Earnings Call: Q1 2019

May 22, 2019

Hello, and welcome to the Sea Limited First 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 now like to turn the call over to your host today, Yanjun Wang, Group Chief Corporate Officer. Please go ahead, ma'am. Thank you. Good morning and good evening, everyone, and welcome to Sea's 2019 Q1 earnings conference call. I am Yanjun Wang, Sea's Group's Chief Corporate Officer and General Counsel. Before we 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 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 Hoh. 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 may have. With that, let me turn the call over to Forrest. Thanks, Yanjun. Hello, everyone, and 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 $578,800,000 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 $32,000,000 which improved from negative $144,700,000 for the Q1 of 2018 and a negative $203,600,000 for the Q4 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 on year and 70% quarter on quarter to $393,300,000 Adjusted EBITDA increased 311% year on year and 115% quarter on quarter to $225,800,000 In addition, adjusted EBITDA margin increased to 57.4 percent from 37.7 percent for the Q1 of 2018 and 45.5% for the Q4 of 2018. The strong results are mainly attributable to the following: 1st, strong user growth. The number of quarterly active users reached 271,600,000, an increase of 1 114.4 percent year on year and 25.6% quarter on quarter. 2nd, deepening paying user penetration with sustained strong average revenue per paying user. Our pay ratio reached 7.6% for the Q4 compared to 5.7% for the same period a year ago and 5.5% for the previous quarter. 3rd, 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 improvements in the quarter. We believe this is a result of first, our proven strategy of pushing Yes, I'm here. It's your music. Hello, are we back online? Yes, you are back online. Yes, we have isolated the disturbance. Sorry guys, we just have some music in the background just now. Sorry for the interruption. We are particularly pleased to see that the key metrics for the digital entertainment business showed healthy growth and improvements in the quarter. We believe this is a result of: 1st, 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 3rd, our constant focus on enhancing game and monetization features based on a deep understanding of local preferences and conditions and last but not least, our strong efforts in esports and community building. Free Fire is a great example. This Smash Hit is our 1st self developed title. It recently surpassed 450,000,000 registered users and 50,000,000 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 2nd most downloaded mobile game globally across the Apple App Store and the Google Play Store combined in the Q1 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 new content that incentivizes users to convert to paying users through personalized discounts and rewards. On the esports front, we held the 1st Free Fire World Cup and recorded over 27,000,000 online views in total. At its peak, we had more than 1,000,000 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 strengthens 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 card raising 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 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 strong position with an excellent state of games as well as lots of opportunities for growth for the top games in our portfolio and the pipeline. Last quarter, we provided adjusted revenue guidance for our digital entertainment business of $1,200,000,000 to $1,300,000,000 for the full year of 2019. This represents 81.5 percent to 96.7% growth year on year, which is a highly ambitious goal for the size of our business by any measure. Still, 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. And I'm pleased to say that in the Q1, 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 $3,500,000,000 Compared to the same period a year ago, that represents close to 82% growth. We also recorded strong order numbers of 204,000,000 an increase of 83% year on year. Moreover, in Q1, Shopee was the number one app by downloads in the shopping category across Southeast Asia and Taiwan according to FME. 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 Q1, adjusted revenue increased 3 42% year on year to $149,200,000 Of this, dollars 102,000,000 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. And 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 Q1. Moreover, 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 across the platform. As we have 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 $42,000,000 quarter on quarter to negative $235,300,000 compared to negative $277,500,000 in Q4. I'm also pleased to note that in Taiwan, Shopee was EBITDA positive before allocating headquarters cost for this quarter. Therefore, we believe Shopee is off to a great start this year and we'll continue to focus on successfully executing our stated strategies for e commerce. In summary, while we are very encouraged by our results for the Q1, we believe we still have a lot of work ahead to further enrich and enhance our services to users and we continue to see significant opportunities to capture an outsized share of the biggest growth opportunities in our region's digital economy. Therefore, while our strong results for the Q1 demonstrated our potential profitability, we will continue to focus on investing prudently and efficiently in growth. Moreover, when we make such investment decisions, we will continue to prioritize sustainable growth and 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. Finally, please allow me to take this opportunity to say a few words about our company's 10th anniversary, which we celebrated just on May 8. On behalf of the entire Sea team, I would like to thank our customers, investors, partners and 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 and 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 and 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, and we will strive always to deliver beyond expectations. And 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, and 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 will focus my comments on the key financial metrics. For Sea overall, our Q1 total adjusted revenue was 500 and $78,800,000 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 $393,300,000 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 $225,800,000 an increase of 3 11% 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 $149,200,000 up 3 40 2% year on year and 18% quarter on quarter. Of this $149,200,000 in adjusted revenue, marketplace revenue was $102,000,000 up 3 63% year on year and 16% quarter on quarter, while product revenue was $47,200,000 up 304% year on year and 20% quarter on quarter. As highlighted by Forrest earlier, e commerce adjusted EBITDA loss narrowed to $235,300,000 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 $2,800,000 a decrease of 28% year on year from $3,900,000 in the Q1 of 20 18 as we focus our efforts on strengthening the infrastructure to support our existing platforms. Adjusted EBITDA loss was $11,900,000 in the Q1 of 2019 compared to a loss of $8,600,000 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 loss of $442,800,000 in the Q1 of 2019. This was primarily due to the fair value loss of $436,100,000 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 $7,200,000 in the Q1 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 $237,300,000 in the Q1 of 2019 as compared to $186,700,000 for the same period in 2018. With that, let me turn the call back to Anjoung. 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. And the first question comes from Ming Chen Zhou with Goldman Sachs. Hi, good morning. Congratulations on this strong set of numbers. A few questions for 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're seeing in Q1? And 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 on Q. Can we get more color on the cost components that drove up this increase? And lastly, for e commerce as well, cash burn trends in coming quarters, if you could get some guidance in terms of what to expect. Should we be thinking it would it should continuously come down Q o Q? Or should we look at it more of a Y o Y? Because I believe previous guidance is that we should see e commerce cash burn being lowered this year versus last year. Are we still, I guess, on track? Thank you. Sure. Thanks for let me talk about the Free Fire first and we're very happy with the Free Fire result and as you can tell from our this quarter's result and we see significant improvement in terms of the monetization of the games. I think like well, I think this is mainly reflect our effort to continually finding better ways to engage our gamers and to understand them and understand what they want. I think there is across the quarter, we have different ways to try out the monetization like mechanisms and some work very, very well, some may not work very, very well. So but overall, we feel very confident and we kind of like already get a strong sense, okay, what is the ideal way to monetize this game. But at the same time, we believe like we'll be very cautious to make sure whatever the monetization we have like we will make sure the community is healthy and that the engagement level with the gamers is high and the gamer satisfaction is high. So in a way, it's like we're very happy to see like our monetization is improving and at the same time, the engagement level of the gamers is improving as well. In terms of the user growth and actually we see across the market, we still see very strong growth like of our new users, right? And so as we talk about in the just now, right, and for the recent quarter, we had more than 50,000,000 daily active users. That is still a significant increase from the previous quarter. And specifically, we see some accelerating growth for some new market, which we may not really focus on previously. So as we talked about in the previous earning calls, so we see tremendous users coming from Southeast Asia and Latin America. Actually, recently, we started to see some new pickup in some exciting markets such as India, Russia and Turkey and we see in those markets actually their user growth rate is accelerating. In terms of the new game, yes, so at this moment, like as we just talked about, we are going to launch Call of Duty Mobile and we have a very high expectation of this game. Like this is a very, very high quality game. I think like in the next couple of 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. And so we believe we're going to see a very good result from the launch of the game. And for other games, for competitive reasons, we are probably not able to talk too much at this moment. But in general, as we mentioned, so we are pretty happy with the potential pipeline for the rest of the year. I think like in terms of the big direction, one specific opportunity we are very excited about is because Free Fire now doing very, very well in Latin America and this generated 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 like with us. So we see this could be a tremendously increase our addressable market beyond Southeast Asia. So we're very excited about this opportunity. I'll take the cost of e commerce question. So the major cost elements are the cost of logistic services, bank transaction fees, server and hosting expenses, staff costs as well as some warehousing costs. And the cost is relatively stable compared to last quarter despite some slight increase, which is mainly due to the server and hosting and the SaaS expenses. And because our monetization improves this quarter, our gross profit actually improved quite significantly compared to last quarter. Right. And 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 and marketing as a percentage of GMV, but in absolute dollar terms also dropped quarter on quarter. Obviously, there is seasonality to e commerce and we do time off marketing spend in accordance to seasonality to achieve maximum efficiency. In terms of the sales and marketing spend, maximum efficiency. In terms of the sales and marketing spend going forward, there could be fluctuations as we capture growth opportunities in the market. We believe e commerce is still at a very nascent stage in our region and we spend very well to gain an outsized benefit of the fast growth of the e commerce as a whole in the region, given our market leadership position. And 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 dollar spend quarter on quarter. We want to retain some flexibility. For example, in terms of marketing spend, most recently, we announced the appointment of Shopee as a title sponsor of Indonesian Premium Football League, Liga 1. And it is as part of the sponsorship package, we have launched a new logo and branding based on Shopee's orange distinctive orange color. And this sponsorship has allowed Shopee to reach the general public across the market, especially our targets of young consumers. So 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. So on that front, while we are very encouraged by the results and we continue to want to grow very efficiently, we do think there could be fluctuations in the overall burn. But 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. And 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? And 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 and then Yanjun will comment on the Shopee questions. And for Garena EBITDA margin trend, so our as we talk about like during the call just now, our adjusted EBITDA margin in this quarter was very high above what we believe is overall industry average. So our EBITDA margin is mainly affected by the mix of revenue contributions from self developed games and licensed games, spending on sales and marketing and R and D among other things. So 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. So we may continue to introduce 3rd party IP, so we may also spend more on marketing as we bring new games to market, further growing our developer team and now expanding into market outside our core region. So as we successfully executed our growth strategies, our adjusted EBITA margin for the game business could fluctuate. Yes. 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. And in terms of the market leadership position, we think we're multiple times larger than our next competitor in Taiwan, for example. And as we mentioned in the earnings release that for Q1 2019, we already achieved adjusted EBITDA positive before HQ cost allocation in Taiwan. And this is an example of where we believe that we have successfully monetized on the platform and 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 the our largest market Indonesia, we recorded a daily order of 900,000 again this quarter sorry, Q1, which is again extending our leadership further in the market. And in other markets, for example, in Vietnam, we also believe we are about 2 times larger than our next competitor. In Thailand and Philippines and Malaysia, we also become the market leader. So 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. And 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 2 times the size of the next competitor in Vietnam, for example, what metric are you generally looking at? That's the first question. And then 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 Q4. Has that trend continued in the Q1? Are we getting away from shipping subsidies as kind of one of your key marketing tools in favor of other forms of expenditure? And could you maybe provide some color on that? And then 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, when does that kind of come out in a few markets, I guess? You talked about a few months before, but is it kind of Q2, Q3, Q4? Thanks. Sure. Okay. So let me start. Yanjun, please feel free to add on. And for Call of Duty, we may based on the we are still working with the Tencent activations and to figure out what is the best time to launch it. But looking at the current schedule, it probably will be in the late Q2 or early Q3. So that's the timeline we are looking at. So we want to capture the opportunity during the like for the summer break of schools. And so for Shopee, for e commerce, the key metrics we look at is quite straightforward, is the orders and the GMV. And on top of that, and we are also specifically looking at this category by category. So we are very, very focused on the key categories. We have been really, really pushed on. So like fashions, like home and living and health and beauty. So this is the key categories. I think like so in those key categories and our leadership position is even stronger. And beyond that, I think in terms of the operations and we do care about in terms of because we're mainly on we focus on the mobile users, right. So we're very focused on our traffic and engagement on our like a Shopee mobile app. So in that sense, like 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. But 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. So we are spending very efficiently on that. And 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. So 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. And 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 Q4. What about Q1 2019? Yes. We didn't specifically discuss that number, but suffice to say that it continued to grow. And as far as 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 expand 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 it's in terms of the specific numbers, it's already more than a third. So we are seeing very strong growth on that front as well. Thank you so much. Thank you. And 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 Given that we noticed that the e commerce monetization rate is very high at 4.2% in Q1 2019. We would like to ask whether this monetization rate is a normalized or sustainable monetization rate for e commerce in long run? And can management elaborate more on what actually contribute to the strong improvement in terms of monetization rate? And maybe can 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? And 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 will be great as well. Thank you. Sure. In terms of the monetization rate 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 this front. And 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 ecosystem for our e commerce platform. We have rolled out more transaction based fees across platforms and to help the sellers grow better and to 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 quarter on quarter for competitive reasons. But 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. And we see very strong performance in terms of both user adoption, pay user ratio as well as monetization overall. And it did contribute meaningfully to the uptick in our adjusted revenue. And we think it's one of the top 4 games in our portfolio now. Thank you very much. Thank you. And the next question comes from Mark Goodridge with Morgan Stanley. Hi, guys. I just have two questions. 1 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? And then secondly, just on e commerce, We saw you introduce some monetization late Q4, which obviously seen the results here in Q1. But 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, very big IP with its core followers in the West and we're very excited about bringing into our region. We believe the experience, although we're still working on with the developer about the exact content that's tailored for our region. But overall experience, it 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. So 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. So we are often we're of course very careful about that as well. In terms of monetization and competitive behavior of our competitors, though we don't comment on 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 We've clearly We've clearly seen that Lazada have followed. They've introduced commissions similar to your commissions in Vietnam, but 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 the they have charged a higher commission in Indonesia. But again, I think they do 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. And so 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. And the last question comes from Arun Ahuja with Credit Suisse. Yes, 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 live? Because obviously this game has done really well. It looks like 2019 will be strong for you because of Free Fire. But beyond that, generally when you have discussions, how 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 2 to 3 years period? Secondly, on self developed, can you give as the last 2 few quarters you have given how much of revenue is being contributed by self developed game and what percentage 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. And lastly, as you briefly mentioned, you may look at Latin American market. So how should we look at this space? Are you in any advanced stages of 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 that value added services still remains the largest contribution of realization date or take rate purely from a marketplace perspective, excluding the product revenue? Those will be helpful. Thank you. Sure. Let me start and Tony and Yanjun, feel free to add on. And for Free Fire, actually like we are pretty happy about what we have seen in terms of the trend. And to be honest, because this is a very new genre and there is not for the industry, there is not much historical data we can look at and this is specifically general in terms of the life cycle. So we have been like several quarters ago, we may share the similar like we have the similar questions you asked. But like looking at the trend now, we are pretty happy and we feel very optimistic. The reason is that we see that the gamers' engagement level is increasing, right, in terms of how often they come to play the game and how much, right, and in terms of every gameplay session, how long they play the game. And we see that still there's a lot of like enthusiasm about the genre specifically on Free Fire as well in the gamer community. And as I mentioned just now, we even see accelerating user growth in certain new markets. So we do still feel there is a long way to go. And 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? And as compared to MMORPG game, compared to like a mobile or FPS game, so this genre is just at the very beginning. So the genre itself will continually evolve and we believe this is going to provide a huge opportunities for older like game studios players specifically want to focus on this genre. Of course, like because of the success of Free Fire, we think we are very, 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 like real time user data. So we understand the gamers of the generous behavior, their preference pretty well. I think we have a lot of insight on that. In that sense, we are very confident. So we are going to continually invest in the development and adding the content and the different ways to monetize the game and game, so in terms of the thing you asked about what is the percentage of our Garena revenue for the self developed game, I would say that at this moment, it's pretty like pretty much like account for 50% to 60% of our total game revenue for our self developed games. We do have several like development in our like a new title development in the process. I think it's still too early to specifically talk about any individual of those of them. But we remain a very kind of like a fast execution approach. Usually, we have just a very small team, probably 5 to 6 people, and to build our idea and start to build up the prototype. And when we have the prototype and we quickly launched in certain market without mentioning Garena brand and we want to see how we want to collect the initial set of the data from the users, especially on the retention rate and organic growth user growth rate. And 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, probably this idea doesn't work. We want to just focus on shift focus to some other projects. So I think this is kind of like a very dynamic evaluating process and that could be a very time efficient and cost efficient way to develop the games. And in terms of the Latin America, we are very excited about the opportunity we have observed there. So Free Fire is doing very, very well. And so I think like the gamers there, like they are equally enthusiastic about the games compared to our core marketing in Southeast Asia. So we have several discussion leads with the multiple game developers like for specific for that region and we all see the good opportunity there. Specifically, I think we mentioned this before. So we are in the discussion with Tencent to potentially launch Speed Drifter in Latin America as well. So the game performed very, 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. And racing is a kind of like a global popular topic among gamers and the general audience. So we think like we may see good potential there as well. But at this moment, because this is kind of like a new game, we still want to test out. So we want to 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 like a really kind of like a suitable, right, for the Latin America gamers? Do we need to make any adjustments before launching the games. So we're closely working with Tencent on that. Right. In terms of the components of the take rate, as you mentioned, VAS is a large part of the marketplace take rate simply because it's recognized growth level for us based on our business model as we charge the fees to the sellers and then outsource the logistics to 3rd party logistics services provider, somewhat like a Cainiao model. On that front, overall, we think we're close to breakeven for the logistics part. And but important to note that sales sorry, transaction based fees as well as advertising is a significant part of our marketplace take rate. And more importantly, that the increase we're looking transaction based fees as well as advertising. Thank you. That's helpful. Just a couple of more things. PUBG Lite was launched last quarter. So just wanted to understand how much it has helped. And you didn't give the indication of what percentage of revenue is coming from mobile. That will be helpful. And lastly, on Latin America, given you're looking at launching potentially the Speed Drifter, how should we look at the investments in Latin American market? Will you be at similar scale as the new core market? Do you need to have physical presence or still want to do it from here? Any commentary on that will be helpful. Thank you. Yes. So I think as we are getting close on our time, I'll take these questions. And if there's any further discussions, we can continue another call later. So in terms of PUBG Lite, yes, so in terms of PUBG Lite, we have published most of our core markets. We haven't stopped monetizing it yet and the performance is as expected. In terms of percentage of revenue from mobile and LatAm, sorry, is that the question you just Yes. Percentage of revenue from mobile gaming revenue from mobile. Okay. So that is revenue from mobile continue to increase. And 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, but overall percentage mobile will continues to increase from last quarter. Thank you. And it is all the time we have for questions right now. So I would like to return the floor to management for any closing comments. 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 has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.