Earnings Call: Q2 2020

Aug 18, 2020

Good morning and good evening. Welcome to the Sea Limited Second Quarter 2020 Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Yanjun Wang. Please go ahead. Thank you, operator. Good evening and good morning, everyone, and welcome to Sea's 20 2nd quarter earnings conference call. I'm Yanjun Long Steve's Group Chief Corporate Officer. Before we continue, I would like to remind you that we may make forward looking statements, which are inherently subject to risks and uncertainties and may not be realized in the future for various reasons as stated in our press release. Also, this call includes discussions of certain non GAAP financial measures such as adjusted revenues, adjusted EBITDA and net loss excluding share based compensation and changes in fair value of the 2017 convertible notes. We believe these measures can enhance our investors' understanding of the actual cash flow 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 closing GAAP measures, please refer to the section on non GAAP financial measures in our press release. I have here with me the Chairman and Group Chief Executive Officer, Forrest Li and Group Chief Financial Officer, Tony Hoh. Forrest and Tony will share strategy and business update, operating highlights and financial performance for the quarter. This will be followed by a Q and A session in which we will comment questions you have. With that, let me turn the call over to Forrest. Thank you, Yanjun. Hello, everyone, and thank you as always for joining today's call. Over the last few months, our teams have continued to work hard to support local consumers and the small businesses during this challenging time. At every level of the business, our team has strengthened their efforts to help our communities to benefit from the digitalization of the economy. We also focused on contributing to economic recovery across our market through various local initiatives as well as government led efforts. Against this backdrop, I'm pleased to share that Sea is reporting very strong results for the Q2. We also enjoyed accelerating growth across all three of the key pillars of our business. As we noted last quarter, we have been witnessing a profound structural shift to digitalization across our markets. Even as movement restrictions are being loosened or lifted in many markets, we continue to see strong user growth and the deepening of user engagement across our platforms. This is well aligned with our view that the structural shift to digitalization will be long lasting. We further believe that we are very well positioned to capture the accelerated growth opportunities created by the rapid expansion of the digital economy. This is also reflected in our very strong results for the Q2. Let me highlight a few key performance metrics for the quarter. On the group level, I'm particularly pleased to note that we recorded positive adjusted EBITDA of $7,700,000 Our quarterly adjusted revenue grew 93 percent year on year to reach $1,300,000,000 Our gross profit grew by 106% year on year to reach $200,800,000 We believe the strong top line growth and the continued bottom line improvement demonstrate our ability to deploy our capital in a highly effective and efficient manner. It also speaks to the fundamental strength of our business model, which allow us to fund our rapid growth substantially through cash generated from operations. Let me talk about each of our business lines, starting with digital entertainment. Garena had another excellent quarter and achieved several historical highs. We reached more people than ever before with close to 500,000,000 active users around the globe playing the Arena game during the quarter. That represents an increase of 61% year on year. As we rolled out more new content than ever to entertain and engage our users, our paying user ratio improved further to hit 10%. Our quarterly paying user number grew at a very strong rate of 91% year on year to reach 49,900,000. As a result of the strong user and paying user growth, adjusted revenue for the quarter reached $716,200,000 up 62% year on year. Our adjusted EBITDA margin also reached a new record high of 61%. I want to highlight in particular the very strong performance of Free Fire. It continues to set new record in user growth and engagement. Free Fire recently hit a new record high in terms of peak daily active users of more than 100,000,000. According to FME, in the Q2, Free Fire continued to be the top grossing game in both Latin America and Southeast Asia across both iOS and Android. Thanks to Free Fire's enduring global appeal, it also ranked as the 3rd most downloaded game worldwide across iOS and Android in the quarter. A key driver of Free Fire's success is our ability to create captivating content that engage our global user community. For example, we have observed that users enjoy the unique creative scene and the storyline we deploy for each of Free Fire's Elite Pass season. 1 of the most popular Elite Pass concepts of the last few months was Rampage 2 Uprising. This was a reboot of Rampage, one of the best received in game campaigns of last year. For this year's Rampage event, we introduced the new 4 way board strategy mode, which proved very popular with our users. We are excited to see the positive user sentiment around the return of Rampage. We believe that recurring events with new creative content such as these help to build user affinity with our game and sustain long term user engagement. We are also partnering with other global IP holders to create memorable content experiences for our users. For example, in July, we announced a partnership with Netflix for a special in game crossover with its global hit show, Money Heist. For this, we have worked with Netflix to create a Money Heist themed in game takeover, which is expected to be launched in September. Users will be able to enjoy a new game mode inspired by the plot of Money Heist and can purchase virtual skins modeled after the iconic Offbeat in the TV series. To further enhance user engagement, we have successfully migrated our e sports activity online over the last few months. For example, in recent months, we held large scale Esports events in both Asia and Latin America. In June, we held the Free Fire Asia All Stars event featuring both professional players and the popular online influencers from India, Indonesia, Thailand and Vietnam competing across several tournaments. In early August, we hosted an online esports event in Latin America called Free Fire Geek Bounty featuring the top teams from our pro leagues on the Brazil and Latin America servers. We continue to see strong momentum in user engagement entering to the Q3, even as many of our markets eased their restriction on movement recently. In fact, in July, Garena hit a new record high in monthly adjusted revenue. Wipar also hit a new record in monthly paying users in the same month, which more than doubled year on year. Looking ahead, we remain fully focused on bringing innovative content and enjoyable experiences to our users. We are confident that high quality and highly engaging content will strengthen their engagement and affinity with our game. This will continue to be the key driver of Garena's long term success. Now let's turn to Shopee. We recorded accelerated growth across key metrics and in each of our markets as more consumers and sellers turn to Shopee as their go to shopping and selling destination. Last quarter, we spoke about the rapidly changing needs of consumers and sellers in our region who are embracing e commerce at an unprecedented pace. We also discussed the efforts we were making to quickly adapt and scale up our services to address these evolving needs. Our very strong results for the Q2 further demonstrate the sustained deepening penetration of e commerce and our ability to capture this growth. In the Q2, we recorded accelerated growth in gross order, which increased by 150% year on year to reach RMB615.9 million compared to 111% in the Q1. Moreover, gross orders for Shopee More increased at an even faster pace of more than 2 10% year on year as more and more global and local brands partnered with us to cater to their increasing and evolving demand for online solutions. In Indonesia, our largest market, our year on year growth rate in terms of orders further accelerated. We reported over 250,000,000 orders for the market in the Q2 or a daily average of over 2,800,000 orders, an increase of over 130% year on year. We also saw significantly accelerated year on year growth in GMV, which exceeded $8,000,000,000 This represents a year on year growth rate of 110% compared to 74% in the Q1. According to App Annie, in the 2nd quarter, Shopee continues to rank 1st across Southeast Asia by download, monthly active users and the total time in app on Android. In Indonesia, Shopee extended its leads and once again ranked 1st in the Shopee category by download monthly active users and the total time in app on Androids. In terms of monetization, adjusted revenue grew by 188% year on year to reach $510,600,000 I'm pleased to note that our monetization rates have largely recovered to pre pandemic levels. Adjusted revenue as a percentage of the total GMV increased to 6.4% from 5.1% for the previous quarter. Adjusted marketplace revenue as a percentage of total GMV was 4.7% in the Q2 of 2020 compared to 3.8% in the Q1. Meanwhile, we drove further improvement in operating efficiency even as we significantly scaled up our operations. Adjusted EBITDA loss per order decreased by 51% year on year to 0 point 50 dollars compared to $1.01 for the Q2 of 2019 and $0.50 in the Q1. While we gradually ramped up monetization, we continued to provide strong support to our seller communities most affected by the pandemic through fee relief and other financial and operational assistance. In many of our markets, we have launched or scaled up support program for local SME sellers during the quarter, offering financial and marketing aids to help them reach new audiences. We have also devoted significant efforts to create more opportunities for local entrepreneurs and the small businesses to grow their presence online. In Thailand, for example, we have partnered with the government to develop and enroll off training and support programs targeting farmers. Our program aims to reach 1,500,000 farmers in the coming years to enable them to start and scale their business on shorty. Similarly, in Malaysia, we organized a special online sales festival for durian producers to ensure they could get their food to consumers while fresh. These are all part of our commitment to driving economic recovery in our local communities. In terms of engagement with our consumers, in the Q2, we continued to enhance the highly social user experience that Shopee is known for. Our live streaming feature is growing in popularity, and we are expanding the types of content that we offer to our users. For example, in late June, we partnered with the organizers of K Pop, the most popular festival of K Pop music, to stream their hugely popular annual concert series exclusively on Shopee. At the same time, we are expanding our ability to support the needs of sellers and the brands across the region. In July, we partnered with Google to launch a new service called Google Ads with Shopee. This integration enables brands on Shopee to create Google Shopping ads directly in the Shopee brand suite. We also enhanced our in app Shopee feed with a new feature called Shopee Stories. This allows brands and sellers to create and share short form video content with their followers on Shopee Feed. In summary, the very strong results for the Q2 are underpinned by 2 key drivers. First, e commerce penetration continues to deepen across market and the demographics. This momentum continues into the Q3 even as most of our markets have emerged from lockdowns. 2nd, with our strong market leadership and our ability to adapt quickly and effectively, Shopee is capturing and we believe will continue to capture an outsized proportion of the growth opportunity. With that in mind, we will continue to focus on investing with efficiency in the long term growth of Shopee to further strengthen our market leadership. We continue to firmly believe that this will lead to much greater returns over the long run. Finally, our digital financial services business, SeeMoney, also enjoyed further accelerated growth in the Q2. Accelerating digitalization is driving increased need for quick and convenient online and contactless payment options as well as other digital financial services. We further believe that SeaMoney is in an ideal position to capture a significant proportion of that growth opportunity. SIMONI's focus continues to be leveraging on this strategic leadership position in some of the largest use cases for digital payment in e commerce and digital entertainment. We believe its impressive growth in the 2nd quarter underlines the strength of this strategy. Our mobile wallet total payment volume increased to more than $1,600,000,000 for the 2nd quarter compared to more than $1,000,000,000 in the 1st quarter. Quarterly paying users for our mobile wallet services grew by about 50% quarter on quarter to more than 15,000,000. In particular, we are encouraged to see more Shopee users embracing the ease and the convenience of our mobile wallet. In the month of July in Indonesia, our mobile wallet services were used to pay for more than 45% of gross orders on the Shopee platform. As we scale up the SeaMoney business, we are applying the same rigorous discipline and focus on efficiency that is the hallmark of seed business. Even as we recorded a huge jump in user numbers and the TPV for the quarter, our adjusted EBITDA loss for this segment remains relatively flat quarter on quarter. We see significant growth ahead in the digital payment and the digital financial services segment, driven by the rapid expansion of the digital economy in our region. Our results for the quarter clearly demonstrate that C Money is in a great position to address the needs of user across the region. We will continue to invest efficiently in scaling up the Z Money business to solidify our leadership position across our market. To conclude, we are moving into the second half of twenty twenty firing on all cylinders. Each of our businesses is successfully adapting to capture the immediate growth opportunity in front of us. Each of them is also ideally positioned for the long term with a significant runway ahead. We saw sustained and growing user engagement across our platforms through the Q2 and beyond. And this gives us further confidence that the rapid shift to digital lifestyles is in fact a permanent and irreversible change that will drive significant growth opportunity for Sea over the long run. We are very focused on maximizing this opportunity, and we will continue to invest in products and services that will win the heart and the mind of our users. With that, I will invite Tony to discuss our 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 and Forrest has discussed some of our financial highlights. So I will focus my comments on the other key financial metrics. For Sea, overall, total adjusted revenue grew by 93% year on year to $1,300,000,000 which was mainly driven by the growth of our digital entertainment business, especially our self developed game Free Fire and our continued monetization efforts in our e commerce business in the past quarters. The 62% year on year growth in digital entertainment adjusted revenue to $716,200,000 was primarily driven by the increase of our active user base and deepened paying user penetration and in particular, the continued success of our self developing Free Fire. Digital Entertainment adjusted EBITDA was $436,200,000 an increase of 65% year on year, mainly due to strong top line growth and our self developed game accounting for an increased share of revenue. Our e commerce adjusted revenue of $510,600,000 included adjusted market price revenue of $378,700,000 up 175 percent year on year and adjusted product revenue of $131,900,000 up 2 33 percent year on year. The strong results demonstrated the deepening penetration of e commerce our ability to capture these accelerated growth opportunities created by the rapid expansion of the digital economy. E commerce adjusted EBITDA loss was $305,500,000 as we continue our investment to fully capture the market opportunity in the region. We will continue to invest prudently and drive high quality growth by serving the users' needs better in the long run. Digital Financial Services adjusted revenue was $11,900,000 an increase of 3 28 percent year on year from $2,800,000 in the Q2 of 2019. Adjusted EBITDA loss was $110,100,000 in the Q2 of 2020 compared to a loss of $18,100,000 in the same period of 2019. This was primarily due to our continued efforts to deepen the integration of our mobile wallet services with our shopping platform across different markets. We have also been expanding the suites of online and offline third party use cases and partnerships. Returning to our consolidated numbers, we recognized a net non operating income of $7,600,000 in the Q2 of 2020 compared to a net non operating loss of $29,200,000 in the Q2 of 2019. Non operating gain in the Q2 of 2020 was primarily due to a gain from the sale of a controlling equity stake and remeasurement of our remaining stake in an operating entity in our other services segment, partially offset by higher interest expenses. The revenue from the entity disposed off contributed to a large portion of the revenue of our other services segments in the past and the entity is no longer consolidated following such disposal. Our non operating loss in the Q2 of 2019 was primarily due to a fair value loss of $31,800,000 arising from the fair value accounting treatment for the 2017 convertible notes. We had a net income tax expense of $27,800,000 in the Q2 of 2020, which was primarily due to withholding tax and corporate income tax recognized in our digital entertainment business. As a result, net loss excluding the share based compensation and changes in fair value of the 2017 convertible notes was $317,700,000 in the Q2 of 2020 as compared to $215,100,000 for the same period in 2019. With that, let me turn the call back to Yanjun. Thank you, Forrest. And Tony, we're now ready to open the call for questions. You. The first question comes from Thomas Chong of Jefferies. Please go ahead. Hi, good evening. Thanks management for taking my questions and congratulations on a very strong set of results. My question is about our annual or our full year outlook. Given the fact that our performance is so strong in the first half, how should we think about the full year online games revenue growth as well as the e commerce revenue growth? And my second question is about our how should the competitive landscape in online shopping, can you comment about any change in terms of the trend that you would anticipate in the second half and next year? Thank you. Thank you, Thomas. In terms of our full year outlook on gaming side, as you can see from our past results, we've seen very strong momentum of growth in terms of active user, paid user and also time spent on games and with the same AR TPU at $14.4 So we continue to see such growth across our different regions in Southeast Asia, Latin America as well as other frontier market where we have a strong footprint in. And that goes through for our active user base as well as pay user base with sustained ARPCU. Therefore, we believe we will continue to benefit from the tailwind in terms of the deepening digitization as well as people looking for entertainment online during the social distancing requirements in the middle of a pandemic. The situation is still evolving. We are continuing to observe. And at this stage, it's hard for us to pinpoint the exact number in terms of full year guidance yet, but we are very confident of our performance. That one is for sure. But in terms of the exact number, we will look to report back later when we have more information. As we mentioned for July, our paying user for Free Fire has doubled again year on year and July also is a historical high in terms of adjusted revenue for our games business. Therefore, the trend still is quite positive and we will continue to observe how it goes. In terms of the e commerce segment, again, we are seeing very strong tailwind as we expand our market leadership in each market we are in in terms of growth in GMV, in order, active user, time spent, frequency, all the metrics we've seen very high growth rates. And this is continuing into the Q3. As you know, in most of our market, the social distancing or strict lockdown has been lifted in the middle of the second quarter. Despite the lifting of such movement restrictions, we continue to see very strong momentum in e commerce adoption. And that is true also for example, in terms of brand moving online, we mentioned we have more than 200 percent year over year growth in orders from our Shopee Mall. And we also see other professional sellers increasing their sales online and increasing move their entire sales onto our platform as we are the go to platform for sellers as well as buyers in our region. And that also goes to the competitive landscape in our markets. I think it's been quite clear from the past performance and that we are fast gaining market share. And while the deepening of penetration is ongoing as the market clear market leader, we've taken a disproportionate share of the market growth. And this is also manifesting our ability to further deepening monetization. During this period of time. As we mentioned before, that we will continue to gradually ramp up monetization over time. And we've been doing this at the same time, we're giving relief to our sellers and helping new sellers onboard our platform, etcetera. So therefore, you can see from the past results that we're gaining market share in terms of both our growth, also our pricing power. Thank you. As a reminder, please limit yourself to 2 questions. The next question comes from Mian Chuangou of Goldman Sachs. Please go ahead. Hi, evening. Congrats on the results. Firstly, on gaming, can management provide some color on Free Fire's contribution to total revenues? And also what is the latest traction in India for Q2 alongside any comments or data points can share around new games such as fantasy world, right, which was launched very recently? And secondly, on e commerce, you talk about GMV growth remaining strong in the quarter. Can you elaborate a little bit more on that? Surely there must be some deceleration in growth as offline is gradually coming back. Is that sort of fair to say? And is it possible to break down the take rate for us in Q2? How much was from value added services, commission, advertising, etcetera? Thank you. Thank you, MC. We did see very strong growth on Free Fire, and I think that the very strong growth at the gaming side overall is largely driven by Free Fire across various markets. We don't see the specific breakdown, but overall, we continue to see Free Fire being the biggest game in our portfolio. In terms of Fantasy Town, it is a casual farming simulation game we recently licensed. This is really as an effort by our game team to expand our portfolio of games into some of the casual genres as well. It's very preliminary, so we don't have too much to share. I think it's always a good sign as we continue to diversify our portfolio. In terms of the Shopee growth, I think if you look at our markets in a market by market analysis, I think as I shared in Q1 before, it really depends on for some markets where it's more affected by social distancing rules or strict lockdown or a longer period of strict lockdown, you see more accelerated growth compared to market that's less affected. So for example, in some of our markets like the Philippines where you see a resurgence of cases and re imposition of stricter lockdown, we even see further accelerated growth going to Q3 compared to Q2. In some other markets, we see sustained high growth that is much higher level compared to sorry, pre Q COVID period. That actually applied to most of our markets. And in markets like Taiwan and Vietnam, where so far there hasn't been many cases or they imposed a very short period and very limited lockdown. The effect has always been more moderated. But even in a market like Taiwan, where there were never a lot of cases and was never a lockdown, This year, we see heightened growth meaningfully heightened growth compared to last year. Again, it speaks to, A, our ability and operational strength, organizational strength in navigating a pandemic situation and capturing the growth that comes with the lockdown and at the same time shows that in markets where it's less affected by lockdown, given our market leadership, we continue to enjoy accelerated growth well ahead of the general market growth rate and capturing further market share. This goes back to the strength of our business model as well. Yes, any comments, please? In terms of Phase III breakout in Q2, I think it's consistent with our past quarters that most of our take rate or adjusted revenue came from the high margin streams of revenue, including commission, handling fees as well as the advertisement. Got it. Thank you. The next question is from Alicia Yap of Citigroup. Please go ahead. Hi, thank you. Good evening, Forrest, Tony, Anjane and management team. Congratulations on the strong set of results and thanks for taking my questions. I have a question on Shopee business. So I wonder if management, if you wanted to highlight 2 to 3 key points that you have learned, right, the most changes in terms of user behavior on the purchasing category frequency or even the merchants' attitude and also the category mix in terms of the GMV contribution this year, right, post COVID versus previously you anticipated in terms of the mix? And then second question, I wanted to ask about the change of the accounting reporting method that you highlight in the press release. So can you elaborate a little bit the reasons for the change? And also the timing, why don't we wait a little bit until the end of the 2020 on the full year results and we have a change? And also is that implying the full year revenue guidance that you previously provide, which is on the adjusted revenue basis that is no longer valid that we should not be referenced to? Thank you. Thank you, Alicia. In terms of the Shopee user behavior, I think we see very strong momentum on all fronts. 1 is active buyer number, active seller number and by frequency and time spent have been increasing. For example, in terms of our by frequency, before we reported more than 4 times and this we're seeing more than 5 times a month on average. In some of the markets like Indonesia, it's getting close to 6 times a month. And this is sustaining into even after the lockdown period. In terms of category mix, we reported before in Q1 that we saw strong surges in terms of hygiene related products as well as home and living product, which is also related to working from home requirements. We continue to see that in large part of Q2. And as that gets a bit back to normal in Q3 with leasing of certain movement restrictions, we start to see fashion to pick up again. So therefore, I think in terms of our category growth, that's been quite strong across the different core categories that we have. In terms of adjusted revenue reporting, the reason we're making this change is that in connection with the ordinary course review by SEC of filers and the report, We received 2 questions from SEC. 1 is relating to the MD and A discussion of the annual report to add a little bit more color on operating cash flow differences and which we have provided supplemental information to the SEC. And the other one is regarding the reporting of adjusted revenue in our earnings release. We have also, as we mentioned in the earnings release, determined that we will not be reporting adjusted revenue for the gaming segment. Instead, we'll be using bookings, which is again GAAP revenue plus changes in deferred revenue as the operating metric. And going forward, so that shouldn't change the guidance that we gave before for the gaming sector segment. And in terms of e commerce and other segments, we will also not report adjusted revenue. And instead, we'll just be reporting GAAP revenue. For the full year guidance for e commerce, we will continue to provide the sales incentives net off so that you can use that to add back to the GAAP revenue for e commerce segment sorry, for e commerce segment to compare against the full year guidance of adjusted revenue we previously gave. With one round of response to SEC, SEC already feel very satisfied and closed their case. The response letter and the correspondence with the SEC will come out in about a month's time, so we should expect to see it in September. The next question is from Tayo Chaudhry of HSBC. Please go ahead. Yes. Hi. Congratulations to the management questions. Firstly, your adjusted marketplace revenue as a percentage of GMV has increased to 4.7% this quarter. Can you elaborate what drove the increase and the medium term outlook for the same? And secondly, on the logistics, is 3rd party logistics a bottleneck for growth? And what's your long term strategy over here? Is Shopee looking to invest in its own managed logistic fleet? Thank you. Thank you for the questions. In terms of adjusted revenue growth, it's again mainly driven by our commission as well as advertisement and also the product revenue, which are the 3 main components of the marketplace adjusted revenue. In terms of commission also, given the recovery of cross border side as well as the increased demand from shopping mall with more brands joining us, we continue to see positive trends. And we, in fact, also see more users, more sellers using our advertisement programs and fulfill that shopping program to serve their buyers better during this pandemic. And that also helps to drive the growth rate higher state rate higher, sorry. And we will as we mentioned, we'll continue to gradually ramp up monetization over time. In terms of 3PLs, I think given the pandemic situation, so far we've seen very strong performance by our 3PL partners across different markets. They made a huge effort in close collaboration with us to deliver as many packages as possible to our users as shown in the heightened growth of our order volume in Q2 and in drawing into the Q3. And I think this is basically a demonstration of our strength of the relationship with them. And in terms of our operational network with 3 PRs, we continue to work across different top 3 PRs in different markets as well as supplementing the capacity with our own express delivery team. So we will continue to provide good services to our buyers despite the movement restrictions being closed. The next question is from John Blackledge of Cowen. Please go ahead. Great. Thanks. Two questions. First on Shopee, despite the huge accelerating growth this quarter, you still showed negative 17% incremental EBITDA margins, albeit it was much less than the 2Q 'nineteen negative EBITDA incremental margins. Just curious what are the key investments driving the negative leverage? And then on SeaMoney, can you frame the longer term opportunity for the SeaMoney business and the mobile wallet users rose 50% year over year? Just discuss how you're driving the strong user growth? Thank you. Sure. In terms of e commerce, we continue to invest in its growth. And if you look at our EBITDA loss per order has been fast dropping from $1 a year ago to $0.60 last quarter and $0.50 per order this quarter. Therefore, we think we are gaining efficiency continue to gain efficiency as we invest in the rapid growth of Shopee. At the same time, we see deepening monetization over time. As we always said, we believe the business model very clear and has proven by all major marketplace e commerce players in the world that profitability model for marketplace e commerce is very strong and especially for strong market leader. And therefore, we are investing in the long term growth of this segment to continue to strengthen our market leadership to build deeper competitive growth as well as to maximize our long term profitability down the road. In terms of the C Money, as we mentioned, it's showing very strong growth during this period as well. And we have the largest online use cases and natural use cases that allow us to not only build their mobile wallet with efficiency, but also to drive other digital financial services across the different markets with strong user affinity, the data and the sophistication of the use case we have. I think this is a very strong synergies between across our 3 core businesses that we are enjoying and therefore, it's driving very fast adoption of SeaMoney Wallet as well as in terms of growth of paying users we're seeing. We will continue to drive the growth of SeaMoney, primarily through our own large and sophisticated use cases that in terms of our long term potential, we think it's definitely very big given that the demand for to show payment and to show financial services is huge in our market given the under banking population and on the penetration of traditional financial services, what we can do, we have a clear ability in doing is use technology to promote the financial services segment to serve more populations in our market, and there is a very natural demand for it. The current pandemic just further accelerated the penetration of the Xuel Financial Services and the mobile wallet for everybody as people all look for alternative ways of paying for things online as well as contactless payment method. The next question is from Ram Jain Sharma of JPMorgan. Please go ahead. Hi, good evening and thank you for the presentation and congratulations on the results. No questions from my side. Firstly, on e commerce, talking about the competitive environment, what we understand is that some of the some of your peers might not be on a strong footing in terms of raising capital or competing in the market. So if you can share your thoughts around potential M and A in this space and how you would approach any potential opportunities? Secondly, you shared a bit about SeaMoney. Maybe you can also compare to other fintech companies, especially offerings from other super apps in the region and how you differ. Just a sense like what is going to drive adoption for SeaMoney over the other apps? And are we going to see extended periods of sales and marketing and losses for SeaMoney? Thank you. Sure. In terms of a competitive landscape, I think we are in a very strong position that, A, we're growing fast and faster quarter on quarter even, and we are also further strengthening our market leadership position. And as we have demonstrated, we are self funding our growth in e commerce. Now if you look at certain other competitors who are both losing money and therefore dependent on external funding for it and losing market share, I can see why it could be very difficult to fundraise. So I think this has put us in an even stronger competitive position. While we're open minded about all possibilities, we'll continue to assess the competitive landscape carefully and focus on strengthening our home operations and serving our sellers and buyers better. I think this is the best focus long term for us in growing our marketplace. And in terms of the digital financial services, seed money, I think what really give us strength or I would say, competitiveness in the sense that we have very large and perhaps the largest online use case, which is e commerce as well as digital entertainment. Especially on the e commerce side, it is not only big, but it's also closest to people's wallet and purchase behavior that allow us to have a right amount of data to build more financial services on top of digital payment. We think that Yiwara is not anymore kind of services. We would like to provide a comprehensive suite of services to our users to offer them more options online. And this is the strength we have in building that. And second, we are able to again self fund our growth in C Money. As you can see, we have been very focused on investment efficiency and scaling with right amount of investment at the right time with the right market condition and maximizing the leverage we have of our own use cases. I think this really set us apart. Super App as a concept, it's a concept people talk about, but I think there are a lot of execution of details. It's not about lumping everything together in one app and just hoping that a user will somehow use all of those. We need to make sure that from a user experience, operational business model perspective, everything makes sense together and can act each other and create synergies across different functionalities. And that's what we are very much focused on. The next question is from Varun Ahuja of Credit Suisse. Please go ahead. Yes. Hi. Thanks for the opportunity and congrats on a good set of numbers. Two questions for me. First, if you can give some color on the sales and marketing spend that you've been doing this quarter in terms of how the qualitative trend has been on shipping subsidies? How much is still on brand promotion and the stationary spending? That will be helpful. Secondly, on digital financial services, if you look at you mentioned that the total payment transaction is JPY 1,600,000,000 which is around 20% of the e commerce GMV for this quarter. And it looks like mostly it is in Indonesia. So if you look at the genesis of payment business, it was pretty much strong in Thailand and Vietnam. So just wanted to understand how the pickup of payment has been because infrastructure wise that was one of the early markets for you to doing well, but looks like Indonesia has kind of taken over. So just wanted to understand how do you how you're looking at this segment. And lastly, if I can sneak in on category mix, if you can give more color on how much is grocery now and versus some of the other categories which have been strong at fashion or health and beauty will be helpful. Thank you. Sure. Thank you. In terms of sales and marketing spend for e commerce, discretionary brand spending is already the biggest component for Q2. In fact, we've been increasingly efficient on shipping subsidies. While our buyer continues to enjoy that, it is increasingly being funded by Fushipi and other programs we have with sellers as well as rebate from Fusi. And but we also did take advantage of the airtime during the social lockdown where more users are watching TV or spending time online to do more of a brand marketing. And this is also in line with the Ramadan season in Indonesia and Malaysia. And therefore, you see more of that from the discretionary brand spend. Again, this is highly discretionary and could vary from period to period. In terms of CFS, so I think Indonesia being the 1st country where we rolled it out and in terms of integration with the Shopee platform. And we also have been working on Thailand, Vietnam as well as other markets. We see over time strong adoption in the other markets as well. As you well put, I think that the strategy as well as operational approach needs to be tailored for each market. And as we've demonstrated in terms of our digital e commerce business, this is actually one of our strengths is to hyper localize our operations as well as the design of the product for each market. And we'll continue to do that and we continue to see strong growth contribution from all the other markets as well in addition to Indonesia. In terms of category mix for the quarter, as mentioned earlier, we see stronger demand home and living and hygiene products as well as FMCG products during the quarter, which is probably explained by the social lockdown rule. But at the same time, we saw fashion and health and beauty start to reaccelerate going into the Q3 as many of the lockdown rules have been eased with continued strength in other categories as well. So FMCG still remains a very small part of our category mix. Our main category mix hasn't really changed that much. This concludes our question and answer session. I would like to turn the conference back over to Ms. Yanjing Wang for closing remarks. Thank you, everyone, for joining today's call. We look forward to speaking to you all again next quarter. Please take care. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.