Earnings Call: Q3 2018

Nov 21, 2018

Welcome to the Sea Limited Third Quarter 2018 Results Conference Call. All participants will be in listen only mode. Questions. Please note this event is being recorded. I would now like to turn the conference over to Howard Soh, Director of Corporate Development and Strategy. Please go ahead. Thank you. Good morning and good evening, everyone, and welcome to Sea's 2018 Q3 earnings conference call. I'm Howard Soh, Director of Corporate Development and Strategy at Sea. 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 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 actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For a discussion on 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 we have our Group Chief Financial Officer, Tony Ho and our Group General Counsel, Yeonjun 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. Thank you, Howard. Thank you for joining today's call. I'm very pleased to announce that C continued to deliver strong results this quarter. The robust momentum across our e commerce and the digital entertainment businesses is also reflected in our revised full year outlook, which Tony will discuss in more detail shortly. In the Q3, Shopee extended its market leadership. Our intense focus on operations and excellence in execution allowed us to capture more consumer transactions and deepen customer engagement and loyalty. GMV continued to grow at a robust pace reaching $2,700,000,000 in the 3rd quarter, an increase of more than 100% year on year. We were very pleased to have seen an acceleration in GMV growth from 14% quarter on quarter in the second quarter to 21% quarter on quarter in the 3rd quarter. The highly successful Shopee 111 big sale is a great example of how Shopee is becoming an increasingly important part of the retail experience for consumers in our region. This year we saw a new record of Shopee of over 11,000,000 orders recorded over the 24 hours of November 11. That is around 4.5 times the number of orders recorded on the same date last year. Our strong and growing engagement with consumers is mirrored in our deepening relationships with our sellers. E commerce adjusted revenue grew strongly to $71,200,000 up 21% quarter on quarter from the Q2 of 2018 as sellers invested more in our value added services to reach and service our large and growing base of active consumers. As buyers and sellers become increasingly loyal to Shopee, they become more invested in our platform, enabling us to become more and more efficient in our promotional programs. Sales and marketing as a percentage of BNB fell further by 50 basis points quarter on quarter from 6.2% in the 2nd quarter to 5.7% in the recorded 63,700,000 orders during the quarter or a daily average of 700,000 orders, which we believe made Shopee the largest e commerce platform in Indonesia. Sales and marketing as a percentage of GMV for Indonesia was even lower than the ratio for Shopee as a whole, demonstrating higher marketing efficiency in its largest market. Moreover, many of you will be aware of the recently released Google to Massac Economy SEA 2018 Report in which the authors estimate Southeast Asia's e commerce market size to reach over $23,000,000,000 in GMV in 2018, representing growth of 114 percent from 20 seventeen's market size and to further reach over $100,000,000,000 by 2025. We believe that our growing and highly engaged user base, increasing marketing efficiencies and steadily expanding market leadership underlying how Shopee is cementing its position at the forefront of our region's e commerce industry. Therefore, we believe Shopee is in a great position to enjoy and outside the benefit from the rapid growth of e commerce in our region. With Garena, we are also going through an exciting period of growth as we build on our success in adapting our game offerings to meet evolving needs of users in our region. In the Q3, Arena delivered adjusted revenue of $144,600,000 up 7% year on year and adjusted EBITDA of $53,700,000 up 19% year on year. Quarterly active users or QAUs grew 155% year on year and 10% quarter on quarter to 176,000,000. Quarterly paying users or QPUs also increased to 7,200,000 from 6,600,000 for the Q2 of 2018. The encouraging quarter on quarter increase in QPUs were primarily attributed to the monetization efforts we recently started for our self developed game Free Fire. We are particularly pleased with the global success of Free Fire, which is growing from strength to strength. Free Fire recently achieved over 200,000,000 registered users as well as over 27,000,000 daily active users, a significant increase compared to its previously disclosed peak of over 16,000,000 daily active users. In the Q3 approximately 22% of our adjusted revenue for digital entertainment was generated by our self developed game and approximately 13% was derived from outside of 7 core markets in our region. Throughout the month of October, Free Fire was consistently the highest grossing game in Brazil, Argentina and Mexico and in late October Free Fire became the highest grossing game on the Google Play Store in our traditional core market of Indonesia. We believe that this is a very strong demonstration of our ongoing success in executing Garena's strategy to expand into game development and to extend our global footprint. Alongside the success of our game development efforts, I'm excited to note an important new partnership that will further enhance the portfolio of top quality games that we offer in our region. As we announced earlier this week, Garena has signed a binding letter of intent with Tencent to ground us a right of first refusal to publish its mobile and PC games in Indonesia, Taiwan, Thailand, the Philippines, Malaysia and Singapore. This further strengthens our long standing strategic partnership with Tencent. As you know, we already work together to publish a number of the most successful games from Tencent's portfolio including Arena of Valor and League of Legends. It is also a powerful testament to Garena's unrivaled understanding of the dynamics and the nuances of our region and our reach to the games communities in these high potential markets. With that, I will pass on to Tony to talk more about the financials. Thank you, Forrest, and thanks to everyone for joining the call. Same as previous quarters, we have included detailed quarterly financial schedules, together with the corresponding management analysis in today's press release. So I will focus my comments on the key financial metrics. For Sea overall, our Q3 total adjusted revenue was our highest ever at $242,800,000 an increase of 60% year on year and 11% quarter on quarter. This was primarily driven by our continuous monetization efforts in our e commerce business in the past quarters and the growth of our digital entertainment business, especially for our self developed game Free Fire. Digital Entertainment adjusted revenue was $144,600,000 an increase of 7% year on year and 4% quarter on quarter. The growth was primarily driven by the increased user base and enhanced user engagement as well as the improvement in the monetization of our existing games and the launch of new games. Digital Entertainment adjusted EBITDA was $53,700,000 an increase of 19% year on year and 11% quarter on quarter. Thanks to the top line growth and the increased share from our self developed game. E commerce adjusted revenue was $71,200,000 up 21% quarter on quarter from the Q2 of 2018. Of this $71,200,000 in adjusted revenue, marketplace revenue was $50,300,000 while product revenue was $20,900,000 Adjusted EBITDA loss widened to $214,900,000 as we continued our investment to fully capture the market opportunity in the region. Digital Financial Service adjusted revenue was $3,100,000 a decrease of 35% year on year from $4,800,000 in the Q3 of 2017 as we focus our efforts on strengthening the infrastructure to support our existing platforms. Adjusted EBITDA loss was $7,000,000 in the Q3 of 2018 compared to a loss of $8,200,000 in the same period of 2017. Returning to our consolidated numbers, we recognized a net non operating income of $30,900,000 in the Q3 of 2018. This was primarily due to a fair value accounting driven valuation gain of $36,000,000 from the convertible debt we issued before our IPO. We had a net income tax expense of $2,000,000 in the Q3 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 debt was $237,600,000 in the Q3 of 2018 as compared to $127,100,000 for the same period in 2017. I will conclude with our revised guidance for this year. For the full year of 2018, we now expect total adjusted revenue to be between $930,000,000 to 9 $70,000,000 representing year on year growth of 68% to 75%. This compares to the previously disclosed guidance of $780,000,000 to $820,000,000 We expect adjusted revenue for digital entertainment for the full year of 2018 to be between $600,000,000 $620,000,000 representing year on year growth of 21% to 25%. We are also revising our e commerce GMV guidance. We now expect GMV to be between $9,200,000,000 to $9,700,000,000 for the full year of 2018, representing year on year growth of 124 percent to 136%. This compared to the previously disclosed guidance of between $8,200,000,000 to $8,700,000,000 With that, let me turn the call back to Forrest. Thanks, Tony. Finally, I'd like to address the 2 management changes we announced earlier today. At Garena, Terry Zhao, who currently has our game studio in Shanghai has been promoted to the position of President of Garena. Terry has been with us since our earliest days in 2009 and as a Garena veteran he has deep experience in almost all of our core markets and milestone projects. He has also been instrumental in our push into self developed games and in addressing the huge and growing mobile games market globally. I'm delighted that he will be leading the Garena team to drive our digital entertainment business forward. On behalf of our company, I would also like to sincerely thank Alan for his service and wish him well in his future endeavors. As we noted in our release, Allen's responsibilities have been assumed by our corporate development and strategy team under the oversight of our Group General Counsel, Yanjun Wang. In addition to the legal function, Yanjun now also oversees the corporate development, Investor Relations, Public Policy and the Public Relations functions for Sea. Since joining Sea in 2014, Yanjun has been working very closely with me on all key strategic and corporate matters of our company. In this expanded role, I'm certain that she will bring invaluable experience and expertise to these important corporate functions. At this point, I would like to invite Yanjun to say a few words. Thank you, Forrest. Good morning, good evening, everyone. I'm excited to take on this expanded role to facilitate a further growth of our company and a better understanding of our businesses and strategies by our stakeholders. I look forward to working more closely with you all in the years ahead. Thank you, Forrest, Tony and Yanjun. We shall now open the call for questions. And our first question today will come from Myung Chung Ku with Goldman Sachs. Please go ahead. Hi, Forrest and team. Congrats on the results. Three questions. Firstly, can the team elaborate a bit more on the benefits of this new arrangement with Tencent compared to the previous arrangement? And how does this impact your self development strategy? And secondly, on e commerce, the QoQ GMV growth was strong. Is it possible to share more about the growth from individual geographies? And whether there is any noticeable change in GMV trends since Shopee reduced some of the shipping subsidies since August this year? And then lastly, would appreciate update on your latest thoughts around funding for Shopee? Thank you. All right, great. Thanks, MC for your questions. Let me kick it off. So if we talk about the benefits of the Tencent arrangement, just a little bit of background. In terms of how games were negotiated and discussed in the past, previously used to be on a title by title basis. And effectively that would take away a lot of time from Forrest and senior management in terms of negotiating and discussing the details of how to launch the games. What happens is that this deeper arrangement that we've announced, the partnership actually allows us to come up with a framework and you can think of it almost as a green lane in terms of accelerating and bringing games more quickly to our region. So that's the first one on in terms of the Tencent partnership. You asked about the e commerce as well, correct? Can you please repeat it? Yes. Sure. Maybe just to the second part of the games question was, does this in any way impact your self development strategy on games? All right. So, no, it doesn't. In fact, we do see a good deepening in terms of just how well we're doing with Free Fire and we're continuing to invest resources in order to make sure that our self development efforts are very robust. So to your second question in terms of like GMV in individual markets, so one thing that we've called out particularly with the new revised guidance is that in Indonesia in particular, what we've seen is that we have clocked in 63,700,000 orders for the quarter, which averages out to be about 700,000 orders per day. And that really gives us confidence that we are the largest player, not just in Southeast Asia region as a whole, but particularly in Indonesia. So we are continuing so to answer your question, we are seeing good strong momentum all across the board and in particular in Indonesia. Finally, in terms of updates on funding, we did discuss this previously in terms of the various avenues that we have. We remain quite open minded. We do have $1,200,000,000 in cash as of the end of Q3 of 2018. So we are well funded and there's no urgent need for us to tap the market. Having said that, we remain very open minded and we are very much focused in terms of maximizing shareholder value. Got it. So was actually a sort of a second part to the e commerce questions. Just wondering whether there was any noticeable change in the GMV trends because we did notice that Shopee changed some of the shipping subsidies or the shipping promotions since August this year? Yes. Actually, we haven't seen any sort of slowdown in terms of our GMV growth trajectory. In fact, we brought up guidance in terms of what we previously said was going to be where we're going to land for GMV for the year, we said between RMB8.2 billion to RMB8.7 billion. We brought that up by a RMB4 billion to RMB9.2 billion to RMB9.7 billion for the year. So yes, we brought down some of that subsidies and that is reflected in the lowering of the F and N percentage as a percentage of GMV, but really there hasn't been any slowdown at all in terms of our GMV trajectory. Got it. Thank you, Howard. And our next question comes from John Brackledge with Cowen. Please go ahead. Great. Thanks. Just a couple of questions on the guidance. So it was pretty strong. Just wondering if you can discuss on digital entertainment guidance, it calls for accelerating growth versus the kind of 7% year over year growth in 3Q. The implied 4Q guide calls for accelerating growth even at the low end. Could you just discuss the kind of the puts and takes that would land you either at the low end in the Q4 for digital entertainment or the high end? And then the follow-up would be on Shopee. The full year guide at the high end implies about $2,800,000,000 in GMV, something like that, or about 150 $1,000,000 Q over Q increase. Last year GMV increased about $500,000,000 Q over Q from 3Q to 4Q. So just curious if the GMV guide for Shopee is somewhat conservative or if the impact from the GMV on November 11 kind of played into the guys? Thank you. Great. Thanks for your question. So let me start off by talking about the digital entertainment side of things. So yes, we've brought up we've disclosed actually our digital entertainment adjusted revenue forecast in terms of revised guidance and we've laid out, we think that we're going to land between $600,000,000 to $620,000,000 that overall represents a 21% to 25% year on year growth. And what really gives us confidence about this is a general the general performance of all across all of our games, but in particular, Free Fire. Now Free Fire has done really well, some of the stats which Forrest mentioned earlier in terms of over 200,000,000 registered users globally, we've hit a new peak in terms of daily active user count of 27,000,000 and that compares very favorably to the previous high that we disclosed in terms of the EU count of 16,000,000. And if you look at the App Annie data, it's really come into its own, right, in terms of being the highest grossing game as of late last month, it became the highest grossing game in Indonesia. It was also consistently the highest grossing game for the month of October for Brazil, Mexico and Argentina. And all of this gives confidence about our ability to achieve these numbers on digital entertainment front. Shifting gears a little bit to the e commerce side of things. If we think about how we've managed to bring this up, really we are seeing lots and lots of good momentum in terms of Shopee's numbers. If we think about our performance in particular for the 11, 11, so like on the November 11 itself, we recorded over 11,000,000 orders on that day. And that's an uplift of about 4.5x compared to the same day last year. And if you look in terms of just the overall market, that is actually growing very rapidly. What we've seen from the recently released Google Thermostat Economy report is that they believe that the market size is going to reach over RMB 23,000,000,000 in GMV for this year, which represents more than a doubling of what they believe was the 2017 GMV market size. And that's they predict that's going to accelerate even further to over RMB 100,000,000,000 by 2025. So we're seeing good momentum in terms of our Shopee business. At the same time, we also see a lot of tailwinds in terms of just how quickly the market is growing. Okay, great. Thank you. Thanks. Next question comes from Alicia Yap with Citigroup. Please go ahead. Hi, good morning management. Thanks for taking my questions. Congrats on the solid results. I have two questions. First is that, wanted to follow-up on the Tencent binding letter. Wanted to know, is that mean all Tencent in house developed games that it has global rights that it now can license to you? And then related to games, can you remind us on the transition stage for this, Vietnam telco top up cost issues that we experienced in the past few months? Has that been resolved? Is that also a reasons contributor to potentially accelerate the growth in the Q4? And then second question is on the Shopee business. 3,000,000,000 GMV in 2018 for the region. 3,000,000,000 GMV in 2018 for the region. So it seems like it could suggest Shopee is actually able to capture return current return rate in those orders? Thank you. All right, great. Thanks for your questions, Alicia. Let me try to take this here first. So first of all, on the Tencent arrangement, broadly speaking, the arrangement focuses on future games in Tencent's portfolio, right. And it includes pretty much accessibility towards the entirety of Tencent's portfolio except for studios where there are certain operational independence as agreed with Tencent. And you can imagine that how this will actually strengthen our game long term game publishing pipeline. Tencent's portfolio obviously some of the world's most popular and engaging titles. What we look forward to very much is we're working together with Tencent in order to bring these high quality games to our region. In terms of the Vietnam situation, if we think about the moratorium that's currently in place, yes, that is still in place. From our understanding, actually, a lot of ministries and agencies are going to be involved in establishing guidelines for this, which is why the entire unwinding of the moratorium is taking a bit longer than originally expected. At the same time, what has happened is that we have taken it upon ourselves to really reengage and reactivate alternative top up channels, and we've seen some movement towards that as well. So all in all, it's pretty much us taking a view that the government has a long term has already indicated that they're going to lift the ban, but it's taking a bit longer than expected. Shifting gears to e commerce, you're right that the domestic survey did point out that they expect GMV for the region to hit 23,000,000,000 And you can read from in from our numbers in terms of our growth of our GMV performance as well as our GMV projections for the year, what our implied market share is. And I think that the range that you mentioned is probably somewhere in the correct vicinity. And then finally, in terms of your question in terms of the return rates, actually the return rates, particularly for Shopee has been very, very low. And the reason for that is because a lot of the questions upfront with regards to the product and the procedures involved have been resolved through chat that we make available onto the platform. So as a whole, we would say that our return rates are actually very, very, very strong. Okay. Thank you. Next question comes from Mike Olson with Piper Jaffray. Please go ahead. All right. Thanks and good morning. Just a couple of questions. Number 1, what will be the focus monetization tactics for Shopee in the coming quarters? Will it be primarily charging a take rate on new countries where there's minimal or no take rate currently charged? Or will it be an increase in value added services or an increase in advertising or something else? I'm just wondering what will be kind of I know you're doing all those things, but wondering what kind of the biggest focus will be? And then second, do you believe Shopee and Garena are businesses that need to be tied together over the long term or would it potentially make sense to split Shopee or Garena out as a separate entity? Thank you. Great. Thanks for your question. So let me just walk through the various monetization streams in the market. So first of all, we have commissions, right? And as you know, we've actually rolled out commissions to sellers in Taiwan as well as on all cross border sellers. We do charge commissions via the Shopee Mall as well in Taiwan. The 2nd lever that we look at is advertising and in terms of advertising, we've rolled that out to all the markets as well. And then finally, in terms of value added services, we do we have rolled that out across the markets. So if we think about the current composition, we actually don't provide much guidance around that. But you can imagine that in terms of value added services for the time being, we are actually filling a very important gap in the market where sellers are unable to actually access these kind of services such as virtual warehousing and these kind of seller services from anywhere else except for Shopee. And for that reason, it would not be surprising to think that BAS constitutes a larger proportion of the revenue stream at this point in time for the marketplace. But having said that, in the longer term, we do think that perhaps commissions will be a bit more pronounced versus as in logistics and VAS. So that's on your first second question in terms of the Shopee Carina dynamic, actually they do enjoy a good amount of synergies existing under the C umbrella. We really view it as a single business. And the 2 the e commerce and digital entertainment businesses, although they flourish in their own right in terms of having going after very distinct opportunities, at the same time, they do have benefits in terms of being under design umbrella. Thank you. And our next question comes from Andrew Orchard with Nomura. Please go ahead. Hi, good morning everyone. So question on the monetization specifically on Free Fire. Any specific metrics that can give us in terms of paying ratios of Free Fire or the ARPU of Free Fire relative to the broader game portfolio? Also given that Free Fire seems to be growing faster than the overall business, is there any color that you can give us into your margin profile for the gaming in 4Q 2018? Thanks. Hey, Andrew. So yes, sure. So happy to elaborate on Free Fire. If we look at the way in which we've really approached the monetization in terms of Free Fire. Whenever we launch a new game, our key priority is to make sure that many people, if possible, are playing So there's a lot of a mobilization phase and then we start looking at monetization a bit more deeply. We're very much at the early stage in terms of monetizing gamers on Free Fire. As a result of that, we've seen some good initial success, but at the same time, as you can see coming out from the data in terms of just the number of users and the growth that we've seen in Free Fire, the amount of paying users as a percentage of that is still in its early stages. So we think that there's opportunity to deepen that both from an ARPU perspective as well as in terms of the number of end users. How that blends into the mix is that obviously you're going to see a bit of a flatblending downwards of the overall ARPU. But overall, Free Fire, just in terms of the momentum that is seen, we have disclosed that approximately 22% of our adjusted revenue for digital entertainment was generated by our self developed game and approximately 13% was derived from outside of the 7 core markets in our region. That kind of gives you a sense beyond the app and the data that we shared about the tremendous monetization potential that we have experienced with Free Fire and that all lends us confidence about its future prospects as well. And our next question comes from Varun Ahuja with Credit Suisse. Please go ahead. Yes. Hi. Good morning, management. Thanks for the opportunity. So firstly, if you look at, as you mentioned, 22% of your revenue in this quarter came from self developed games. So that means your remaining games are witnessing a decline. Is it fair enough to say that the other games has eased a stage of maturity or primarily AOV and it seems like LOL is on a decline. So can you potentially comment more on the games, how they're performing? Number 2nd is a little bit more clarity on the future game pipeline, which you can share how many games are you looking to launch and how has the FIFA 3 progression been because it was talked about as one of the drivers of games for this year, but it doesn't look like it has done much in this year despite being a FIFA year. So that's number 2. Number 3 on gaming, if you can provide a little bit color how much is now mobile games as a percentage of total gaming revenue? On the e commerce side, your losses, obviously, as you're gaining a lot more, GMV is kind of is increasing every quarter and quarter. So is there anything that you can share? How do you should we think about the EBITDA losses? Is there any time frame where we should expect the losses to start narrowing down? Any color on EBITDA for e commerce business will be really helpful. And lastly, if you can provide a little bit more color on, as you mentioned, the Indonesia orders. So how should we look at the order per value? Is it AOV? Is it in similar range? What we can see across the market? Is it pretty lower than that? Thank you. All right. Thanks for your question, Varun. Let me take it from the top. So in terms of overall games business, right, so what we do is we actually manage the games business on the overall basis, both PC as well as mobile, right. And yes, we're seeing a good take up in terms of just the mobile game experience for individuals in Southeast Asia. And we've managed to see some opportunity, largely through Free Fire. Now in terms of AOV specifically, we actually continue to observe good strong user traction for AOV in the Q3. At the same time, we actually believe that it's still reasonably young in terms of its monetization life cycle. It's still one of the top mobile mobile games, so massively online battle arena games in many of our key markets. And across the world, we can see that AOB and these types of genres are actually gaining momentum in the Esports scene. For example, the AOB World Championships held in Los Angeles attracted over 33,000,000 online views across all the streaming platforms in our markets. And the final was held actually in the end of July. So very, very good momentum from AOV and other titles in our stable. Your next question is on the game pipeline. So we don't disclose our game pipeline for competitive reasons. But as you can imagine, with the deepening partnership with Tencent, actually, we're going to be able to enjoy the fruits of that deeper, greater partnership with Tencent moving forward. In terms of FIFA Online 3 to FIFA Online 4, yes, the transition is actually underway. So what happened is that we have already launched PROFOL online 4 in both Vietnam as well as Thailand. And we have plans to do to actually launch PROFOL online 4 in other markets in the quarters ahead. What you can see is that we're actually running in parallel. So it's not unusual to see FIFA Online 3 and FIFA Online 4 available in certain markets. We're actually doing this migration quite gradually. And then eventually, we intend to actually migrate a good portion of those over to People Online 4. In terms of shifting over to e commerce, you're quite right that our GMV the EBITDA. So there's really 2 parts of this, right? On one hand, the EBITDA. So there's really 2 parts of this, right. On one hand, we think we can talk about the sales and marketing expense. On the other hand, we can talk about the monetization. So we're very encouraged by ongoing monetization efforts and we're very pleased with the quarter on quarter decline in S and M as a percentage of GMV. If we look at the previous quarter, it was 6.2%, we brought that down to 5.7% as a percentage of GMV for this quarter. And looking ahead, we want to make sure that we can continue to invest to support strong growth of GMV in the Q4. What that means effectively is that, yes, we're going to continue to invest, but we want to make sure that we do it in a very efficient manner. So that's as much guidance as we can probably hear in terms of the monetization and as an angle looking forward. Thanks, Howard. Now I just want to go back again. As I mentioned, if I assume 22% of your revenue came from self developed game, that means the other core revenue is declining. If AOV is doing well, so some of the games are not kind of doing that well. So is it fair enough to say that some of the games are on a declining phase? So that is LOL or stuff PC games? And can you provide a little bit color? Go ahead. Sure. Thanks, Varun. So just as a follow-up to that, we have bear in mind that a bit of our performance on the digital entertainment front was dampened by the Vietnam issue. So insofar that, that has affected it, that's why you're seeing perhaps a bit of a deceleration. If you look at it from a general perspective, but we're looking at our key game titles, it continues to grow from strength to strength. I actually did note down an initial question on your front, which talked about the Indonesia specific in terms of Shopee. If we think about the average order value, it's largely in line with the averages that you can work out, trending perhaps slightly smaller on the smaller side of things and that's really reflective of the composition of types of products that we sell on Shopee, which is primarily long tail, a bit more fashion, cosmetics, home and living focused. Okay. Thank you. Just 2 for me. Can you provide how much is mobile in terms of gaming toward mobile contribution? Any color? Last quarter, you did provide something for the June month. And Vietnam was not included in the Tencent agreement. Is it because of VNG investment that Tencent has? Any color on that? Any commentary on that? Thank you. Sure. So in terms of the mobile as a percentage of overall, we actually don't disclose that on with any sort of regular basis. What we can say is that reading in on all of the information that we shared on Free Fire, it's not surprising that mobile continues to be a very important part of our overall revenue composition. In terms of the Tencent agreement, you're right that Vietnam is not part of the agreement. That doesn't mean that it's completely out of the picture. It just means that any sort of game titles that we want to discuss for the Vietnam market will be discussed on a title by title basis. Okay. Thank you very much. The next question will come from Mark Goodrich with Morgan Stanley. Please go ahead. Hi, guys. Just wanted to have a quick question on regulation. So we've seen a lot of the anti addiction measures going to China. So I just wanted to ask, are you seeing or having any discussions in any of your other markets about any of these potential anti addiction measures coming through? And then second question along with that, are you able to share the percentage of your gamers on your platform that are below the age of 12 years? Great. Thanks for your question. So in terms of your question around gaming addiction, actually our experience has been that most of the governments in our jurisdictions are very supportive of gaming as a sport. They actually really are attracted by the community building aspect of Esports and the legitimate competition that it enables. And so they actually see it as a good way to engage with youth as well as families. So one example that I can call in particular is that the Thai government has moved towards recognizing e sports as an official spot last year. And we're also very excited that League of Legends and AOB were both featured at the 2018 ASEAN Games in Jakarta as demonstration sports. So we obviously continue to work very closely with local regulators to ensure healthy growth of games as well as esports across the markets. To your second question, actually, we don't disclose details with regards to our gamer composition and demographics. So leave it at that. And the next question comes from Conrad Werner with Macquarie. Please go ahead. Hi there. Thanks. I mean most of my questions have already been answered, but maybe just 3 additional ones. Could you just maybe comment, even if it's at a high level on where you're seeing the most competition in the e commerce space in any of your markets and any trends to note of change in the pace of competition in any of the markets? Secondly, just getting back to the question on the cadence of the EBITDA losses going forward. Clearly, it's a good time to be backing your e commerce business as suggested by the increased guidance. It's a great opportunity. But I'm just looking at the balance sheet and I'm wondering if the losses continue, then the equity position on the balance sheet does look like it's going to go negative. Is that something you're comfortable with? Or do you have any plans to keep it positive? And then last question, you talked about one of the strengths on in e commerce being the engagement on Shopee. And do you have any stats that just kind of show how much time people are spending on the Shopee platform through its various engagement, things like the chat, etcetera, like things like that and maybe where that stacks up versus the rest of the market? Great. So Conrad, thanks for your questions. Let me take it from the top. So in terms of the competition that we're seeing high level commentary around e commerce, no surprise that Indonesia continues to be to receive a lot of attention, right, with various players out there with different takes in terms of their strategy. We are actually very confident with the growth that we're seeing in the market, our positioning as a primarily marketplace model focused on long tail categories will lead to the greatest success in e commerce in terms of catering to the consumers on the ground. And just in terms of like what we are seeing as well, we did disclose that we see about 700,000 orders a day in Indonesia specifically. We actually think that that really sends us a lot of confidence in terms of being the leading player in Indonesia. Shifting gears to the EBITDA losses, perhaps Tony will weigh in on this, but what we will say is that at the end of the Q3 of 2018, we still do have a healthy amount of cash and cash equivalents on our balance sheet. And that puts us in a very robust position moving forward. Let me tackle the third question first before, first, Tony, weigh in on your question. In terms of the engagement levels with Shopee, yes, actually, if you do look at some of the 3rd party data providers out there, particularly App Annie, what you will see is that over time and particularly now, if we look at the time spent total time spent in app and total time spent by active user in the shopping category, Shopee is like far ahead, head and shoulders way ahead of everyone else, particularly in Indonesia. And you will see that manifest in the data through time throughout the shopping festivals that we've had as well in addition leading up to the current period. So about the balance sheet, so we have very stringent plans quarter over quarter and our team actually closely follow the operating plans and we have we keep closely monitoring our budget planning and also our balance sheet positions. And the previous round of creditable bonds provide us robust cash flow as of now. So you probably noticed RMB1.2 billion as of the Q3 end. But at the meantime, that doesn't rule out that as previously shared, we're open minded on the opportunities and bearing in mind our operating plans and also our objective of maximizing the shareholder values. Thank you. And this concludes our question and answer session. I would like to turn the call back to Howard Saff for any closing remarks. Great. Thank you very much. I think this concludes our conference call. As always, we remain available and committed to getting any questions that you, the investors and analysts have. I will serve as your first point of contact if I can ever be of service. I look very much to continuing to liaise with you throughout the quarter. I look forward to our next earnings call. Thank you very much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.