Earnings Call: Q4 2018

Feb 27, 2019

Good day, everyone, and welcome to the Sea Limited Fourth Quarter and Full Year 2018 Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. And please note that today's event is being recorded. And I would now like to turn the conference over to Howard Soh. Please go ahead. Thank you very much. Good morning and good evening everyone Welcome to CEE's 2018 Q4 and full year earnings conference call. I'm Howard Soh, Director of Corporate Development and Strategy at CEE. Before we continue, I'd 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 discussion of certain non GAAP financial measures such as adjusted revenue, adjusted EBITDA and adjusted net loss. 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. Let me begin by introducing the management team on the call. We have our Chairman and Group Chief Executive Officer, Forrest Li our Group Chief Financial Officer, Tony Ho and our Group General Counsel, Yanjun Wang. 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. Thanks, Howard. Hello, everyone, and thank you for joining today's call. I'm very pleased to announce that we closed out 2018 well ahead of our ambitious targets. Building on our strong results in the Q4, we exceeded the high end of each of the projections we provided in our latest guidance last year. Let me start by calling out Garena's success. Our digital entertainment adjusted revenue for the full year of 2018 reached $661,000,000 exceeding the high end of our guidance by $41,000,000 In the Q4, we recorded adjusted revenue of $231,400,000 up 50% from the 3rd quarter and expected to show further robust growth in the Q1 of 2019. And our adjusted EBITDA margin for the quarter rose to 45.5% compared to 37.2% for the previous quarter. It is expected to improve further in the Q1 of 2019. We believe Garena's system's strong performance underlines our success in executing our core strategy to materially expand our digital entertainment business from being a PC focused regional publisher to a global developer and publisher, with core strength in mobile games and the key focus on emerging markets, which greatly expands our total addressable market size. Free Fire is now one of the most popular battle royale games in the world. We recently hit a new record high of more than 350,000,000 registered users and more than 40,000,000 peak daily active users. According to FNE, for the full year of 2018, Free Fire was the 4th most downloaded mobile game in the world across the Apple App Store and the Google Play Store combined. It has also hit the milestone of recording more than 100,000,000 monthly active users. Importantly, we are also making excellent progress on monetizing Free Fire's massive and highly active user base and this is reflected in our adjusted revenue growth and EBITDA margin improvement. 1 of the crucial factors in Free Fire's growth is the fast growing and engaged global community of players. Building on this strong community sentiment from late 2018, we have been rolling out the Free Fire World Cup, a global esports tournament. We believe this global tournament will help to drive sustained excitement and solidify Free Fire's position as one of the leading games in the genre globally. As Free Fire's success has demonstrated, we believe that Garena has built a unique set of capabilities in developing and publishing global hit games that also address the needs of gamers in faster growth emerging markets. We have a deep understanding of the unique profiles and the needs of gamers in such market and unrivaled access to data and insights about these gamers because of our huge user base. We are also deeply rooted in these markets with strong local operations capabilities and not only in our core markets, but also in other major markets like Latin America. More importantly, with our strong technology and execution capabilities, we are able to quickly identify and take advantage of market opportunities. We now have a strong and growing game development team with more than 200 developers in our game studio in Shanghai who are working on enhancing Free Fire and on building out our self developed games pipeline. Free Fire is a great example of how quickly we are able to identify and tap into new market opportunities. It was one of the first mobile battle royale games to come to market. At the same time, our game publishing business continues to grow from strength to strength as global IP holders recognize our unrivaled ability to tap into the faster growing game communities in our region. For instance, we have begun loading out Speed Drifters as the first game that we are publishing under our right of first refusal arrangement with Tencent that we announced last quarter. And I'm pleased to say that we have agreed with PUBG Corporation to bring into our key markets in Southeast Asia PUBG Lite, a PC game adapt from their global hit game PUBG tailored for our region. Looking to the year ahead, we intend to continue to drive growth in our digital entertainment business as we continue to build out a world class in house game development arm and strengthening our publishing capabilities. Turning to e commerce. Our goals for Shopee in 2018 were to continue to strengthen its market leadership position across its key markets with increasing efficiency and to ramp up monetization. And I'm pleased to say that we have delivered on all fronts. E commerce GMV for the Q4 was $3,400,000,000 representing 27% growth on the $2,700,000,000 in the 3rd quarter. During the quarter, we recorded 206,900,000 orders, up 31% from the Q3. Meanwhile, during the 24 hours of our 11eleven sale in 2018, we hit a new record for Shopee of over 11,000,000 orders in a single day. And just 1 month later, during our double twelve sale, we broke that again recording over 12,000,000 orders in 24 hours on December 12. Out of those 12,000,000 orders, approximately 5,400,000 came from our largest market Indonesia. Shopee's continuing certification of leadership in Indonesia is a powerful demonstration of the strong flywheel effects it enjoys. In the Q4, Shopee recorded total orders of 83,800,000 or a daily average of 900,000 in Indonesia, further extending its leadership as the largest e commerce platform there. For the full year of 2018, Shopee achieved $10,300,000,000 in GMV, which was above the high end of the recent guidance of $9,700,000,000 we provided in the Q3. Breaking $10,000,000,000 in annual GMV was an important milestone for Shopee and an impressive achievement for platform that is just 3 years old. You can see the sustained improvement in the efficiency of our sales and marketing spend. In the 4th quarter, sales and marketing expenses as a percentage of GMV fell once again to 5.4%, down from 5.7% last quarter and 8.5% for the same period a year ago. In fact, shipping subsidies declined in absolute dollar terms in the Q4 compared to the Q3. It is important to note that Shopee achieved this sustained improvement in marketing efficiency, while its GMV grew by 27% and orders grew by 31% quarter on quarter, demonstrating that we are able to both grow our platform while increasing efficiency at the same time. We are able to do this because of the durable leadership position we have achieved. We expect the sales and marketing expenses to start trending down in absolute dollar terms this year as we continue to scale with greater efficiency, benefit from strong organic user growth and solidify our market leadership in the region. On the monetization front, e commerce adjusted revenue grew over 16 times year on year to $290,700,000 for 2018 as we ramp up our monetization efforts during the year. And in the 4th quarter, adjusted revenue grew more than 78% compared to the Q3 to $126,900,000 Moreover, we expect Shopee to record a positive quarterly adjusted EBITDA before allocation of the headquarters' common expenses for the first time in the Q1 of 2019 in Taiwan. We see the same dynamics around network effects that accrue to clear leader in the 2 sided marketplace model starting to play out in our other markets. Shopee's ability to grow rapidly over a short period of time to achieve regional market leadership is a testament to its successful strategy and ability to execute that strategy efficiently and effectively. Shawki has been focusing on building a mobile centric socially engaging marketplace with an emphasis on high margin products from a highly diverse seller base. In addition to that, Shopee has also combined its marketplace offering with integrated payments, logistics, Instructure and the comprehensive seller services. And looking to the year ahead, we believe this strategic focus and our proven track record of successfully executing on our strategies will continue to drive growth at Shopee. In 2019, we intend to focus on growing with efficiency while looking to further ramp up monetization through deeper engagement with our sellers and the buyers. To sum up, I'm very proud of our performance in the Q4 and the full year of 2018. Across the business, 2018 was a transformative year as Shopee extended its lead in e commerce and Garena emerged as a leading global game developer and publisher. We enter into 2019 in a stronger position than ever before, poised for growth on all fronts. We are hugely excited for the year ahead and have once again set ambitious growth targets for ourselves as reflected in our guidance for 2019. 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 the corresponding management analysis in today's press release. So I'll focus my comments on the key financial metrics. We'll see overall our 4th quarter total adjusted revenue was $389,300,000 an increase of 137% year on year and 60% quarter on quarter. This was mainly driven by the growth of our digital entertainment business, especially for 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 $231,400,000 an increase of 63% year on year and 60% quarter on quarter. The growth was primarily driven by the enlarged user base and the improvement in the monetization of our portfolio of games, especially Free Fire. Digital Entertainment adjusted EBITDA was $105,200,000 doubled year on year and an increase of 96% quarter on quarter. Thanks to the strong top line growth and our self developed game accounting for an increased share of revenue. E commerce adjusted revenue was $126,900,000 up 78% quarter on quarter from the Q3 of 2018. Of this $126,900,000 in adjusted revenue, marketplace revenue was $87,600,000 up 884% year on year and 74% quarter on quarter, while product revenue was $39,300,000 up 9,725 percent year on year and 88% quarter on quarter. E Commerce adjusted EBITDA loss was $277,500,000 as we continued our investment to fully capture the market opportunity in the region. We will continue driving the high quality growth by serving users' needs better and improving the operational efficiency. Digital Financial Services adjusted revenue was $3,100,000 a decrease of 25% year on year from $4,100,000 in the 4th quarter of last year as we focused our efforts on strengthening the infrastructure to support our existing platforms. Adjusted EBITDA loss was $9,800,000 in the Q4 of 2018 compared to a loss of $7,600,000 in the same period of 2017. Returning to our consolidated numbers, we recognized a net non operating income of $53,000,000 in the Q4 of 2018. This was primarily due to a fair value accounting driven valuation gain of $61,200,000 from the convertible notes we issued before our IPO. We had a net income tax expense of $3,000,000 in the Q4 of 2018, which was primarily due to corporate income tax and withholding tax recognized in our digital entertainment segment. Finally, our adjusted net loss, which is net loss adjusted to exclude share based compensation expenses and the fair value change for the pre IPO convertible notes was 321.2 $1,000,000 in the Q4 of 2018 as compared to $199,600,000 for the same period in 2017. I will conclude with our guidance for the full year of 2019. We currently expect digital entertainment adjusted revenue to be between $1,200,000,000 to $1,300,000,000 representing year on year growth of 82% to 97%. In addition, we expect e commerce adjusted revenue for the full year of 2019 to be between 630,000,000 dollars $660,000,000 representing year on year growth of 117% to 127%. With that, let me turn the call back to Howard. Thank you, Forrest and Tony. We are now ready to open the call for questions. Operator, please proceed. Thank you. And the first questioner today will be Myung Chan Ko with Goldman Sachs. Please go ahead. Hi, good morning. Congrats on the strong results. A few questions for me. For games, the peer ratio was up significantly Q over Q. I presume this is mainly Free Fire. But has the monetization started already at the end of Q2? Why is there such a big jump, I guess, in 4Q? And for games as well, in terms of your FY 2019 revenue guidance, is the expected growth just coming from Free Fire and Speed Drifters? Or does it include other new games from Tencent or even your own? And then a couple of questions on e commerce, if I may, as well. Sorry. So the cost of services for e commerce continues to rise quite a bit more than revenues. I know there are some explanation in the press release on the cost items that contribute to that. However, could there be more color on that, a bit more specifics on other perhaps cost increases that or cost buckets that we should be aware of? And when can we see revenues trend more in line with the increase in cost of services as well? And then finally, on the e commerce revenue guidance for FY 2019, is the Y o Y growth expected to come more from higher take rates or from GMV increase? Thank you. Sure. Rich, thanks for all your questions. Let me start from the first one on the greener side of things. So you talked about overall pay ratio for has blended upwards. That's right. Yes, it is actually reflected a reflection of the fact that the pay ratio for Free Fire has gone up. You're right that we have started monetizing the game a bit earlier on, but recall that during the previous call, I actually mentioned that whenever we had a high potential game, our first protocol of duty is really to make sure that as many people as possible are playing the game. Now that we have the numbers and as Forrest shared, more than 350,000,000 registered users, over 100,000,000 MAUs and peak DAUs of over 40,000,000. Now that we're in that position, we think that we're able to turn on the monetization levers a bit more strongly. So what you've seen is that a lot of efforts in terms of our Q4 is really been focused in terms of converting free users to becoming paying users. And as a result of that, that has affected the pay ratio and subsequently adjusted revenues for the Q4. If we think about the 2019 guidance on the Garena side of things, yes, it's true. It's actually quite robust in terms of where we think we're going to land in terms of the overall guidance being RMB 1,200,000,000 to RMB 1,300,000,000 in adjusted revenue for Digital Entertainment for 2019. It is coming off the back of a couple of things. You mentioned like Free Fire as well as some of our new titles like Speed Drifters, but it's really a reflection of and we're reaping the dividend of a shift in our overall strategy. When we set out several years ago, we were primarily a PC based pure publisher focused on solicitation in Taiwan. And now we successfully made a transition towards being a lot more mobile centric from being a pure publisher to going into self development. And of course, with the success of Free Fire, that's really given us a passport to spread our wings beyond Southeast Asia and Taiwan to a lot of global emerging markets. So access to places like Latin America where Free Fire was top ranked game in Brazil in 2018 by MAUs, downloads and consumer spend and the top 5 in each of these categories in Mexico and Argentina. Needless to say, that really has great implications in terms of our total addressable market for the future. I'll let Tony weigh in, in terms of the questions with regard to Shopee on the cost of services. Yes. For the cost of services, yes, you're right. It's mainly the volume driven thing. If you look at the cost component, it mainly are bank transaction fees and also the cost of value add services like logistic services. And as the volume ramping up, the cost of sales also ramping up as well. Finally, and sorry, Anthony, do you mind running us through that last question again saw in terms of like EC revenue guidance? Yes. So I'm just wondering whether the Y o Y growth in EC revenues, is it coming more from higher take rates that you expect or more from GMV increase Y o Y? Yes. So we actually think that it's going to be a combination of both. With GMV wise, it's still going to continue to grow very, very robustly. At the same time, we've also indicated that once we gain a good measure in terms of being the market leader, we can also look it is within ability to start looking at monetization a bit more deeply. And that's something that we've started to do already in the Q1, and you see it continue to echo out throughout 2019. It will come from a combination of commissions as well as advertising as well as value added services. Got it. Thank you. Thank you. And our next questioner today will be Alicia Yap with Citigroup. Please go ahead. Hi, good morning, Forrest, Tony, Howard. Congratulations on the strong quarter and also the strong guidance. I have some follow-up questions on the digital entertainment regarding the Q4 and also the guidance. On the Q4, can you share with us outside of the Southeast Asia regions, how much is the Free Fire now contribute? And then regarding in terms of the guidance, I think how confident are you? And then what sort of scenario that you are baking in to come up with the guidance? In more detail, what I mean is, can you share with us, is this coming from the gross billing and obviously, the defer that you have? And then also you assuming Free Fire will continue to improve, right, on the user front and also the monetization? And then also, if you can give some colors on the QQ speed, that will be helpful. Then second question is on e commerce. Also wanted to follow-up. Realized at this time, you guys are giving the adjusted revenue guidance rather than the GMV, which I is indicative of your much more confidence in terms of the monetization. But then could you share with us maybe the implied GMV guidance from the net revenue guidance that you have? And also, if you can also give a little bit color in terms of, let's say, the growth rate on revenue on e commerce, if we were to rank by country as they come from, let's say, Indonesia or other countries? If you can kind of give us some colors in terms of the ranking in terms of the growth rate, that will be helpful. Thank you. Great. Thank you, Alicia. So let's start on the digital entertainment side of things. So outside of the core markets, right, Southeast Asia and Taiwan, we actually disclosed that in terms of like our revenue adjusted revenue coming in from Global Emerging Markets, so meaning outside of that core region, it was 28% in the 4th quarter. So then when you're talking about things such as the overall scenarios that we mapped out in terms of the new guidance for 2019, it comes down to a combination of factors. 1st of all, in terms of continued success on the Free Fire front, I think that's true. We have already started very successfully converting a lot of the free users to paying users. But at the same time, we believe that there is also some optimization work that can happen in terms of trying to upscale the amount of ARPUPU or the average revenue per paying user on the Free Fire front. At the same time, keep in mind that our publishing efforts continue to be very robust and that has materialized most recently in terms of Part gs Lite. At the same time, we also have a very strong pipeline of games coming in from our right of first refusal arrangement with Tencent, again culminating in Speed Drifters. I would say that in combination to all of these different growth factors, we also have our own self development studio. In terms of 200 developers that we have in our studio, all of them are continuing to work not just in terms of building new content for Free Fire, but also they are experimenting with new genres, new features, new game titles. So we are quite optimistic about the fact that we continue to have a very robust pipeline that will fuel growth looking forward. If we think about shifting gears to the e commerce side of things, imply GMV guidance will probably you're right that in terms of the way how we've chosen to guide in 20 19, we're focusing very much in terms of adjusted revenues and we've pointed a picture of landing between $630,000,000 to $660,000,000 for the year. We believe that that's a pretty direct indicator of overall performance of e commerce businesses. As a result, we've chosen to guide on that. We probably won't provide guidance with regard to GMV per se, but we continue to report it just as we have during this quarter. Unfortunately, we can't dive too much into the specific nuances of each market, but suffice to say, we are seeing continued strong robust results in terms of Indonesia. We actually on previous call, you might recall that we claimed that we believe we were the market leader in Indonesia by virtue of 7 100,000 orders per day on average. And what we've done since then is we've built on that leadership position and closed in at 83,800,000 orders in the 4th quarter or an average of 900,000 orders per day. For Twelvetwelve, during the December 12 festival, we actually saw 5,400,000 orders coming in from Indonesia alone in that single day. So I think it's pretty safe to say and we hope you agree that not only are we the leader in Indonesia, but we've also built on that lead quite substantially. That's very helpful. Can I follow-up just quickly on the digital entertainment guidance? So is that fair to interpret correctly from your comment just now that you have baked in PUBG Lite and also some new games that you are planning in the rest of the year from the Tencent portfolio? Thank you. That is correct, Alicia. It's pretty much a holistic view of the performance of our digital entertainment efforts. Okay. Thank you. Congrats again. Thank you. And our next questioner today will be Mike Olson with Piper Jaffray. Please go ahead. Hey, good morning. I was wondering if there are any additional details you can share about 2019 profitability expectations. For example, just from a high level, are your early thoughts on EBITDA for the year for the EBITDA loss to improve or worsen in 2019 compared to 2018? And then when could we potentially expect additional self developed titles? I'm sure you're really focusing resources on Free Fire at this point, but can you provide any thoughts on the pipeline for self developed titles like will we potentially see 1 new self developed title in 2019 or is that more of a 2020 event? Thanks. Great. Thanks for your question. So let's discuss first in terms of profitability for 2019. So what we have observed is really that on terms of the Shopee front of things, sales and marketing has really declined like coming in from like 8.5% as a percent of GMV a year ago to 5.7% in the Q3 of 2018 to 5.4% most recently in the Q4 of 2018. At the same time, we see the twin effect on the other side of things, we've seen adjusted revenues as a percentage of GMV really rose to 3.7% in the 4th quarter. So we're seeing a narrowing in terms of both lines coming to intersect. And while we can't paint a picture with regard to precisely when the Shopee business will achieve breakeven, I think the Taiwan case study actually paints a pretty good picture. When we said that you can see the results really in terms of our Taiwan, Shopee strategy in Taiwan, specifically when it was the 1st market where we started monetize about 2 years ago. And when we mentioned earlier that we expect Shopee to record a positive quarterly adjusted EBITDA before the allocation of HCU costs for the first time for the first in the Q1 of 2019. So we do believe that the greater trends of deeper monetization, lowering of shipping subsidies and sales and marketing expenses that we are witnessing in Taiwan, we're actually seeing a lot of that echo out into the other markets as well. So we're quite pleased and positive about that. In terms of shipping gears to Garena in terms of self developed titles, it's pretty early to tell. And we don't disclose our game pipeline for competitive reasons. But needless to say, we can be assured that we are hard at work in terms of trying to develop new genres, new titles and new features for the future. Thank you. And our next questioner today will be Varun Ahuja with Credit Suisse Singapore. Please go ahead. Yes. Hi. Good morning, everyone, and congrats on a great set of numbers. First, I just want to know on the digital entertainment, can you provide a little bit color on the margin front? Because the Q4 looks pretty strong on margin and Q1 you're guiding for a much better margin than the Q4. So for a full year, how should we think about because your revenue guidance on digital entertainment is very strong. So how should we think about the margin profile? Any color will be helpful. Secondly, in terms of guidance for e commerce, can you provide a little bit color what how much is product revenue, how much is marketplace revenue that you're looking at in the guidance for the revenue for e commerce business? And if you look at your sales and marketing, you had mentioned that the absolute amount for the shipping subsidies have come off, but for the Q4. But if you look at on a quarter on quarter basis, the sales and marketing has increased. So it means you're spending in somewhere else some other promotions and stuff. So just wanted to understand how much of the sales and marketing in Q4 is free shipping or the subsidies on shipping front as a percentage, is it coming off while the other expenses are going up? So wanted to understand that thing. Then number 4 is, can you talk about a little bit about the fundraising if you may have to put in for Shopee? I understand there were last year comments being made that you may look at raising at the Shopee level. So given you're burning not burning, you're investing cash every quarter, which may not last beyond 2019. So any plans on that front will be helpful. Thank you. Thanks Varun. Good speaking, Priti. So let's take it from the top. In terms of your first question on margin, so yes, you're right. In terms of the EBITDA margins on the digital entertainment side of things, 3rd quarter, we had 37.2%. That has improved pretty substantially to 45.5% the Q4. In terms of just giving more color there, it's really a combination of, we would say, 3 factors. First of all, just overall strong top line growth coming in from Free Fire as well as some of our other game titles. There is also the fact that a self developed game, so in this case, Free Fire accounted for a greater share of revenue and that has led to an improvement in terms of EBITDA margins. And of course, we've also seen greater efficiency in terms in terms of our marketing efforts and that helps just to stretch the dollar. That's probably the color that we can provide in terms of EBITDA margins. In terms of e commerce guidance, unfortunately, we probably cannot break down a little into any more granularity with regard to the guidance in terms of marketplace product versus product revenue, but that's something that we disclose in our earnings. So if we look at the composition of the 4th quarter, particularly if we look at where we ended for the 126,900,000, roughly 87,600,000 was marketplace and roughly 39.3% was product. In terms of the sales and marketing, let me try to contextualize and frame your question. So if we look at it from a big picture kind of view, sales and marketing overall as a percentage of GMV fell from 5.7% in the previous quarter to 5.4% in the 4th quarter. And something else that we said was that sales and marketing in terms of absolute dollars, we expect that to trend down this year. And part of our ability to do that really stems from the fact that we are now the market leader. We are continuing to get outside benefits from the flywheel effects where more and more buyers and sellers flock to the Shopee ecosystem. What this means essentially is that we get a lot in terms of organic user growth. So we don't actually need to continue to invest as much in terms of sales and marketing in order to go and post very robust growth rates. One thing that you pointed out particularly on this question was that shipping subsidies. What we'll say here is that shipping subsidies have really fallen in terms of absolute dollar terms if we look at the 4th quarter relative to the 3rd quarter. But keep in mind that although we've pulled that back, at the same time GMV grew by 27% quarter on quarter and orders grew by 31% quarter on quarter. This really proves that we can grow with increasing efficiency. And you're right, we have redeployed some of that budget towards more discretionary type of marketing activities. But over time, what we found is that initially when buyers are a bit less well acquainted with any particular e commerce platform, perhaps free shipping or subsidized shipping becomes an important tool for them to try out the platform for the first time. But when you are in a position where Shopee is, where people are very familiar with you, then other factors become very important, things like product assortment, ease of discovery, deeper engagement and very high quality fulfillment and customer service, all of which are pretty much hallmarks of the Shopee experience. And then finally, in terms of your question on fundraising, as of the end of the Q4, we have over $1,000,000,000 in cash and cash equivalents. We're very encouraged by our most recent results in terms of Shopee. At the same time, we also have Garena. Continues to exceed our expectations. We have great accomplishments on the adjusted revenue front with over 6 $61,000,000 in 2018, we think all of this puts us in a very, very strong position. At the same time, as a management team, we are very committed growing our business and market leadership in what we think is a very large and attractive market opportunity. To that end, we will continue to evaluate our fundraising options and may access the capital markets as appropriate. Thank you. And our next questioner today will be Conrad Werner with Macquarie. Please go ahead. Hi, there. Thanks. It's Konrad from Macquarie. First question is just in the past, and I'm sorry if you already So I'm wondering if you could provide that again. So I'm wondering if you could provide that again. And then just a follow-up on some of the previous questions. I mean, everything in the results looks great. I think the market would just still have that one outstanding question around the cadence of EBITDA losses in the e commerce business? Would it be fair to say that the 4th quarter EBITDA loss might represent a high watermark going forward on a quarterly basis, given all of the positive revenue trends that you're calling for, plus some of the efficiency that we're seeing on the sales and marketing side, at least in terms of the shipping subsidies. I think any color around that would be very useful. And tied to that, is there any seasonality to expect in the business? I mean, you had a couple of big sales events in the Q4 for the e commerce business. They were very successful. Does that sort of impact the quarter over quarter trends in the Q1 for e commerce? And then just lastly, on the shareholders' equity, is there a plan or a need from your perspective to move that more into a positive number over the course of 2019? And how would you do that? Thank you. Hey, it's Conrad. Thanks for your question. So your first question is on the percentage of adjusted revenue from Refire. Yes, we did disclose this. We said that for the Q4, it accounted for 40 4.5 percent of adjusted revenue. Sorry, I missed that. Yes, that's great. So the second one is in terms of the cadence of EBITDA losses, would it be fair to say 4th quarter EBITDA losses represents a watermark in terms of EBITDA losses. I think that's it's fair to characterize it that way. If we think about what we've disclosed, we've kind of said that we expect overall sales and marketing in terms of absolute dollars to continue to trend down starting from this year. So I think that, that characterization is accurate. The third question on seasonality, I think that's true. We have seen quite an outsized response and in terms of great consumer demand leading in from our 10, 10, 11, 11 and 12, 12 festivals. And so like there is some implied seasonality in the e commerce business just as there is as well for the games business. Negative shareholder equity question, perhaps I'll let Tony weigh in on this. Yes. So you're well pointed out. And as shared by Howard earlier, we have RMB 1,000,000,000 on the balance sheet in cash and we have seen very strong performance in our game business and also strong pickup in our e commerce business as well. And meanwhile, as we shared, we're open minded about the option and closely monitoring the market position. Thanks for that. Maybe just a follow-up on the seasonality question. I mean given the strong just organic growth in this business, even with the seasonality, should we still expect the revenue metrics to be up sequentially in the Q1 just by not as much? Or is there a chance that we could see them come down sequentially before they start rising again over the course of 2019? Thank you. And the expectation is that it will rise. And that is also reflected in our adjusted revenue guidance for the year. And that applies to the Q1 as well? That's right. Thank you so much. Thank you. Our next questioner will be John Blackledge with Cowen. Please go ahead. Hi. This is Bill on for John. Congrats on the strong quarter and thanks for the questions. I had a couple if I could. Could you just tell us a little bit more about what you see as the drivers of GMV and monetization in the Q1? And then just a little bit more color on the logistics services and value added services. How have those performed versus your expectations? And what do you kind of see as the long term view for those businesses over the next few years? Thank you. Hey, Bill, thanks for your question. So in terms of the e commerce side of things, drivers of GMV and monetization, a couple of things to say here. I think that when I was asked on the previous call, what accounted for the great GMV acceleration in Q3, I kind of said that Shopee is really coming to its own as the number one e commerce platform in the region. And I think that's more true today, even as short as 3 months ago. If we just look at the fact moving from $0 of GMV to over $10,000,000,000 of GMV in the 3 year time frame, Our success in terms of Indonesia where we had 900,000 orders per day. And when Avani says and has declared that we were the most downloaded app in the shopping category in Southeast Asia and Taiwan for the entire of 2018, I think all of this provides really strong evidence that we are the number one player in Indonesia, in Taiwan, our ability to continue to monetize, there are a number of our ability to continue to monetize, there are a number of key drivers behind this growth. First of all, Shopee continues to experience robust platform growth and we've extended our leadership position across the region and market by market. Secondly, we're observing a deepening of user engagement on the platform as we continue to enhance our service offerings to both buyers and sellers, be it through a wide assortment of our service offerings as well as innovative gamification elements, seller tools and value added services. Thirdly, we've begun rolling out a fuller spectrum of monetization avenues since January this year and we plan to continue rolling out even more of these over the course of 2019. For example, we've recently rolled out commissions for more sellers in Thailand and Indonesia and we've rolled out handling fees across multiple markets. So looking ahead, we continue to grow focus on growing with efficiency on the e commerce front. We will leverage our organic user acquisition opportunities and we'll ramp up monetization as we deepen our engagement with both buyers and sellers. In terms of your question on VAS, it's pretty much performing in line with our expectations. As you can imagine, it is we're really solving a fundamental need here that has been unaddressed by largely is unaddressed by any sort of player in our region. So you can imagine that there's been outside demand coming in for those value added services that we provide. Okay, great. Thank you so much. And our next questioner will be Andrew Orchard with Nomura. Please go ahead. Hi, guys. Thanks for taking my question. A question on e commerce. Can you give us some color on what percentage of your orders is from organic lead generation and how much is coming from affiliate websites such as Prisa or other websites? And then on the gaming front, can you give us some color on where you expect this bit between self developed and non self developed games to be eventually, maybe not necessarily for this year, but a platonic idea at some point? These are my two questions. Thanks. Great. Thanks, Andrew. So we probably can't provide more color in terms of the exact split in terms of orders. What we will say is that we've got we're very pleased in terms of the overall trajectory of our orders. We've seen acceleration in terms of orders and going from 0 to more than 600,000,000 orders in a time frame of 3 years, we think is a pretty remarkable accomplishment. On the other hand, when we talk about the split between self developed and non self developed games, recall during one of the previous calls, we actually did paint a picture where we said about 50% of that is going to come in from self developed games and 50% of that is going to be published. What we've seen on Free Fire front particularly is that now Free Fire already accounts for 44.5 percent of our total assets for the Q4. So we're well on our way towards those targets. Do you think that it might exceed that more significantly, ever get to a stage 1, would be sixty-forty or sixty five-thirty five? We do think that's possible and we wouldn't necessarily say that that's a negative thing. Given the fact that it is our self developed title, it does lead to better EBITDA margins for the business. And we've seen how that has been a real has really resonated with a global audience. We're seeing how it's done really well, not just in our core markets, but also across all sorts of different markets such as India, where it's continued to get a very strong user base. Okay. Thank you. And our next questioner today will be Conrad Werner with Macquarie. Please go ahead. Hey, sorry for the follow-up. But just to follow-up on that previous question around the additional color around the monetization in e commerce. Is it fair to say that the guidance for 2019 still does not assume much in terms of commissions outside of the mall business. In other words, the commissions for more of the marketplace business would be sort of something that happens in 2020 beyond? Or are you already assuming some of that in 2019? Yes. Thanks, Conrad. So we are assuming some of that's occurring. So it will be different levers that we activate in different markets. We have to almost take it on a market by market basis. But what you're seeing in terms of the guidance for 2019 adjusted revenues for e commerce, that's an all in holistic view in terms of all the different monetization efforts that we will pursue for the year. Okay, thanks. And sorry, again, if I missed this before, was there a split provided between PC and mobile adjusted revenues in the release? Or is it possible to get that on this call? Yes, it was provided. So we Okay. I'll look it up. Yes. It was just 85.1%, just for your quick reference. Thanks. I was late to look at the release. Thanks. And our next questioner today will be Myung Chung Ku with Goldman Sachs. Please go ahead. Hi. A couple of follow-up as well. On Free Fire, can you elaborate a bit more on what sort of monetization tools you actually deployed in Q4? And how should we think about those monetization tools this year as well? I know you mentioned, of course, deepening that, but I just would like to some specifics. And as you go into all this or see great success in all this global markets, Latin America, etcetera, Would you be expanding or adding headcount in those areas as well? And are there other geographies that you see similar opportunities besides Latin America? And then finally, should we expect a few more games from Tencent, I guess, this year as well? Thank you. All right, great. Thanks, MC. So first question, in terms of monetization tools deployed in Q4 on the Free Fire front, recall that the one of the most effective tools in terms of us converting free users to paying users has really been the subscription process that we pushed out. So these subscription process, they are very affordable. And in terms of like the transition from being a free user to paying user, it's very, very low ticket being about an average of US5 dollars per month. It leads to a lot of repeat behavior in terms of being a subscription type of tool and it gives you access to a whole host of content that you would otherwise get as a free user. So that's been a very attractive pool. And once individuals start investing in the game, then there's a higher propensity for them to participate in other avenues such as buying costumes and skins and so on. One thing that I will mention is that the subscription process are also team based. So we tend to push out monthly sort of teams around the subscription passes and that leads to a lot of opportunities for deeper localization and engagement with users. In terms of success in global markets and if we're seeing any sort of uncertainty, I think questions your next couple of questions are kind of interrelated. So we will say that we've seen lots of great success in terms of our initial foray into Latin America. But at the same time, we are seeing great user traction and growth numbers in markets like India, Russia and Turkey. According to App Annie, throughout the month of January, Free Fire was consistently ranked as the top 3 grossing action game on the Google Play Store in India and Russia and within the top 6 grossing action game on the Google Play Store in Turkey. So we believe that Free Fire's unique position as a premium Battle Royale title, which is optimized for emerging market users, has allowed the game to achieve popularity and success in other global markets as well. Does this lead to an investment in terms of on the ground infrastructure and personnel? Sure, we will make those investments in order to make sure that we deliver the best game experience to our users. Yes. And then, will we expect more Tencent games as well besides Speed Drifters for the remainder of the year? Sure. So I think the short answer is you stay tuned in terms of our announcements. We obviously can't speak about our game pipeline, but we're quite excited about what we see when we look across the Tencent portfolio. Got it. Thank you very much. Thank you. And this will conclude our question and answer session. I would now like to turn the conference back over to Howard So for any closing remarks. Well, thank you very much everyone for your time. We look forward to speaking with you again on the next call. The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines.