Earnings Call: Q4 2017

Feb 28, 2018

Good day, everyone, and welcome to the Sea Limited Fourth Quarter and Full Year 2017 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 that this event is being recorded. I would now like to turn the conference over to Alan Helliwell, Group Chief Strategy Officer. Please go ahead. Good morning and good evening, everyone, and welcome to Sea's 2017 Q4 earnings conference call. I am indeed Alan Hellowell, Sea's Group Chief Strategy Officer. Before we continue, I would like to remind you that we might be making 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. 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 our management team on the call. We have our Chairman and Group Chief Executive Officer, Forrest Lee our Group President, Nick Nash and our Group Chief Financial Officer, Tony Ho. For us, Tony and myself will share strategy and business updates, operating highlights and financial performance for the Q4 of 2017. This will be followed by a Q and A session in which we welcome any questions you have. With that, let's begin with Forrest for our key strategic highlights. Thanks, Alan. Thank you, everyone, for joining today's call. I'm very pleased to share that all three of our businesses saw robust expansion in the Q4 of 2017 on both a quarter on quarter and a year on year basis. As you know, Garena is our most established business and is our largest source of revenue and profit. I'm happy to share that it continued to grow strongly delivering quarterly adjusted revenue of $141,900,000 up 59% year on year. Quarterly adjusted EBITDA more than doubled year on year to $52,600,000 showing very strong growth year on year. The launch of Free Fire, a mobile battle royale game on 4 December 2017 on both the iOS App Store and the Google Play Store was an important milestone for us. We developed Free Fire entirely in house. I'm excited by the success it has had to date, both in the region and beyond. Free Fire was planned and designed for mobile gamer right from the start. Our development team focused on features such as short game length, social elements and the less demanding hardware specs, which are more suitable for users in our region. We were also able to launch the game in many markets quickly to capture a critical mass. The journey has been exciting and we are encouraged by the results. Free Fire has already achieved 6,000,000 daily active users. As we have only started monetizing the game in January, it is still too early to gauge Free Fire's revenue potential, but we are actively exploring user channels of monetization. We will continue to step up our self development capabilities to design games that meet the constantly evolving needs and the preferences of our gamers. Meanwhile, we remain committed to building our partnerships with top class developers so that gamers in our region can enjoy world class game franchise. For example, we partnered with NetEase on the mobile RPG game, or Moi G. We launched it in Thailand last year and Vietnam just a few weeks ago. Let's move on to e commerce. We take a long term view on Shopee and the growth is our top priority for the business. I'm pleased to share that e commerce GMV reached $1,600,000,000 in the Q4 of 2017, an increase of more than 200% year on year and another record quarter for Shopee. In line with our growth and monetization roadmap, we are investing strategically to support big brands as they establish flagship stores on our shopping mall. We are already working with leading brands such as L'Oreal, Xiaomi, Unilever and Wason. These partners work with us largely because we can meet their demanding requirements such as fulfillment support and other value added services. Shopee now leases warehouse in a number of our markets to meet the needs of our sellers. We will continue to evaluate additional services to support sellers as we grow our seller base. I'm confident that we can expand monetization as we grow Shopee's market share. We are also planning to introduce new monetization tools as our relatively scaled growth and when market dynamics make sense. In summary, I'm very proud of the growth that we have achieved in 2017. We look forward to another strong year of growth. Our region is one of the world's fastest growing markets for digital entertainment, e commerce and digital financial services. We are confident that we will continue to build our leadership by constantly innovating to better the day to day lives of consumers and small businesses. Before I hand the call over to Alan, I would like to thank you for your thoughtful suggestions over the past few months, particularly around how we present the business on an ongoing basis. Our Group CFO, Tony Ho, will be updating you on how we have refined our segmental financial disclosure to better facilitate your understanding of our businesses and to measure our progress. But first, over to Alan. Thank you, Forrest. I would like to build on Forrest's remarks with more detailed commentary and business updates. Within digital entertainment, we continue to strengthen our market leading role. Forrest has outlined adjusted revenue and adjusted EBITDA results. Quarterly active users or QAUs grew 74% year on year and 27% quarter on quarter to 87,800,000, largely driven by existing games such as Arena of Valor and the launch of Free Fire. Meanwhile, average revenue per user or ARPU came in at $1.60 compared to $1.80 for the Q4 of 2016 and $2 for the Q3 of 2017. The easing in ARPU was mainly due to rapid user growth around our newly launched games, which resulted in faster QAU growth compared to quarterly paying users or QPUs. We are pleased that QPUs increased to 7 point $2,000,000 in the Q4 of 2017 from $6,500,000 in the previous quarter. Looking ahead, we are excited about the pipeline of titles we have in store through the rest of 2018 and look forward to sharing details in due course. With regard to e commerce, the markets in our region continue to grow strongly. Frost and Sullivan, for instance, just released its latest quarterly e commerce report estimating that 2017 GMV for Southeast Asia and Taiwan grew by 33% year on year to US31.8 billion dollars Shopee had an outstanding quarter with GMV reaching US1.6 billion dollars representing year on year growth of 2 0 6 percent and quarter on quarter growth of 48%. Shopee's gross orders reached $98,300,000 which represents an impressive growth of 2 44% year on year and 49% quarter on quarter, largely driven by the rapidly expanding Indonesian market. On a market by market basis, Indonesia experienced the strongest absolute growth in the Q4, given the more mature Taiwan market continues to display healthy growth rates in both GMV and gross orders. We also see our market share growing steadily in markets such as Thailand and Vietnam. Shopee's sharp growth trajectory is underpinned by a heavy focus on long tail product categories such as fashion and health and beauty, which serve the needs of our female customer base, our marketplace approach maps particularly nicely to the needs of those shoppers situated outside of capital cities, where we believe the fastest GMV growth is occurring. We continue to devote resources to make Shopee the mobile platform of choice for both sellers and buyers. Fostering user engagement is critical to us. A recent YouGov ranking of brand recognition in Indonesia put Shopee among the top 10 well known brands, the only e commerce brand, along with other household names such as Garuda Indonesia and Toyota. In terms of our digital financial services, our GTV grew 3 11% year on year and 129% quarter on quarter to reach US1 $1,000,000,000 in the Q4 of 2017, driven by closer integration with Shopee and expansion of use cases. We continue to focus our efforts on strengthening our infrastructure to support our platforms. With that, I will pass on to Tony to talk more about the financials. Thank you, Alan, and thanks to everyone for joining the call. First, let me highlight some positive changes in this quarter's release. On top of the segmental information we have disclosed in the previous quarters, we have started to disclose both EBITDA and adjusted EBITDA by segment this quarter to help you better understand our profitability. For our digital entertainment business, we have revised our estimation for certain games revenue recognition period by using average paying user life instead of game licensing period. The revision applies to one of our top titles Arena of Valor. The impact of such changes was not significant. We believe that the revised estimations better reflect the economic essence of the respective games more accurately and result in higher quality financial reporting. We have included the detailed quarterly and annual financial schedules together with the corresponding management analysis in today's press release. So rather than taking you through our disclosure line by line, I will focus my comments on some key financial metrics so that we have more time for Q and A later. For Sea overall, our 4th quarter total adjusted revenue was our highest ever at US164.5 million dollars an increase of 73% year on year and 8% quarter on quarter. This was primarily driven by the continued growth of our digital entertainment business and the initial monetization efforts of our e commerce business. Digital Entertainment adjusted revenue was US141.9 million dollars an increase of 59% year on year and 5% quarter on quarter, primarily due to the growth of our QAUs as we launched new games and expanded our existing games into new markets. Adjusted EBITDA was US52.6 million dollars an increase of 2 16% year on year and 17% quarter on quarter. Our initial efforts to monetize Shopee platform are on track. E commerce adjusted revenue was US9.3 million dollars up 62% quarter on quarter from the Q3 of 2017. We've also seen improvements in the efficiency of sales and marketing spend as a percentage of selling and marketing over GMV improved from 9.7% in the Q3 of 2017 to 8.5% in the Q4 of 2017. The percentage for the full year also improved from 11% in 2016 to 8.3% in 2017. Adjusted EBITDA loss widened to US175.4 million dollars as we continued our investment to fully capture the market opportunity in the region. We will stick to our strategy to grow the platform and strengthen our market leadership position, especially in our focus categories. We expect this investment trend to continue in 2018 as both our GMV and gross orders continue to grow. Digital Financial Services revenue was US4.1 million dollars up 140% year on year from US1.7 million dollars in the Q4 of 2016. The increase was primarily attributable to the addition of use cases to our AirP platform and further deepening of our market penetration. Adjusted EBITDA loss was US7.6 million dollars in the Q4 of 2017 compared to a loss of US9.2 million dollars in the same period of 2016. We had a non operating loss of $62,300,000 recognized in the Q4 of 2017. This was primarily due to a fair value loss of $52,000,000 from the fair value accounting treatment for the convertible promissory notes and the interest expenses accrued on those same notes. We also had an income tax expenses of 8,700,000 the Q4 of 2017 primarily due to the corporate income taxes and withholding tax expenses recognized for our digital entertainment business. As a combined result of all the above, our adjusted net loss, which is net loss adjusted to declude share based compensation expenses, was US251.6 million dollars in the Q4 of 2017 as compared to US62 $1,000,000 for the same period 2016. I will conclude with our guidance for this year. We currently expect total adjusted revenue to be between $30,000,000 to US770 $1,000,000 for the full year of 2018, representing year on year growth of 32% to 39%. For our e commerce segment, we currently expect GMV to be between US7.5 billion dollars to US8.0 billion dollars for the full year of 2018, representing year on year growth of 82% to 95%. Thank you, Tony. We'll now open up the call for questions. Thank you. We will now begin the question and answer And our first questioner today will be M. C. Koh with Goldman Sachs. Please go ahead. Hi, good morning, Forrest, Nick and Alan. Congratulations on the good set of results. Couple of questions. Firstly, can you talk a bit about the PC versus mobile adjusted revenue mix? And secondly, in terms of pay ratio, it seems to have declined Q o Q. Is it part I know you talked a bit about it over the first few minutes, but if we can also get a bit more color perhaps by games, is it just Free Fire? Or is it also sort of due to AOV not yet monetizing in certain markets? Thank you. Thanks for the question. And talking about the PC and the mobile, we are pretty excited about the growth opportunity of mobile. And so as you as we have like just reported for a rain of valor, we hit 10,000,000 daily active users in the Q4 2017. At the same time, our self developed game Free Fire also reached 6,000,000 daily active users in our region and beyond our region as well. So we see this is a huge growth opportunity. I think we're going to continually try our best to capture such opportunities. And for your question on the PC side, and currently, so we have several like big titles, right, like League of Legends and FIFA Online 3. And for like looking at 2018, we do have several high expected like PC game to be launched as well. I think I'm not going to just comment specific on any games in our future pipeline, but we remain very confident about the growth of both PC and mobile games in our region. I'm sorry. MC, you had a second question about conversion rate. Is that correct? That's correct, Tyler. Yes. Do you mind indulging us and repeating it one more time? Yes. So in terms of the quarterly pay ratio, it appears to have declined, but that's Q o Q. So just wondering if you can get a bit more color on why that's the case, perhaps if you could attribute it to specific games. I mean, as far as you can disclose, is it mainly because Free Fire came on and that sort of make the active users base increase a lot but not yet to pay users? Or is it also that AOV has not yet started monetizing in certain regions and that's why their ratio has fallen? Okay. Yes. I think actually like the yes, as you just like mentioned, okay, so it's mainly due to the huge increase in terms of the user base of Free Fire. And we launched the game just in December, but it took off very, very well. And we only like start to monetize the game at the from the beginning of like this year, so starting in January. So in a way also like even in terms of the monetization, we still just go very moderate approach. So that's why you see a big surge in terms of our active user base. So but now it's really unlike reflecting in like a paying ratio. And but if you look at our absolutely quarterly paying user number, it's increased a lot as well. So like from last quarter to Q3, from 6,500,000 quarterly active user to 7,200,000 quarterly active users in Q4. So even just to look at the paid absolute like paying user base, we think we still see a very robust growth, yes. Okay, great. I'll come back to the queue again. Thank you. And our next questioner today will be Alicia Yap with Citigroup. Please go ahead. Hi, thank you. Good morning, Forrest, Nate, Tony and Alan, thanks for taking the questions and also congrats on the solid results. My first question is regarding your full year guidance. I understand Tony mentioned about some changes on the revenue recognitions for some games in 4Q. And we noticed maybe the reported digital entertainment is actually slightly better. Would that actually the change have any effect into 2018? And how should we translate your guidance of 32% to 39% to this digital entertainment GAAP revenue? And then is this the driver for digital entertainment? Is that mainly driven by the gradual ramp of the monetization of Free Fire and also the AOV? Or is it also will be driven by some of the new games that in the pipeline you're going to be launched? My second question is on the e commerce is that your GMV guidance seems very robust. Can you share with us in terms of the growth rate that you expect for the reported revenues and also expectations on monetization for the major country such as Taiwan, Indonesia and maybe Thailand. Would you where would you expect the GMV growth mainly come from? And then on monetization, where do you expect the main pickup of the growth come from? Would that be the shopping mall commission rate or the performance based advertising in certain market? Thank you. Thanks, Alicia. So I will take the first question first. So for the guidance, we're talking about adjusted revenue, which is more on cash basis. So the change in the GAAP revenue accounting wouldn't affect the cash guidance. And for the driver of the growth, especially on the digital entertainment side, yes, it's a combination of the existing titles also the new titles that are on the road. So we continuously focus on the user and the user stickiness and while we provide better service to the users on our platform. So yes, so that's the answer to your first question. And for the second question on the GMV guidance, well, it's a combination. So for our major markets like Indonesia and Taiwan, of course, we will continue driving our strong growth in the coming year. And beyond that, for the other markets like Thailand, Vietnam, we will also put our focus on it because we have seen good opportunity those were us to fully capture the market potential. So, Alan, you want to comment that? Yes. Maybe I'll add a little there. Alicia, you made reference to Shopee Mall, which is the branded part of our marketplace and we're indeed very excited about that. We in many markets now look to shopping mall for more than 10% of our GMV. And in Taiwan, where we've implemented a universal commission schedule, we have a 5% take rate there. So to the extent that Shopee Mall significantly outstrips Shopee in terms of growth, all things being equal, we're going to see a nice bias or an improvement in the take rate there. With regard to performance based advertising, we don't give particularly specific guidance there. We would just say we've implemented the ad tools across almost all of our markets. The uptake has been very encouraging, and we do feel that, that will become an important component of monetization in the same way some of our predecessors in the region have very, very successfully used ad tools to instill a little more order to these marketplaces. So we're also very enthusiastic about that. Okay, great. Thank you. And our next questioner today will be Mike Olson with Piper Jaffray. Please go ahead. Hey, good morning. Thanks for taking my questions. So I just have 2. At this point, it sounds like Free Fire is relatively immaterial greener revenue as you kind of work to monetize that growing user base. But I guess, please let me know if that's not correct. But what I was wondering is, is there a typical timeframe over which you find that you can successfully monetize a new title like should we begin to see Free Fire becoming more material in Q2 or would it be more in the second half of the year? And then for Shopee, I guess kind of just a follow-up from that last question. In the script, you mentioned some additional ways to monetize and drive higher overall take rate. And you just talked about shopping mall and seller commissions and advertising. Is there more or are there more monetization tools beyond that, that we're not thinking about or that haven't been discussed on the call? Thank you. Okay. Thank you for the question. Let me answer this. I think like for the first question, it's basically on Free Fire. So it's since we launched the game, it's grown very, very well. And we see the enthusiasm like on the game across actually from all over the world across a lot of like our existing market and the new market. The gamer are very enthusiastic about the game and they are very active in the community. So they have been giving us a lot of like suggestions and in terms of the new features of the game and how the direction of the game should be. So like to be very honest, like our entire like development team is at this moment is they are working day and night even like during the Chinese New Year. So they work pretty hard and to fulfill the expectation of the gamers from the product features, from the continually enhance the graphic quality of the game, right? So to be honest, at this moment, even just to look at our like our own focus, we would rather to just continually make the game itself to make it more like as a premium game and continue to make it more attractive to gamers. And we still see the growth of the user base is very fast and we are very excited about it. And we want to capture this opportunity and to try to build up the user base as big as possible. So at this moment, we start to explore the like all the different type of the monetizations of the game. But in terms of like when we start to really focus on monetization, I would say it could be in the next quarter and it could be in 6 months. I don't have a very specific answer. It really depends on how the user base grows and how the response of the gamer community. But in general, I'm very confident. I seldom see a game with a very popular with a huge user base like user base, but have no have a very kind of like a disappointing way to monetize the game. And the unit is not the case. I think like still for most of the games, the user base is critical. It's nice to have a really loyal gamers to play the games and there is always a way to figure out the monetizations later. So at that part, I'm pretty confident. I will keep update to you in terms of our monetization progress of Free Fire moving forward. And in terms of your second question on Shopee, and at this moment, like still, I think we took a pretty long term view. And we don't we are not very excited just to say, okay, the immediate monetization like or like in terms of like a very like okay, so next 6 months or like the next 6 months, like what is our monetization. We are not focusing on that. And we see this tremendous growth opportunity of e commerce in our region and we want to capture as much as possible the market share at this moment. But we have also seen clear the monetization path and I think from some pioneers of the industry and also see what the best practice is from other regions, right, specifically the performance of base advertising, right, and also the commissions. I think there is one area we see there is a huge potential for us for additional monetization is some value added services. And as our platform grow very fast and the sellers on Shopee, they are growing very fast as well. So recently, I visited just a seller in Indonesia. So at the beginning of 2017, every day, they only have like about 100 daily orders and now they have like 1500 daily orders. So the growth to them is tremendous. So because of this growth, they also need a lot of value added services such as they start to need higher people like to help them manage the to processing all the orders. They need to have a set up start to have set up a small warehouse instead of just to put everything in their house, right? And so all those areas, I think there's a tremendous opportunity to monetize to meet the sellers' demand as they also grow their scale. So this is a potential like a particular area where we are also looking at. I would feel there's a huge opportunity there. All right. Thank you. And the next questioner today will be Scott Debit with Stifel. Please go ahead. Thanks for taking the question. I did have 2. The first one is on Shafi and just in listening to JD's management team talk about their interests and efforts in the region as well, given the sponsorship the company share, I'm just interested in terms of how you think about the complementary nature of Shopee relative to JD and the ability to potentially work together in the region? Or is it just too early in the development of the markets to begin to think about something like that? And then secondly, it'd be great if one of you wouldn't mind just adding a little bit more color on next retirement and kind of the dynamics in terms of how responsibilities are going to be inherited upon his departure and maybe why not stay on the Board when he leaves the company? Thank you. Sure, Thang. This is Alan. I'll take your e commerce question or JD related question. We benefit from a very cordial relationship with Richard Leo and his team at JD. I would say to your question, I think that they're still in an exploratory phase. We know that they've made some investments in markets such as Indonesia, Thailand. They're doing some stuff in Vietnam. We communicate with them regularly. However, I think we're both exceptionally busy trying to determine how we deliver our value proposition to each of these markets. But we fully intend to continue our dialogue with them and we'll see where that goes. With regard to your question about Nick and his retirement, I think we if you don't mind, we'll save that too right after the FAQ wraps up and hopefully we'll gain some comments from both and Nick on that. Great. Thank you. And the next questioner today will be John Blackledge with Cowen. Please go ahead. Great. Thanks. Two questions. So the GMV results were stronger than we expected, driven by kind of bigger upside in gross orders versus what we had estimated. Just wondering if you can provide some insight into the drivers of the strong gross order growth. And in that regard, it looked like Taiwan's growth on a Q over Q basis was a bit slower than the other markets, just any call out there? And then just the last question, if you can just give some color on Shopee's logistics and delivery speed relative to competitors in some of the larger markets, that would be helpful. Thank you. Sure. Yes. I mean, again, in sum, we were extremely pleased with the Q4 performance, frankly, across all of our markets. We, I would say, are still in kind of discovering the relevance of the marketplace model in a lot of our markets. And so I believe that that value proposition has just been taken up much more readily than we would have anticipated. There are elements of what you might call a network effect. The more stores that we bring online and the in turn greater number of customers that they bring pre existing from their social sites or a new fires a level of growth and to your question order intensity that constantly surprise us. You mentioned Taiwan. I mean, it is ultimately, by so many different angles, kind of our most matured market. But even having said that, I think the year on year growth and the quarter on quarter growth are significantly in excess of what we understand to be the underlying market growth rate. So we're actually very pleased with that. And forgive me, can you repeat your second question? Yes, sure. So just talk about Shopee's logistics and delivery speed relative to competitors in some of the bigger markets in Indonesia and Taiwan, etcetera, and relationships with the 3PLs? Thank you. Sure. So a couple items there. First of all, just back to that keyword network effect. By having a number of merchants, which we measure in the millions and then in an individual market such as Indonesia, a number that's already exceeded $1,000,000 we basically, statistically speaking are likely to have a merchant in some kind of approximate area to someone placing an order. And so we've seen this in other markets around Asia, the marketplace player ending up not being particularly deficient in terms of average delivery time because of that principle. Our understanding, having looked at 3rd party research is we tend to deliver in a market like Indonesia within 2 days. And we believe that is the fastest pace of delivery in the market. In markets such as Taiwan, which obviously probably have better infrastructure and are smaller geographically, it's even less than that. But Chris Fung and his team at Shopee, to his great credit from day 1, put huge emphasis on the technological aspects of rolling out an e commerce platform and that really included from day 1 an attempt to back end integrate with the leading 3PLs. This is something you've been able to achieve across all 7 of our markets. And so I think I don't have any updated numbers in terms of delivery time or other kind of quantitative elements. But our understanding is by working with these guys on a daily basis, we're helping them help us in many ways, not just to improve the experience and delivery times, but in more for longer term planning purposes, identifying hotspots of emerging demand and across 1 or several of Indonesia's 34 provinces and getting enabling them to grow their delivery center capacity, their last mile headcount to anticipate and preempt that. So our general efforts are designed at consistently improving the logistics experience. Thank you. And our next questioner will be Andrew Orchard with Nomura. Please go ahead. Hi, good morning guys. Couple of questions on Shopee as well. Firstly, on the sales and marketing spend for e commerce, can you walk us through the Q on Q decline in terms of sales and marketing spend as a percent of GMV? How did you manage to how do you manage to dial it back a little bit? And what are you looking for in terms of sales and marketing in the next quarter and next year going forward? And also you talked about the leasing of warehouses for Shopee Mall. How do you expect this to evolve going forward? And in terms of future expenses, in terms of rental, where are you expecting this to hit towards eventually as a percent of revenue, percent of GMV? And where would you book these costs? Thanks. Sure. This is Alan. I'll take your questions. So you're referring to sales and marketing as a percentage of GMV having declined to 8.5% in the 4th quarter of last year versus 9.7% in the 3rd quarter. I mean, descending from 50,000 feet, we're clearly with every passing day that we grow magnitudes faster than many of our markets. We're moreover enjoying a level of operating leverage that others who may not be growing as fast don't have access to. That said, we're also singularly focused on investing as efficiently as possible in growing that GMV. And as we look into 2018, we are very focused similarly on continuously driving down S and M as a percentage of GMV. That said, we as one of your peers pointed out earlier in the call, we're targeting levels of GMV growth, which remains represents very strong growth, whereas S and M as a percentage of GMV, we're very hopeful will continue to go down. Obviously, in absolute terms, it will grow relatively robustly. I'm not sure if I've answered your question, Andrew. Yes, I think that's good. With regard to some of your second question, just maybe a couple comments on why we're doing what we're doing or even before that the scale of what we're doing. It's actually very, very limited. And the genesis of some of these ancillary services owes to a lot of the larger brands that we've begun to court and Forrest mentioned several of them on in his prepared remarks. These brands generally have very high standards and expectations in their partners. And so we may decide here to help co locate some inventory for 1 vendor. We may there offer what you might call supply chain management services. The scale of these efforts is still from a P and L perspective de minimis. It's early days and we believe that we've won the allegiance of a lot of these leading brands through our willingness to accommodate them. We don't have a sense that their demands will grow inordinately nor will the investment devoted to that balloon. But we'll keep you apprised. But right now, it's really it ends up bringing a lot of these brands over the try line. And I would with that comment also emphasize that so many of these brands are looking for one stop shops and affiliating with e commerce platforms in Southeast Asia. And we feel we are one of the very limited number of options that they can go to. And we're really starting to see that advantage blossom with a growing list of multinational leading consumer brands. And our next operator today will be M. C. Koh with Goldman Sachs. Please go ahead. Sure. A couple more questions from me. Firstly, is the in terms of the e commerce revenue increase. It seems like it's mainly coming from Shopee Mall. Can we understand whether the Shopee Mall tick rate is the same across all countries or not? And as you second question is, as you mentioned before, shopping mall is about 10% of GMV or so. Can you give us a sense of what how big this the contribution could be in a more mature stage? Thank you. Yes. So with regard to the shopping mall take rate, just to be very clear, at this point in time, it's only being assessed in Taiwan. So that specific 5% take rate is exclusive to Taiwan. We have 3 categories of take rate, MC, as you will recollect. We have a shopping mall, we've got cross border and then we have the traditional shopping C2C commission schedule. So the first two are now 5%. Cross border for some period of time was 3% and we've upped that to 5% And we do charge that across a number of our markets. The very nice thing, just to pick up one of my responses earlier is that both Shopee Mall and cross border GMV growth rates are significantly in excess of the underlying Shopee C2C growth rate. So again, just as a commission specific comment, we would expect the blended commission rate to continue to grow with time. And again, MC, forgive me, your second question was? Yes. So you mentioned that a Shopee mall is about 10% GMV. Just wondering like in a more mature state, would it be like 20%, 30% you think? I think we're generally a bit reluctant to provide that kind of guidance. I mean, we look around the region. We see a lot of our peers with a nearly fifty-fifty mix between the traditional C2C and the brand oriented platform. That is part of our framework as we think about things longer term. And I would also just once again say that the growth trajectory is such that we already have some markets which are probably closer to 15% of GMV coming from shopping mall. So I would think that the discussion does merit thinking about higher levels of mix going forward. Sure. Thank you very much. And the next questioner today will be Eran Arouha with Credit Suisse. Please go ahead. Yes. Hi, good morning, everyone. Thanks for taking the questions. I've got 3 questions. On e commerce, firstly, I just want to go back to the warehouse thing. I know you mentioned just initial very little investments that you're making. But given Taiwan, this is a more specific to Taiwan particularly because both PC Home and Momo does a lot of warehouse and hosting. And if you're looking to compete aggressively in that market, do you think this component is going to increase meaningfully for Taiwan? Or it's still pretty early days? Are you still watching it? And will given you're trying to grow shopping malls, will you try to do warehouse in other markets besides Taiwan? That's number 1. Secondly, on the e commerce, can you give some color on the kind of EBITDA losses that we may look at in 2018, given the aggressive approach on the GMV front? I know you mentioned that sales and marketing as an absolute amount will grow, but any figure on the that you have in terms of EBITDA losses? Thirdly, on gaming side, given the strong reply to the own game, how should we look at the own game going forward? Is there any particular genre that you're looking at to target in the next couple of years? Is there any mix target in terms of revenue from own game versus leasing? That would be helpful. Thank you. Okay. Thanks for the question. And for the first question the fulfillment about the warehouse, I think like this is aligned with like what we see the value proposition of Shopee even from the day we started this platform. I think like at the beginning like 2, 3 years ago, we started Shopee because we realized there's a huge opportunity to resolving the pinpoint of a lot of sellers on social platform. And I want to like do the businesses through the mobile platforms. As of back then, there was no such a great platform to fulfill the needs of the sellers, specifically focused on like social and mobile. So that's how we get Shopee started. I think as I just mentioned to you when I answered the earlier question, so like when the whole platform grows, our seller business is growing at a very faster rate as well. So and we see there is a tremendous like increasing need and for sellers, especially smaller sellers. When they grow their business, they need a lot of support and to do a business better. I think this is to help them to on those need is highly aligned with our interest because by the end of the day, if all the sellers on our platform grow very well and the whole platform, Shopee platform will grow very well. So we continually communicate with the sellers, identify their needs. But at the same time, like we will see so we will think about what is the priority, what is the most demanding requirement at this moment. And then we will say like we think our capability like at a certain extent, we're going to help them. I think like this is warehousing is one of them. And they do, as I mentioned, a lot of sellers initially, they start just from their house. They put everything in their house. But like moving forward, they do need a warehouse and also they need to increase the efficiency of their delivery. So that's the angle when we look at this space. But at the same time, we are very cautious on the in terms of the investment and in terms of the spending. So at this moment, it's still very, very small and it's like most of the like almost all I think all the warehouse like we have is by leasing, right? And so we're not going to put tremendous capital commitment on that part. I think I will leave Alan to answer your second question. And I will jump into the third question first. And regarding your like our prospect of the in terms of like our game pipeline, definitely, I think like game development, self development capabilities is very, very critical for us. And so we have that ambition to be like a world class, like premium, like a game developer rather than just being a game operator. So that's the thing that this effort has been started like back now 4 years ago. Like in 2013, we started to set up the studios in Shanghai. So today, we have like about 200 top tier game designers in that studio. And the Free Fire is just a great example. I think it will take time to reach today's level so we can develop the game well accepted by the world like the gamer community. So it's very encouraging. I think like it's also proved like after a couple of years accumulation of knowledge and know how and we start to on the right track and we start to get the know how in terms of the key factors and key things of the game development. And we feel very encouraged and we're continually strengthening these capabilities. Potentially, we may continually like adding the top tier game developers in our studio. And if we see a good opportunity like appears, we may set up like new studios, right, to tap on the talent, right, in different markets. And also like we may also possibly like just invest or acquire some like proven game studios as well to continually strengthen our self development capability. At the same time, I think like we're also very excited about still like working with the top tier game developers from all over the world to make sure to bring their the best games, the hit games to gamers in our region. So in my view, I think this will be a very I think this kind of like a very balanced approach. Initially, like ultimately, I would say, I would feel very happy if the split is above 50p50. Like so probably half of the revenue from our self developed games and half from the games we partnered with like other top tier game developer in the world. And Bruin, sorry, going back to your second question, this is Alan. We unfortunately don't formally furnish EBITDA guidance, but let me share with you a few thoughts that may offer you at least a directional feel. First, an observation about the evolution of the markets. It's very clear in our mind and it becomes clear with every passing day that almost all of our markets are consolidating very quickly and more quickly than we would have anticipated even 6 or 9 months ago. Secondly, as a matter of principle, when given the choice to ease our spend and maintain our share or invest more heavily to expand our share, we've chosen the latter strategy. Reason being, we believe that investment is going to help us achieve dominance in the categories that are so important to us, female long tail categories. That kind of dominance and the ability to be the go to platform for these important and very profitable categories as we've talked about in the past should bring us to higher monetization levels going forward. So really just to conclude at the end of the day, winning a merchant or a customer today in our mind is much better than having to spend more to win them in the future. So I hope that gets you closer. Yes, thanks. Pretty clear. Thanks Forrest. Thanks Evan. And that concludes our question and answer session. I would like to turn the conference back over Forrest Li for any further remarks. Thank you. And thank you for everybody participating in today's earnings call. And before we end the session, I would like to take this opportunity to extend my best wishes to Nick Nash, our Group President. As you may already know, Nick is retiring from our company at the end of this year 2018. So Nick has served as the Seats Group President since December 2014 and in the past 3 years, Nick played a very critical role in this tremendous growth, especially in our IPO in 2017. So I would like to express my sincere appreciation for Nick's distinguished achievements as Group President. Thank you so much, Forrest. Serving as Sea's Group President has been one of the happiest experiences of my professional career, and I'm deeply honored to have had the opportunity to work alongside Forrest and our entire team during a period of extraordinary growth for the company. The end of 2018 is a natural moment for me to retire, both because of the milestones we have reached together as a team and also because of my personal aspirations for the next decades of my life. These past few years have been marked by very special milestones. Our company has executed well, achieving strong leadership positions across each of our three segments in a part of the world with substantial growth potential. With our IPO completed, we're on a stronger financial footing for our next phase of growth. And most important, I have great confidence in our next generation of rising leaders who will step into my responsibilities with skill and dedication. On the personal front, as many of you know, I came from the investing world and spent over a decade with General Atlantic, supporting high growth companies around the world, including Sea, I've always had a lifelong passion for investing and supporting growth companies. After reflecting on what I've learned here at Sea, I want to share the unique experiences I've had to help a new generation of companies here in Asia on their growth journeys. That sharing of learnings from one generation of companies to the next has been a hallmark of what made Silicon Valley so successful, and I look forward to continuing that tradition here in Asia by starting a new private equity fund after I retire dedicated to that mission. Between now and then, I will remain deeply dedicated to Sea's mission and strategic priorities. And post my retirement, I will always remain a close friend Sea over the years to come. I have no doubt that Sea's finest years are ahead of it, and I'm excited for the work we'll be doing in 2018 to make continued progress for our long term goals. Fantastic. Thanks a lot, Nick. Well, this would conclude our conference call. As always, we remain available and committed to getting any questions that you, the investor analysts, have. Look forward to continuing to liaise with you throughout the quarter and look forward to our next earnings call. Thank you very much. And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.