Hello, welcome to the Sea Limited First Quarter 2019 Results Conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I now turn the call over to your host today, Yanjun Wang, Group Chief Corporate Officer. Please go ahead, ma'am.
Thank you. Good morning. Good evening, everyone, welcome to Sea's 2019 first quarter earnings conference call. I am Yanjun Wang, Sea's Group Chief Corporate Officer and General Counsel. 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 and 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 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 Hou. Forrest and Tony will share strategy and business updates, operating highlights, and financial performance for the quarter. This will be followed by a Q&A session in which we welcome any questions you may have. Let me turn the call over to Forrest.
Thanks, Yanjun. Hello, everyone, thank you as always for joining today's call. Building on our very strong performance in 2018, we have kicked off 2019 on an even stronger note with very healthy growth across our businesses. For Sea as a whole, our adjusted revenue for the quarter was $578.8 million, almost triple that of the same quarter last year. It is mainly attributable to strong revenue growth of both our digital entertainment and e-commerce businesses. Moreover, we saw significant improvement on the bottom line this quarter. Total adjusted EBITDA was negative $32 million, which improved from negative $144.7 million for the first quarter of 2018, and a negative $203.6 million for the fourth quarter of 2018. We believe this is a strong indication of the potential profitability of our group businesses. Let's look first at Garena. Garena had a standout quarter.
Adjusted revenue for the digital entertainment business grew 159% year-over-year, and 70% quarter-over-quarter to $393.3 million. Adjusted EBITDA increased 311% year-over-year, and 115% quarter-over-quarter to $225.8 million. In addition, adjusted EBITDA margin increased to 57.4% from 37.7% for the first quarter of 2018, and 45.5% for the fourth quarter of 2018. The strong results are mainly attributable to the following. First, strong user growth. The number of quarterly active users reached 271.6 million, an increase of 114.4% year-over-year and 25.6% quarter-over-quarter. Second, deepening paying user penetration with sustained strong average revenue per paying user. Our pay ratio reached 7.6% for the first quarter, compared to 5.7% for the same period a year ago, and 5.5% for the previous quarter. Third, continued outstanding operating and financial performance of our first self-developed game, Free Fire.
It contributed significantly to the margin improvement as no developer royalty is payable by us for the title. We are particularly pleased to see that the key metrics for the digital entertainment business showed healthy growth and improvement in the quarter. We believe this is a result of, first, our proven strategies of pushing.
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On the bottom line this quarter.
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Sorry, guys. We just have some music in the background just now. Sorry for the interruption. We're particularly pleased to see that the key metrics for the digital entertainment business showed healthy growth and improvement in the quarter. We believe this is a result of, first, our proven strategies of pushing further into self-development and new markets globally. Second, our relentless efforts to keep bringing new and engaging content to our users. Third, focus on enhancing game and monetization features based on a deep understanding of local preferences and conditions. Last but not least, our strong efforts in esports and community building. Free Fire is a great example. This smash hit is our first self-developed title. It recently surpassed 450 million registered users and 50 million peak daily active users in over 130 markets globally, making it one of the most popular mobile games in the world.
It was also the second most downloaded mobile game globally across the Apple App Store and the Google Play Store combined in the first quarter, according to App Annie. Moreover, we have been working hard to enhance monetization of the game. We further localized our offerings and pricing to appeal to users of different markets and introduced the new content that incentivizes users to convert to paying users through personalized discounts and rewards. On the esports front, we held the first Free Fire World Cup and recorded over 27 million online views in total. At its peak, we had more than 1 million people globally watching the competitions online at the same time. For the rest of the year and beyond, we will continue to focus on growing this first self-developed title of ours into a top-ranking and a long-living global franchise.
At the same time, we are highly focused on bringing high-quality games from top global developers to our users, which also further strengthen our game portfolio and pipeline. For example, Speed Drifters, the first game we launched early this year under our right of first refusal arrangement with Tencent, has quickly become one of the best-performing games in some of our key markets in terms of both user growth and financial performance. Our efforts in this car racing game delivered meaningful contributions to Garena's strong results for the quarter and helped us gain further experience and expertise in more casual genre. This can, in turn, help us further broaden our game portfolio over the long run. Speed Drifters' success is a great example of why global top IP holders choose to work with Garena, because they recognize that we deliver top results.
On that note, in April, we announced that Garena is partnering with Tencent and Activision to publish Call of Duty: Mobile in our core markets in Southeast Asia and Taiwan. Call of Duty: Mobile brings the classic characters and the gameplay of this much-loved FPS series to mobile for the first time. We'll share more information on this game in due course. Looking to the rest of the year, I believe Garena is in a strong position with an excellent stable of games, as well as lots of opportunities for growth for the top games in our portfolio and pipeline. Last quarter, we provided adjusted revenue guidance for our digital entertainment business of $1.2 billion-$1.3 billion for the full year of 2019. This represents 81.5%-96.7% growth year-on-year, which is a highly ambitious goal for the size of our business by any measure.
We are confident that we are well-placed to meet or even beat this ambitious target. We may choose to revise our full-year digital entertainment guidance upwards next quarter when we have more data. Now we turn to Shopee. At the end of 2018, we outlined some very clear objectives for 2019. To continue to capture the growth opportunity ahead, ramp up our monetization efforts, and do so with growing efficiency. I'm pleased to say that in the first quarter, we have delivered across all three fronts. In terms of continuing growth, despite Q1 being a traditionally low season, we recorded a very strong GMV of $3.5 billion. Compared to the same period a year ago, that represents close to 82% growth. We also recorded strong order numbers of 204 million, an increase of 83% year-on-year.
In Q1, Shopee was the number one app by downloads in the shopping category across Southeast Asia and Taiwan, according to App Annie. As the market leader, we believe Shopee is capturing an outsized proportion of the market growth. Turning to monetization, we are making excellent progress with our efforts to grow Shopee's revenue. In the first quarter, adjusted revenue increased 342% year-on-year to $149.2 million. Of this, $102 million was of marketplace revenue, which was up 363% year-on-year and 16% quarter-on-quarter. This reflects the development in each of our marketplace revenue streams, transaction-based fees, advertising, and value-added services. The increase in revenue is a result of our platform growth as well as the increasing value of our services to better meet the evolving needs of our users. Finally, let's look at our growth efficiency.
Sales and marketing expenses as a percentage of GMV declined once again to 4.2% in the first quarter. Sales and marketing expenses in absolute dollar terms declined quarter-on-quarter for the first time in Q1, even as we continued to experience strong growth. Noted in previous quarters, we are benefiting from ever-improving economics of scale as we extend our leadership position. All of the above is well reflected in our solid bottom-line performance. Adjusted EBITDA for e-commerce improved by more than $42 million quarter-on-quarter to negative $235.3 million, compared to negative $277.5 million in Q4. I'm also pleased to note that in Taiwan, Shopee was EBITDA positive before allocating headquarters cost for this quarter. We believe Shopee is off to a great start this year, and will continue to focus on successfully executing our stated strategies for e-commerce.
In summary, while we are very encouraged by our results for the first quarter, we believe we still have a lot of work ahead to further enrich and enhance our services to users. We continue to see significant opportunities to capture an outsized share of the biggest growth opportunities in our region's digital economy. While our strong results for the first quarter demonstrated our potential profitability, we will continue to focus on investing prudently and efficiently in growth. When we make such investment decisions, we will continue to prioritize sustainable growth and the long-term market leadership considerations as opposed to short-term profitability. This is because, particularly for the e-commerce business, we believe scale and strong market leadership will translate into long-term profitability. Please allow me to take this opportunity to say a few words about our company's 10th anniversary, which we celebrated just on May 8th.
On behalf of the entire Sea team, I would like to thank our customers, investors, partners, friends for all your support and contributions to this young company's growth over the last decade. We began with very humble roots in a shophouse in Singapore. When we started each of our core businesses, we had no previous experience, had to compete head-on with many much larger, established, bigger, and better-funded players. Our team persevered with passion and conviction. We pursued our own path. We have become the market leader in the areas we chose to focus on. Looking to the decades ahead, we will continue to be humble, to serve our customers, investors, and partners to the very best of our ability. We will strive always to deliver beyond expectations. I hope we can continue to count on your valued support in the years to come.
With that, I will invite Tony to share more about the financials.
Thank you, Forrest. Thanks to everyone for joining the call. We have included detailed quarterly financial schedules together with corresponding management analysis in today's press release, so I'll focus my comments on the key financial metrics. For Sea overall, our first quarter total adjusted revenue was $578.8 million, an increase of 194% year-on-year and 49% quarter-on-quarter. 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 $393.3 million, an increase of 169% year-on-year and 70% quarter-on-quarter. 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 $225.8 million, an increase of 311% year-on-year and 115% quarter-on-quarter, thanks to the 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 well as general and administrative expenses as a percentage of adjusted revenue. E-commerce adjusted revenue was $149.2 million, up 342% year-on-year and 18% quarter-on-quarter. Of this $149.2 million in adjusted revenue, marketplace revenue was $102 million, up 363% year-on-year and 16% quarter-on-quarter, while product revenue was $47.2 million, up 304% year-on-year and 20% quarter-on-quarter. As highlighted by Forrest earlier, e-commerce adjusted EBITDA loss narrowed to $235.3 million this quarter. We will continue driving high-quality growth by serving users' needs better and focusing on operational efficiencies.
Digital financial services adjusted revenue was $2.8 million, a decrease of 28% year-on-year from $3.9 million in the first quarter of 2018, as we focus our efforts on strengthening the infrastructure to support our existing platforms. Adjusted EBITDA loss was $11.9 million in the first quarter of 2019. Compared to a loss of $8.6 million 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 recognize a net non-operating loss of $442.8 million in the first quarter of 2019. This was primarily due to the fair value loss of $436.1 million on the 2017 convertible notes, as our share price during the quarter significantly exceeded the conversion prices of these notes.
We had a net income tax expense of $7.2 million in the first quarter of 2019, which was primarily due to withholding tax and corporate income tax recognized in our digital entertainment segment. Finally, net loss excluding share-based compensation and change in fair value of the 2017 convertible notes was $237.3 million in the first quarter of 2019, as compared to $186.7 million for the same period in 2018. With that, let me turn the call back to Yanjun.
Thank you, Tony and Forrest. We are now ready to open the call for questions. Operator?
Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we are paused momentarily to assemble the roster. The first question comes from Pang Vittayaamnuaykoon with the Goldman Sachs.
Hi, good morning. Congratulations on this strong set of numbers. A few questions from me. Firstly, can you give us a sense of Free Fire revenues for this quarter? And how are you increasing monetization for this game since pay ratio obviously went up significantly quarter-on-quarter. Secondly, on Free Fire, downloads appears to be stabilizing last few months. Will we also expect revenues from Free Fire to be increasingly stable in coming quarters as well, versus what we've seen in the first Q? Besides Call of Duty, would it be possible to give a bit more color on the pipeline of new games for the remainder of this year? Thirdly, e-commerce, the cost of sales went up significantly Q-o-Q. Can we get more color on the cost components that drove up this increase?
Lastly, for e-commerce as well, cash burn trends in coming quarters, if we could get some guidance in terms of what to expect. Should we be thinking it should continuously come down quarter-over-quarter, or should we look at it more of a year-over-year? Because I believe previous guidance is that we should see e-commerce cash burn being lower this year versus last year. Are we still, I guess, on track? Thank you.
Sure. Let me talk about the Free Fire first. We're very happy with the Free Fire result, as you can tell from our this quarter's result, we see significant improvement in terms of the monetization of the games. I think this mainly reflect our effort to continually finding better ways to engage our gamers and to understand them and understand what they want. I think across the quarter, we have different ways to try out the monetization mechanisms. Some work very well, some may not work very well. Overall, we feel very confident, we kind of already get a strong sense, okay, what is the ideal way to monetize this game.
At the same time, we believe we've been very cautious to make sure whatever the monetization we have, we will make sure the communities are healthy and that the engagement level with the gamers is high, and the gamer satisfaction is high. In a way, it's like we are very happy to see our monetization is improving, at the same time, the engagement level of the gamers is improving as well. In terms of the user growth, actually we see across the market, we still see very strong growth of our new users, right? As we talk about just now, right, for the recent quarter, we had more than 50 million daily active users. That is still a significant increase from the previous quarter. Specifically, we see some accelerating growth for some new market, which we may not really focus on previously.
As we talk about in the previous earning calls, we see tremendous users coming from Southeast Asia and Latin America. Actually, recently, we start to see some new pickup in some exciting markets such as India, Russia, and Turkey. We see in those markets, actually, their user growth rate is accelerating. In terms of the new game, at this moment as we just talk about, we are going to launch Call of Duty: Mobile, we have a very high expectation of this game. This is a very high-quality game. I think in the next couple months, what we're going to focus on is how to make sure we find the best way to position the game in our specific markets and how to make sure we optimize the local operations. We're very confident of the quality of the game and the content.
We believe we're going to see a very good result from the launch of the game. For other games, for competitive reasons, we are probably not able to talk too much at this moment. In general, as we mentioned, we are pretty happy with the potential pipeline for the rest of the year. I think in terms of the big direction, one specific opportunity we are very excited about is because of Free Fire now doing very well in Latin America, and this generate a lot of interest from a global developer community, and which they never really launched their games in Latin America, and they see our success. They come to us, and we have multiple discussions with the global game developers to potentially launch their portfolios in Latin America with us.
We see this could be a tremendously increase our addressable market beyond Southeast Asia. We are very excited about this opportunity. I'll take the cost of ecommerce question. The major cost elements are the cost of logistics services, bank transaction fees, server and hosting expenses, staff costs, as well as some warehousing costs. The cost is relatively stable compared to last quarter, despite some slight increase, which is mainly due to the server and hosting and the staff's expenses. Because our monetization improved this quarter, our gross profit actually improved quite significantly compared to last quarter.
Right. In terms of the Shopee overall cash burn, while we don't give guidance on this, as you can see that we see a very strong quarter in terms of the bottom line as well, not only sales marketing as a percentage of GMV, but in actual $ terms, also dropped quarter-on-quarter. Obviously, there is seasonality to ecommerce, and we do time off marketing spend in accordance to seasonality to achieve maximum efficiency. In terms of the sales and marketing spends going forward, there could be fluctuations as we capture growth opportunities in the market. We believe ecommerce is still at a very nascent stage in our region, and we stand very well to gain an outsized benefit of the fast growth of the ecommerce as a whole in the region, given our market leadership position.
Therefore, while we continue to aim to grow very efficiently and invest prudently on long-term sustained growth, we won't be able to guide on the exact $ spend quarter-on-quarter. We want to retain some flexibility. For example, in terms of a marketing spend, most recently, we announced the appointment of Shopee as a title sponsor of Indonesian Premium Football League, Liga 1. As part of the sponsorship package, it has launched a new logo and branding based on Shopee's distinctive orange color. This sponsorship has allowed Shopee to reach the general public across the market, especially our targets of the young consumers. These are one of examples of good marketing opportunities that we might take advantage of from time to time as we consolidate our leadership positions across the market, and further promote the brand awareness.
On that front, while we are very encouraged by the results and we continue want to grow very efficiently, we do think there could be fluctuations in the overall burn. On the other hand, in terms of group bottom line, while we don't give any guidance, we think reasonably likely it will be better than the current market consensus.
Understood. Thank you very much.
Thank you. The next question comes from John Blackledge with Cowen and Company.
Great. Thank you. Just a couple of questions. On the digital entertainment side, with the big increase in margins, what's a good way to think about the margin profile for digital entertainment kind of over time, just given expected growth of self-developed games? Then on Shopee, you seem to imply that market share gains are rising, obviously, with the great results again this quarter. Can you just talk about how Shopee is doing relative to competitors and any general color on the competitive environment within the e-commerce in Southeast Asia? Thank you.
Sure. Thanks for the question. I will talk about the game EBITDA part, then Yanjun Wang will comment on the Shopee questions. For Garena EBITDA margin trend, as we talk about during the call just now, our adjusted EBITDA margin in this quarter was very high, above what we believe is overall industry average. Our EBITDA margin is mainly affected by the mix of revenue contributions from self-developed games and the licensed games, spending on sales and marketing and R&D, among other things. As mentioned before, our strategies for the game business are continuing to bring top quality content to our users, whether it is self-developed or licensed, to further strengthen our game development capability and to extend globally beyond our core markets.
We may continue to introduce third-party IP, we may also spend more on marketing as we bring new games to market, are further growing our developer team, and are expanding into market outside our core region. As we successfully executed our growth strategies, our adjusted EBITDA margin for the game business could fluctuate.
Yeah. In terms of the competitive environment of Shopee, we continue to see Shopee extend its leadership position, especially in the core categories and the key markets. As we mentioned before, we believe Shopee is the market leader in all of our markets, with perhaps the exception of Singapore, which is a relatively smaller market that we haven't been strongly focused on yet. In terms of the market leadership position, we think we're multiple times larger than our next competitor in Taiwan, for example. As we mentioned in the earnings release that for Q1 2019, we already achieved the adjusted EBITDA positive before HQ cost allocation in Taiwan. This is an example of where we believe that we have successfully monetized on the platform and are continuing to do so as we achieve the strong leadership position to further grow the platform environment.
We believe the positive dynamics will play out in all the other markets that we currently operating in. For example, in our largest market, Indonesia, we recorded a daily order of 0.9 million again this quarter, sorry, Q1, which is again extending our leadership further in the market. In other markets, for example, in Vietnam, we also believe we are about two times larger than our next competitor. In Thailand and Philippines and Malaysia, we also become the market leader. In all these markets, as we gradually further solidify our leadership position, we believe the positive dynamics that we are seeing in Taiwan will start to generally play out in those other markets as well.
Thank you.
Thank you. The next question comes from Conrad Werner with Macquarie.
Hi there. Thank you for the comments on the competitive landscape. Could I just maybe also see, when you talk about the market leadership, what metric are you generally homing in on? Is it orders? Is it the GMV itself? When you talk about being two times the size of the next competitor in Vietnam, for example, what metric are you generally looking at? That's the first question. A second question on the e-commerce costs. In the previous quarter, you had talked about the shipping subsidies declining in absolute terms in the fourth quarter. Has that trend continued in the first quarter? Are we getting away from shipping subsidies as one of your key marketing tools in favor of other forms of expenditure? Could you maybe provide some color on that?
Just maybe on Call of Duty itself, what quarter do you expect that to be launched? Presumably, it may not be launched in all markets at once, but when does that come out in a few markets, I guess? You talked about a few months before, but is it Q2, Q3, Q4? Thanks.
Sure. Okay. Let me start. Yan, you please feel free to add on. For Call of Duty, we are still working with Tencent Activision to figure out what is the best time to launch it. Looking at the current schedule, it probably will be in the late Q2 or early Q3. That's the timeline we are looking at. We want to capture the opportunity for the summer break of schools. For Shopee, for e-commerce, the key metrics we look at is quite straightforward, is the orders and the GMV. On top of that, we are also specifically looking at this category by category. We are very focused on the key categories we have been really pushed on. Like fashion, like home and living, and health and beauty. This is the key categories.
I think in those key categories our leadership position is even stronger. Beyond that, I think in terms of the operations, we do care about because we're mainly focused on the mobile users, right? We're very focused on our traffic and the engagement on our Shopee mobile app. In that sense, the daily active users, monthly active users, and the time spent are the key metrics we look at.
Right. In terms of shipping subsidies, yes, it's declined quarter-on-quarter in Q1 again. Overall, Q1 is a lower season, so I wouldn't take that to be a promise that it will continue to always decline Q-on-Q. On thinking about shipping subsidy, I think it's important to highlight that it continues to be an effective marketing message. In fact, we have less than a quarter of people getting free shipping in one of our largest markets, while the market take the free shipping to be a very strong marketing message from Shopee. We're spending very efficiently on that. Overall, it's more of a new user acquisition tool as our social sellers bring their followers onto our platform to encourage them to place orders through Shopee as opposed to some other social websites.
This is a strong message that the buyers get a direct benefit that they can easily understand. Overall, we think the shipping subsidies tend to stabilize in the longer run, but there might be fluctuations in the short to medium term.
Thank you so much. I'm going to be rude and just maybe ask one more. Could you maybe talk a bit about how much digital entertainment revenue came from outside Southeast Asia? It's a metric you provided over the last two quarters. Do you have an update? I think it was 28% in the fourth quarter. What about first quarter 2019?
We didn't specifically discuss that number, but suffice to say that it continued to grow. As Forrest also mentioned earlier, we are very focused on growing our markets outside of Southeast Asia now, given our self-development capabilities with Free Fire having reached a global audience and being one of the largest battle royale games as well as mobile games globally. We do hope to further expand into the emerging markets beyond our core markets, as well as the other markets that we currently see very strong growth. I think in terms of the specific numbers, it's already one and a third. We are seeing very strong growth on that front as well.
Thank you so much.
Thank you. The next question comes from Nelson Cheung with Citi.
Hi, management. Thanks for taking my question, and congratulations on the solid results. I have a question on e-commerce. Given that we noticed that the e-commerce monetization rate is very high at 4.2% in first quarter 2019, we would like to ask whether this monetization rate is a normalized or a sustainable monetization rate for e-commerce in long run. Can management elaborate more on what actually contributes to the strong improvement in terms of monetization rate? Maybe management can provide more color in terms of ranking by monetization contribution and what's the growth rate by each type of e-commerce revenue stream. A quick question on Speed Drifter. Can management provide some more color on revenue contribution of Speed Drifter and the comment on life cycle of this game would be great as well. Thank you.
Sure. In terms of the monetization rates in the longer run, obviously, our e-commerce is still at a very early stage as part of the digital economy of our region, and we believe it's the biggest opportunity, actually, in that part. We believe in the longer run, we hope to see a monetization take rate that is close to our global peers for marketplace e-commerce. Although, of course, there is a path to get there, and we see very positive directions we are moving in on this front. In terms of overall contribution from the different streams of revenue, we see positive trends in every type of monetization avenue we have. Especially on the marketplace front, we see very encouraging signs in terms of the uptick in transaction-based fees as well as advertising and VAS on all fronts.
More recently, as we gained stronger market leadership positions across the region, as we focus on further promoting the healthy growth of the ecosystem for our e-commerce platform, we have rolled out more transaction-based fees across the platforms to help the sellers grow better and distinguish the better seller and bigger seller from the crowd so that they are more incentivized to serve the buyers better. By monetization, we not only just focus on getting money from them, we are very much focused on providing them better, more services that they would desire. On that front, we are very confident of our ability to keep raising the monetization rate over time. We don't specifically disclose each stream of monetization or our strategies, quote unquote, for competitive reasons.
As mentioned earlier, we think the marketplace take rate contributes quite significantly to the overall take rate increase in this quarter. In terms of Speed Drifter, it is very successfully launched in Q1 in most of our markets. We see very strong performance in terms of both of user adoption, pay user ratio, as well as monetization overall. It did contribute meaningfully to the uptick in our adjusted revenue, and we think it's one of the top four games in our portfolio now.
Thank you very much.
Thank you. The next question comes from Mark Goodbridge with Morgan Stanley.
Hi, guys. I just have two questions. One on Call of Duty. I was just after, can you just give us a bit of strategies on how you guys are going to manage any potential cannibalization of Free Fire when that game launches? Secondly, just on e-commerce, we saw you introduce some monetization late Q4, which obviously seen the results here in Q1. Specifically, could you tell us what has been the reaction of your competitors in Thailand and Indonesia and Vietnam, where you've introduced the monetization? Have we seen the competitors follow suit and introduce exactly the same measures in those markets? Thanks.
In terms of Call of Duty, obviously it is a very well-known franchise and very big IP with its core followers in the West, and we are very excited about bringing into our region. We believe the experience, although we're still working with the developer about the exact content that's tailored for our region, the overall experience will be more of a classic FPS action-based kind of game. I think that differentiates itself from Free Fire, which is a more hybrid battle royale game with fantasy elements, imaginative content. On that front, we're not too worried about cannibalization. When we take on any new content, we would carefully analyze its interaction with our existing portfolio. We are, of course, very careful about that as well.
In terms of monetization and competitive behavior of our competitor, although we don't comment our competitors or other players in the market, we think overall our monetization ability is more affected, mostly dependent on our ability to serve our sellers as well as the returns, the value adding the sellers derive from the platform, as opposed to what the competitors are doing. We are not really that much influenced by their behavior.
We've clearly seen that Lazada have followed. They've introduced commissions similar to your commissions in Vietnam, are you able to make a comment to say whether or not they've done the same thing in Indonesia?
I think in Lazada, we haven't seen they have charged a higher commission in Indonesia. Again, I think in the historical periods, our other players have done different things. They may or may not charge commission, they may increase or decrease commissions as we continue to grow and extend our market leadership positions. There hasn't really been any great impact on our business or how we think about our own monetization strategies.
Okay, thank you.
Thank you. The last question comes from Varun Ahuja with Credit Suisse.
Yeah, hi. Good morning, management, and congrats on a good set of numbers. First, on online games, a few questions. On Free Fire, can you comment, how do you see this game life? Obviously this game has done really well. It looks like 2019 will be strong for you because of Free Fire. Beyond that, generally when you have discussions, what do you see of this battle royale genre, which is going still strong? How much, as an investor, we should view this game life over the two to three years period. Secondly, on self-developed, as the last two few quarters you have given, how much of revenue is being contributed by self-developed game, and what % of revenue came from mobile for this quarter?
Thirdly, if you can elaborate any other self-developed games that you're looking at in terms of genre in order to increase that component, that will be helpful. Lastly, as you briefly mentioned, you may look at Latin American market. How should we look at this space? Are you in any advanced stages of discussions, or is it a 12 to 18 months where you away from looking at that space? Have you started making some investments? Those colors will be helpful. On e-commerce, I know you don't break it up the revenue by various marketplace, by various components, but is it fair enough to say that value-added services still remains the largest contribution of realization day to take it purely from a marketplace perspective, excluding the product revenue? Those will be helpful. Thank you.
Sure. Let me start, and Tony and Yanjun Wang, feel free to add on. For Free Fire, actually
We are pretty happy about what we have seen in terms of the trend. To be honest, because this is a very new genre, and for the industry, there is not much historical data we can look at, and this is specifically genre in terms of the life cycle. Several quarters ago, we may have the similar questions you ask. Looking at the trend now, we are pretty happy and we feel very optimistic. The reason is that we see the gamers' engagement level is increasing, right? In terms of how often they come to play the game and how much, right? In terms of every gameplay session, how long they play the game. We see that still there's a lot of enthusiasm about the genre, specifically on Free Fire as well in the gamer community.
As I mentioned just now, we even see accelerating user growth in certain new markets. We do still feel there is a long way to go for Free Fire and specifically, I think also for the battle royale, for the genre itself. We believe this genre is just at their starting age, right? It's compared to MMORPG game compared to MOBA or FPS games. This genre is just at the very beginning. The genre itself will continually evolve, and we believe this is going to provide huge opportunities for all the game studios players, specifically these want to focus on this genre.
Of course, because of the success of Free Fire, we think we are very well-positioned as the game studio, so in this genre, to tap on this opportunity because we have learned a lot through the Free Fire development, and we have a lot of real-time user data. We understand the gamers of the genre, their behavior, their preference pretty well. I think we have a lot of insight on that. In that sense, we are very confident. We are going to continually invest in the development and adding the content and the different ways to monetize the game and the social features, community features, and even the live streaming features, all those type of things into the game.
In terms of the thing you ask about, what is the percentage of our Garena revenue for the self-developed game, I would say that at this moment it pretty much accounts for 50%-60% of our total game revenue for our self-developed games. We do have several developments in our new title development in the process. I think it is still too early to specifically talk about any individual of those them. We remain a very fast execution approach, right? Usually, we just have a very small team, probably five to six people, and to build our idea and start to build out the prototype. When we have the prototype and we quickly launched in certain markets without mentioning Garena brand.
We want to collect the initial set of the data from the users, especially on the retention rate and the organic user growth rate. That is the key metrics when we evaluate if we want to continually develop the game or potentially launch the game, or we just think, "Okay, this idea doesn't work." We want to just shift the focus to some other projects. I think this is a very dynamic evaluating process, and that could be a very time-efficient and a cost-efficient way to develop the games. In terms of Latin America, we are very excited about the opportunity we have observed there. Free Fire is doing very well. I think the gamers there are equally enthusiastic about the games compared to our core market in Southeast Asia.
We have several discussion leads with multiple game developers specifically for that region. We all see the good opportunity there. Specifically, I think we mentioned this before, we are in the discussion with Tencent to potentially launch Speed Drifters in Latin America as well. The game performed very well in Southeast Asia, so we're all happy about the result we have seen and the potential of the game in other markets. The reason is it's a kind of global popular topic, right, among gamers and the general audience. We think we may see good potential there as well. At this moment, because this is a new game, we still want to test out.
Before we make the decision to launch a game, we want to make sure, okay, in terms of the specific game graphics of Speed Drifters, the gameplay, is it really suitable, right, for the Latin American gamers? Do we need to make any adjustments before launching the game? We're closely working with Tencent on that.
Right. In terms of the components of the take rates, as you mentioned, VAS is a large part of the marketplace take rate simply because it's a recognized growth level for us based on our business model. We charge the fees to the sellers and then outsource the logistics to third-party logistics services provider, somewhat like a Tmall model. On that front, overall, we think we're close to breakeven for the logistics part. Important to note that transaction-based fees as well as advertising is a significant part of our marketplace take rate. More importantly, that the increase we're looking at in the marketplace take rate is largely attributable to the increase in the take rate based on transaction-based fees as well as advertising.
Thank you. That's helpful. Just a couple of more things. PUBG Lite was launched last quarter, just wanted to understand how much it has helped. You didn't give the indication of what percentage of revenue is coming from mobile. That will be helpful. Lastly, on Latin America, given you're looking at launching potentially the Speed Drifters, how should we look at the investment in Latin American market? Will you get similar scale as in your core market? Do you need to have physical presence, or you still want to do it from here? Any commentary on that will be helpful. Thank you.
I think as we are getting close on our time, I'll take these questions, if there's any further discussions, we can continue another call later. In terms of PUBG Lite, we have published in most of our core markets. We haven't stopped monetizing it yet, the performance is as expected. In terms of percentage of revenue from mobile and LatAm, sorry, is that the question you just asked?
Yep. Percentage of revenue from mobile, gaming revenue from mobile.
Okay.
Mobile gaming.
Revenue from mobile continued to increase. We think overall, mobile is the largest opportunity in terms of digital entertainment segment. While we continue to see a strong core base for our PC users, overall percentage, mobile will become a very significant part of our business overall. Yeah, it continues to increase from last quarter.
Thank you. That is all the time we have for questions right now, I would like to return the floor to management for any closing comments.
Okay. Thank you, operator. Thank you everyone for joining today's call. We look forward to speaking to you all again next quarter.
Thank you.
Thank you.
Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.