success of that title could be competitive with Free Fire and I guess potentially cannibalize Free Fire? Do you really see it as just a different player base? And then for Shopee, what are you seeing competitively right now in the core Southeast Asia e commerce market? Is there any kind of change in marketing trends or other signs of aggressiveness from other competitors? Thanks. Thank you. Yes, so we're very excited about the strong performance of Call of Duty Mobile so far and received strong reception in our markets by our users, which is within our expectation. And right now, we're continuing to focus on further tailing the content for our local markets in partnership with Tencent Activision for this game. It's too early to tell the long term monetization and potential for this game at this stage as it was just launched. We will continue to work hard on it and observe the trends closely. In terms of our core marketplace, our competitive landscape, we believe we continue to extend our market leadership. And ultimately, how fast we can grow is now increasingly dependent on how well we serve our users, our merchants as well as the buyers and scale the marketplace with efficiency. It will increasingly less and less affected by what the other peers might be doing in the market as we extend our market leadership and continue to gain market share. So I would say we don't observe much change in the trend nor does that have much impact on us anymore. Our next question will come from Alicia Yap of Citigroup. Please go ahead. Hi. Good evening, Forrest, Tony, Yanjun and other management. Congrats on the very strong number. My first question is related to the Call of Duty and Free Fire. So based on your team experience, what is the expectation for the longevity of Court of Beauty Mobile and monetization potential as compared to Free Fire? And then for Latin America, it seems that Free Fire remained very strong despite the launch of Call of Duty Mobile. Could you share with us what is If we take a little bit like 3 to 5 year views or longer term, could you share with us on your e commerce monetization model breakdown? What could be the percentage contribution from, for example, the advertising revenue versus the commission take rate and versus the logistic delivery and the cross border fee? Given the AOV seems quite stable and if we assuming annual consumption power, what could be the annual spending per user that you're expecting in 3 to 5 years? Thank you. Thank you, Alicia. So regarding CODM in terms of longevity and the monetization potential, again, it's a bit too early to tell at this stage, but we see very strong initial trends and we'll continue to work hard with the developers to improve the game and further tailor to the market to continue to improve the game's content and also the user base over time. And we of course, we hope to have as long a game life as possible and deep monetization for this game given that it has a relatively strong user follow-up base for this IP as well as traditionally FPS games in our region. In terms of Free Fire's continued strength in LatAm, as we mentioned before, we're not too worried about people were wondering about potential cannibalization before we launched CODM. And we always said, we believe these games cater to different crowds and also have a complementary effect to each other within our portfolio as we are very careful about selecting games within the portfolio and the pipeline. So this is exactly played out as we believe it would. And Free Fire's continued strength, we believe, is attributable to a) the depth and of the game itself and the network effect of a game that supports 50 users playing interacting with each other at the same session, at the same time building a large community online, offline and building more cultural game, entertainment, other forms of elements into the game over time. And we're cross learning from with cross learning from other games as well as other forms of entertainment. And of course, our own team's efforts and in continuing to build out this game and their creativity and their understanding of the local markets with the large user data we have already for this game. So I think that's why we remain very optimistic about the longevity and the future monetization of Free Fire over the long run. In terms of e commerce revenue breakdown, so the we see a pretty significant increase in the take rate quarter on quarter and that's largely attributable to the high margin transaction based fees, I. E. Commissions and handling fees and advertisement. We believe that the high margin revenue will continue to drive the growth of our e commerce monetization. Of course, the value added services, including the cost of all the logistics revenue, will continue to grow as we continue to grow the platform. And increasingly, however, the revenue growth as well as in the longer run, the margin expansion we believe will be more driven by the high margin items within the revenue. Although it's a bit too early to detail out the exact breakdown between the different streams of revenue. And in terms of spending on the cost of revenue side, of course, right now, we see that our first party product revenue pretty much already offset the cost of revenue on the cost of goods sold. And also at the same time, the cost of cross border logistics have been offset by the cross border logistics revenue as well. So increasingly, we're hoping to cover the cost of revenue as well as R and D, G and A and of course the sales and marketing cost over time with economy of scale. So we believe that the long term profit ability of the e commerce model is very clear to us. The next question will come from Rajvind Sharma of JPMorgan. Please go ahead. Hi, good evening and thank you for the call and for taking my questions. Two questions from my side, both on gaming. Firstly, on India, it seems that the Garena brand is growing there. You have partnered with India Today, which is one of the leading magazines in the market. Would you also be looking to establish a presence in India like what you have done with Latin America and potentially bring more 3rd party IP into that market as well? The second question is on the margins for the gaming business. It feels that increase that some of your revenues are coming from non App Store or Google Play Store, so let's say through vouchers. Can you give us a sense on how big that number is and if that's growing much faster than your revenues on the different app stores? Thank you. Sure. Thank you. In terms of India, we are very encouraged to see the results in India that recently, especially we now become the top grossing game based on any for October in the country and we have also rolled out lots of esports and community building events. We currently don't have a meaningful physical presence locally and but like LatAm, we will assess the situation to see if at some point it's appropriate to build up some local teams to help with local community building and operational capacity. So on that front, we will remain flexible and assess based on business needs. And of course, we are hopeful of strengthening our global footprint and India is a huge market with great potential. We are seeing very encouraging user growth there and very encouraging pay user growth there. That is a very important actually sign for our potential gaming opportunities there. And we do hope to work with global partners to further strengthen the presence in that market and explore the huge market potential in that market. I think we'll continue to innovate. As we've always mentioned, we believe that with that big of a user base and with creativity, we're optimistic that eventually we will be able to make something out of that very big market and we already start to see the results. And in terms of the vouchers versus Google Play App Store, actually most of our gaming revenues still for mobile game has come from Google Play and App Store. There are some alternative channels in the different markets based on local demands and circumstances, But we won't believe that's a drive makes a significant difference at this stage. Our next question today will come from Thomas Chong of Jefferies. Please go ahead. Hi, thanks management for taking my questions. May I ask about how many game developers do we have right now in Shanghai versus last quarter? And what's our headcount spend for our game development team next year? And my second question is about the revenue mix in Southeast Asia versus LatAm going into 2020. How should we think about also in terms of the paying ratio as well as the ARPU between the two regions? Thank you. Thank you. We have more than 300 developers in Shanghai Studio. I think last time we disclosed there was more than 200 about a couple of quarters ago. And we will continue to build out our development capabilities and augment our development teams in Shanghai and also other places where we find great gaming talent will be a very important focus for us in the coming quarter and going forward as we continue to build out our development capabilities and leveraging the existing user information data and strength we already have in our global footprint for game. But at the same time, we'll be very prudent in developing our team as we pick people with proven track record, industry veterans and people who are truly passionate about game as their life choice career. And these are the people that we want to bring to our home. And we focus on looking for such talent globally as opposed to just adding piling up a number. So and overall, our G and A and R and D expenses have been very, very efficient if you look at our margin as well and we'll continue to manage that with a lot of prudence. In terms of revenue mix, I think we see that LATAM has become increasingly an important market for us as we continue to build out our game presence there. And we also have increasing revenue contribution for the newer markets such as India, Russia, MENA, as we mentioned before. And in terms of pay ratio and AR PPU, we do not see material difference between LatAm and Southeast Asia. I think it's more of more depends on the specific game type, But we think the market potential is there. And also sometimes, an example for Indonesia, we might traditionally people might think it's not the most affluent market in the world and therefore attribute low pay user ratio, low ARPU to this market and subsequent low monetization potential. But our game Free Fire has definitely proven otherwise. We see very high double digit paying ratio coming from Indonesia market as well as very good monetization potential. So we think at the end of the day, it is about knowing the market, getting the right IP to the right crowd and to be able to execute well and accurately so that you can maximize monetization potential of IP in any particular market, which we think is something that we are super focused on doing. And we already reap the fruits of such effort for several markets already and we'll continue to expand our presence in the global emerging markets where we have already accumulated so much know how and operational Our next question today will come from Varun Arouja of Credit Suisse. Please go ahead. Yes. Hi, good evening and congrats on a good set of numbers. I've got quick three questions. So the Q4 guidance increase sorry, the full year guidance increase do you think how much is it from India? Do you think you're seeing after this last few quarters of effort that we've been putting, Has it really come to a stage where it will start contributing meaningfully? And 4Q, do you think a lot of it is coming from India? That's number 1. Number 2, can you give a little bit more color on Free Fire? How do you seeing users graduating from free passes to other high margin virtual items purchase, because you still ARPUPU continues to go down, but existing users how much of you are seeing upgrade to higher margin products? That's number 2. And number 3, if you can give some color on new game launches. I know you're very you don't disclose much, but any commentary how you're thinking about this landscape? And any your self developed game, any timeline that you're thinking about it? Because it will be almost 3 years since you launch by next year your own games, anything on that front will be helpful. Thank you. Thank you. So in terms of the Q4 guidance increase, based on what we're observing, the revenue increase showed we see increasing revenues across different markets in Southeast Asia, LatAm as well as the new markets including India. So it's not any kind of single market kind of event. It's really more across different across the region for us. And for India, we believe that the market potential is huge. And while in terms of the pay ratio, it's still below the average for us in Southeast Asia and LatAm, but the increase in the paying user is very encouraging, which is fueled by both increasing the user base as well as increasing the pay user ratio. So I think we'll continue to experiment with different things such as the lead passes, which has been quite effective in helping converting free user to pay user for some of our markets over time. And also some of the airdrop packages. For example, we have personalized attractive items grouped into packages with personalized prices targeting different users to convert them into a paying user. So we're continuing to innovate with different features in the game to help deepen the monetization. At the same time, we want to keep building out the user base. And we're very encouraged by the size we're seeing in India as well as the different markets we're operating in. In terms of the fire pass or elite pass, as mentioned, we believe that TOE has served its intended purposes of creating free user to paying user, at the same time increasing user stickiness as well as engagement level based on the data we have. So we will continue to deploy that from time to time. And of course, we will come up with new innovation, for example, bundling or themed passes, etcetera, to further explore the potential its potential. And in terms of new game launches, as always for commercial reasons, we don't discuss game pipeline for confidentiality. But again, you can trust that that's the number one priority that we are focused on is in the longer run continue to bring top IP to our world users. And as a game developer and a publisher, we are well blessed by the our strength in both development and self development as well as our partnership with global developers that send us very well to hopefully capture any opportunities and new creativity rising in the world gaming communities and bring that whether through our own development capabilities with Tencent, which is with Tencent, which is was one of the largest gaming companies. And we continue to see strong pipeline and we will, of course, select potential IP based on the appropriateness of our market and our assessment of our own portfolio. Our next question today will come from Conrad Werner of Macquarie. Please go ahead. Hi, thanks a lot for taking my question. The first one is just maybe since the last quarter's update, have you been able to or felt it was appropriate to introduce kind of either new or higher commissions in any of the markets for e commerce? That's the first question. And then also kind of related to the whole kind of competition question, maybe putting it looking at it the other way, I mean, are you almost kind of at the point now where you're sort of seeing less competition in your chosen categories because you've kind of achieved the sort of a multiple in terms of scale versus the nearest competitors. And perhaps maybe in some of the markets, even in Indonesia, we're seeing people kind of drawing back and not maybe wanting to compete generally, but compete more in their chosen categories and that kind of makes life a little easier for you in your categories. Is that something you might be seeing? Those are my two questions. Yes. Got it. Thank you. In terms of the commissions and we continue to gradually ramp up commission in different markets over time. Of course, it is something that we may do from time to time based on local market conditions and our assessment of the appropriateness of different levels of commissions and seasonal also taking into account of seasonal effects. So more recently, for example, we increased the normal seller commission for Taiwan slightly and also the seller commission for mall sellers in Indonesia. So these are some of the measures that we are taking to hope to further differentiate the best performing merchants and also with more resources to be invested into the ecosystem to serve our merchants better to help them grow even faster. So it's a kind of win win situation between the platform and the merchants and eventually benefit our buyers. So in terms of competitive landscape, we always take competition very seriously. But at the end, regardless of what the competitors do, we always have our clear playbook in terms of growing the marketplace model, focusing the core categories that we have always focused on from the very beginning and continue to capture the market share and also serve our users better. Eventually, we think that will lead us to very strong market leadership position and we are well on path to doing that. And I think you're right to wait that our hands are increasing our destiny is increasing our own hands. It's less relevant to us what our competitor is doing day to day, but increasing is more about how we can serve our users better. Our next question will come from Mark Goodrich of Morgan Stanley. Please go ahead. Hi, guys. Just a quick question from me on the gaming business. It looks like the average revenue per paying user fell in Q3. Specifically, was that just due to the mix shift to the lower paying markets? Or was that more due to some of the promotional activity that you had for Free Fire's anniversary during the quarter? Thanks. Yes. Thanks, Mark. So AR PPU decreased a little bit, mainly due to two factors. 1 is increasing revenue mix attributable to Free Fire with its strong growth. And as we mentioned before, AR PPU sometime is genre specific. For Free Fire type of genre where you are targeting mass audience with 100 of millions of active users, you tend to see lower AR PPU compared to some of the mid core games such as, for example, speed, where you see you will see higher AR PPU. So I think it's generally natural based on the game revenue mix. And second, we also introduced the for example, the airdrop packages and other elite passes, etcetera, to continue to grow our pay user ratio in the region because we believe that with a larger user base and a larger pay user base will lead to a, longevity of the game and b, better monetization over the longer run. And this in fact is playing out as we believed. And as far as mentioned earlier that we see a new record high in monetization based on our results in October so far. And that we believe is a positive effect coming from our expansion of the pay user program to attract more paying user and increasing game stickiness. So I think this overall is a strategy that's well played out for us. But also if you look at revenue per user, which is stable at $1.4 that shows that while we are expanding our pay user base and further strengthen our long term monetization potential, we're not sacrificing our immediate monetization opportunity either. Ladies and gentlemen, this will conclude our question and answer session. At this time, I'd like to turn the conference back over to Yanjun Wang for any closing remarks. Thank you, operator. Thank you, everyone, for joining today's call. We look forward to speaking to you all again next quarter. Ladies and gentlemen, the conference has now concluded, and we thank you for attending today's presentation. You may now disconnect your lines.