Sea (Minutes): 25-year GMV expected to grow by 20%

The following is the minutes of Sea's Q4 2024 earnings call. For the earnings interpretation, please refer to SEA: Not Falling Behind, but "Little Tencent"

I. Core Financial Information Review

1. Overall Revenue and Profit: Total GAAP revenue in Q4 2024 increased by 37% year-on-year to USD 5 billion, with total GAAP revenue for the year increasing by 29% year-on-year to USD 16.8 billion, mainly driven by the growth in GMV from the e-commerce business and the growth in digital financial services. The total adjusted EBITDA for Q4 was USD 591 million, compared to USD 127 million in Q4 2023; the total adjusted EBITDA for the year was USD 2 billion, compared to USD 1.2 billion for the full year of 2023.

2. Financial Data by Business Segment:

E-commerce Financial Data: In Q4 2024, the total number of orders increased by 20% year-on-year to 3 billion, with GMV increasing by 23% year-on-year to USD 28.6 billion; the annual GMV exceeded USD 100 billion.

In Q4 2024, GAAP revenue was USD 3.7 billion, which includes GAAP marketplace revenue of USD 3.2 billion (up 41% year-on-year) and GAAP product revenue of USD 5 million; the annual GAAP revenue was USD 12.4 billion, which includes GAAP marketplace revenue of USD 10.9 billion (up 38% year-on-year) and product revenue of USD 1.6 billion. The adjusted EBITDA for Q4 2024 was USD 152 million, while the adjusted EBITDA loss for the same period in 2023 was USD 225 million; the adjusted EBITDA for the full year of 2024 was USD 15.6 billion, while the adjusted EBITDA loss for the full year of 2023 was USD 214 million.

Digital Financial Services Financial Data: In Q4 2024, GAAP revenue increased by 55% year-on-year to USD 733 million, with annual growth of 35% to USD 2.4 billion. The adjusted EBITDA for Q4 2024 increased by 42% year-on-year to USD 211 million, with annual growth of 29% to USD 712 million. As of the end of December 2024, the principal balance of loans to consumers and small and medium-sized enterprises reached USD 5.1 billion, a year-on-year increase of 64%, including USD 4.2 billion in on-book loans and USD 90 million in off-book loan principal balance; loans overdue by more than 90 days accounted for 1.2% of total loans.

Digital Entertainment Financial Data: In Q4 2024, bookings were USD 543 million, a year-on-year increase of 19%; for the full year, bookings were USD 2.1 billion, also a year-on-year increase of 19%. GAAP revenue for Q4 2024 was USD 519 million, and for the full year, it was USD 1.9 billion. The adjusted EBITDA for Q4 2024 was USD 290 million, and for the full year, it was USD 1.2 billion3. Performance Guidance

The e-commerce business is expected to achieve a year-on-year GMV growth of 20% for the full year of 2025, while profit margins continue to improve; the financial business is expected to significantly outperform GMV growth in terms of loan balance growth in 2025; for the gaming segment, it is expected that both the number of users and revenue will grow double digits year-on-year in 2025.

II. Detailed Content of the Earnings Call

2.1 Key Information from Executives

1. Overview of Company Performance:

Business Growth and Profitability: In 2024, all three major businesses of the company returned to strong double-digit growth, exceeding the original guidance expectations, marking the second consecutive year of achieving annual positive profits, with all three businesses recording positive adjusted EBITDA. The company expects each business to maintain profitability and self-sufficiency in the future, and these strong performances validate the correctness of the company's strategy.

Business Scale and Influence: Garena brings joy to over 100 million global gamers every day; Shopee is the e-commerce market leader in seven Asian markets, and its business scale in Brazil is also continuously expanding, with the total e-commerce GMV exceeding USD 100 billion for the first time in 2024; SeaMoney's loan book exceeds USD 5 billion, with over 26 million active borrowers, making it one of the largest consumer loan businesses in Southeast Asia.

2. E-commerce Business (Shopee)

Performance: 2024 marks the tenth anniversary of Shopee, achieving outstanding performance. GMV exceeded USD 100 billion, with order volume exceeding 10 billion, and for the first time, achieved positive adjusted EBITDA for the full year. GMV grew by 28% year-on-year, achieving profitability in both Asia and Brazil. In 2024, the monetization level was significantly improved by increasing commission and advertising rates, with advertising revenue in the fourth quarter growing by over 50% year-on-year, and advertising rates increasing by over 50 basis points compared to the same period last year.

Operational Strategy and Advantages: The company focuses on enhancing price competitiveness, improving customer service quality, and strengthening the content ecosystem. End-to-end integration with logistics partners is a key differentiating factor in enhancing shopping service quality. SPXExpress, with its geographical coverage, fast delivery speed, and cost advantages, has helped achieve significant efficiency improvements, with nearly half of SPX express orders in Asia delivered within 2 days of ordering in the first quarter, and logistics costs per order in the fourth quarter reduced by USD 0.05 year-on-year.

AI Applications and Service Enhancements: Continuously adopting AI to effectively improve service quality, using large language models to make search and discovery more accurate, and providing AI tools to sellers to enhance product listings. These initiatives have improved purchase conversion rates and encouraged sellers to increase advertising spending, driving advertising revenue growth. After upgrading the AI chatbot, customer service satisfaction scores significantly improved, with customer service costs per case reduced by nearly 30% year-on-year. The capabilities of large language models were also utilized to optimize the buyer return and refund process, with resolution times in the Asian market shortened by over 40% year-on-year in the first quarter, and nearly 60% of cases resolved within one day.

Content Ecosystem Development: The content ecosystem has become an important part of the e-commerce ecosystem. In Southeast Asia, live streaming currently contributes approximately 15% of Shopee's total order volume for physical goods, with the average daily unique hosts and viewers in the first quarter growing strongly by over 40% and 30% year-on-year, respectivelyIn Indonesia, it maintained its leading position as the largest live e-commerce platform throughout the year, with the unit economic benefits of the live streaming business continuously improving, which helps enhance Shopee's overall profitability by 2025. The collaboration with YouTube has made positive progress; in Indonesia, since the partnership launched last September, the average daily order volume attributed to YouTube content has increased more than sixfold this January, and promising results have also been achieved in Thailand and Vietnam. The company looks forward to expanding this collaboration to more markets this year.

Performance in the Brazilian Market: In the Brazilian market, both market share and profitability have shown strong performance. The average monthly active buyers in the fourth quarter increased by over 40% year-on-year, far exceeding the industry average. By introducing more brands, diversifying product categories, and improving delivery speed, more users have been attracted, resulting in a higher average order value, achieving positive adjusted EBITDA for two consecutive quarters. The company is optimistic about Shopee's growth potential in Brazil, expecting a GMV growth of about 20% for the full year of 2025, with profitability continuously improving.

3. Digital Financial Services Business

Business Scale and Growth: This business has become a substantial and profitable segment, making significant contributions to the company's overall growth and profitability. Revenue is expected to reach $2.4 billion in 2024, with adjusted EBITDA exceeding $700 million, and both revenue and profit are projected to grow by over 30% year-on-year.

Risk Management and Credit Business: Risk management is the primary operational focus of this business. Currently, it offers consumer and SME credit, digital payments, digital banking, and insurtech products. Credit-related businesses are the main revenue drivers, with the loan book in the first quarter growing by over 60% year-on-year, exceeding $5 billion by the end of 2024, making it one of the largest consumer loan businesses in Southeast Asia. In the fourth quarter, approximately 5 million first-time borrowers were added, with active users increasing by 50% year-on-year, reaching over 26 million. Despite strong business growth, risk exposure remains stable, with a 90-day non-performing loan rate of 1.2% in the first quarter.

Credit Business Strategy and Development Potential: The credit business strategy focuses on achieving sustainable and healthy growth based on a deep understanding of risk, operating only in existing e-commerce markets to thoroughly assess and manage risks. The credit business is based on two pillars: Shopee's PayLater loans and non-Shopee cash and other loans. In the Asian market, non-Shopee loans account for about half of the loan book. Due to the low credit card penetration in most markets, the S-PayLater product effectively acts as a virtual credit card, meeting the credit needs of a large number of underserved users. With the increase in digital applications, the company believes there is significant potential to tap into more non-Shopee consumption scenarios. It is expected that the growth rate of the loan book size will significantly outpace the year-on-year GMV growth rate, enhancing credit penetration both within and outside Shopee.

4. Digital Entertainment Business (Garena)

Business Recovery and Growth: In 2024, Garena achieved significant recovery. Its game FreeFire, after facing headwinds during the pandemic in 2022 and 2023, saw a 34% year-on-year increase in bookings in 2024, and is expected to continue growing in 2025In 2024, FreeFire is the largest mobile game in the world based on average daily active users (DAU) and is also the most downloaded game according to SensorTower statistics. Despite its large scale, DAU is expected to grow by 28% year-on-year in 2024, exceeding 100 million.

User Expansion and Market Strategy: By prioritizing accessibility to expand its user base, FreeFire ensures that it is lightweight enough to run smoothly on various devices, giving it a competitive advantage in high-growth emerging markets with significant potential. In addition to expanding its operations in Asia and the Americas, Africa has become one of the fastest-growing regions for FreeFire; for example, after improving connection speeds for players in Nigeria, the number of active users in December increased by 90% year-on-year.

Enhancing User Engagement: User engagement is driven by frequent content updates, high-profile collaborations, and immersive experiences that connect the game with the real world. Events such as the seventh anniversary celebration, collaborations with other brands, and the upcoming IP collaboration with "Naruto" in 2025 have received positive responses from users, providing a strong start for the game.

Localized Operations and Social Influence: Although FreeFire operates in over 150 markets as a global game, local teams work hard to incorporate local trends and elements into the game, giving it a highly localized feel for players everywhere and enhancing their sense of belonging. Additionally, FreeFire has a strong influence on social media, with over 1 trillion views on major platforms like TikTok and YouTube. Its flagship annual esports event, the FreeFire World Championship, returned to Brazil last November, attracting significant attention, with viewing time increasing by 43% year-on-year, thanks to collaborations with content creators and game streamers. The company expects Garena's user base and bookings to achieve double-digit year-on-year growth in 2025.

2.2 Q&A

Q: What are the potential assumptions behind the 20% growth guidance for total merchandise value (GMV) in the e-commerce business in 2025, including aspects such as competitive landscape, marketing spending, and service quality investment? Has this figure taken into account foreign exchange (FX) impacts? How will profitability change in future quarters?

A: In 2025, Shopee's GMV is expected to grow by approximately 20%, assuming foreign exchange rates remain similar to current levels; no foreign exchange predictions are currently being made, and any significant fluctuations will be assessed as needed. Growth is driven by an increase in user numbers and purchase frequency, executing key operational priority strategies. Growth is expected to be strong in the Asian and Brazilian markets, with Brazil, as a newer market, potentially growing slightly faster than the Asian market. In terms of profitability trends, profitability in 2025 is expected to be better than in 2024, but the e-commerce business has certain seasonality, which may lead to fluctuations.

Q: What are the driving factors behind the strong performance of the fintech business, particularly in terms of country mix and product mix? Why is the growth of the loan business significantly faster than that of the e-commerce business?A: In terms of fintech business, the loan balance of Shopee Pay Later and overseas business has grown very well. In terms of country mix, the loan balance first started to grow from countries like Indonesia and the Philippines, with other countries contributing subsequently. Therefore, in the coming quarters, we may see new entering countries growing slightly faster than mature markets. Regarding the profitability of the loan business, due to changes in the country mix and as we expand towards a higher quality user base, there may be some impact on asset return rates and internal rates of return. But overall, we believe that the absolute EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) will see good growth in 2025. The growth rate of the loan business significantly exceeds that of shopping GMV, and I think part of the reason is that we expect Shopee's market penetration in mature countries like Indonesia and the Philippines will further expand. Meanwhile, the cash loan segment in overseas business will also further expand. All these factors combined lead to a significant growth rate of Shopee's loan balance exceeding that of the shopping business.

Q: What drives the GMV growth of the e-commerce business, and has there been a significant change in consumer behavior?

A: The GMV growth of the e-commerce business is driven by purchase frequency and new users, with neither side holding an absolute dominance. In terms of consumer behavior, there has been no significant change in the current quarter compared to 2021, although there were significant changes during the pandemic. One of Shopee's priorities is to improve service quality, which over time attracts more high-quality buyers to the platform, helping to expand category coverage, not only in Asia but also in Brazil. In Brazil, Shopee is working to reduce delivery costs and improve delivery speed, with significant improvements in delivery speed, which helps serve high-end users and penetrate historically hard-to-enter categories, increasing user retention rates.

Q: What is Garena's performance guidance based on, and how is the growth situation?

A: Garena's performance guidance is mainly based on the existing product portfolio, including the self-developed game "Free Fire" and the distribution product portfolio in collaboration with third-party game developers. The current guidance considers less the new games planned for release this year, focusing mainly on existing games. "Free Fire" plays a very important role in the entire product portfolio, with its growth covering all markets, including existing and new markets like Nigeria and other African countries. Efforts are being made in these markets, such as setting up local servers to improve connection quality.

In 2024, after experiencing headwinds in the years following the pandemic, players are starting to spend more time playing games, returning to normalcy. Garena is very confident in the market operation of "Free Fire" over the past few years, focusing on market feedback for the product and the inclusivity of the game, ensuring it not only provides an excellent gaming experience but also attracts more players. "Free Fire" will also capture global and local trends and hotspots to integrate into the game, making it a social phenomenon that continuously attracts new users and maintains the engagement of existing players. There has been good growth in 2024, and the growth momentum continues into the first quarter of 2025Q: What is the profitability situation in the Brazilian market, what are the profit guidance for 2025, and how is the latest average order value (AOV) and growth of the fintech business?

A: In the fourth quarter of 2024, both the Asian and Brazilian markets achieved profitability. The average order value in the Brazilian market has increased, partly due to improvements in delivery quality and speed, as well as the expansion of new categories. The fintech business is growing well in Brazil, with Shopee customizing products suitable for the Brazilian market, sharing the same limit pool for cash loan users and installment users.

Q: What stage is the fulfillment business in Brazil at, what is its purpose, what impact does it have on profitability, and will fulfillment services be launched in other markets?

A: The fulfillment business in Brazil is at a very early stage, which is a mature model already adopted by some competitors in the market. The purpose of launching fulfillment services is to serve sellers, especially brand sellers from categories where the platform historically has not had a strong advantage, who wish to have services provided by the platform or lack the relevant capabilities themselves. This also helps shorten fulfillment times on the seller side and improve user experience. At least in the short term, this business is not expected to have a significant impact on profitability due to its small scale and the platform not owning a procurement center, adopting a light capital expenditure leasing and operating model. In fact, the platform has been conducting fulfillment services in other regions of Asia for some time, also serving brand sellers. In the foreseeable future, this business is not expected to have a significant impact on capital expenditure or profitability.

Q: What are the trends and profitability in the Brazilian market?

A: Due to the platform's efforts, the average order size in Brazil has increased, partly due to better delivery quality and speed, making people willing to purchase more goods, and partly due to the expansion of new categories. In terms of profitability, both Asia and Brazil achieved profitability in the fourth quarter, with Brazil being able to achieve good growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) in a positive manner. The platform will observe and decide whether to further drive growth, but as for the current profitability situation in Brazil, it has already achieved rapid growth.

Q: How is the development of the fintech business in Brazil?

A: In the past few quarters, the fintech business in Brazil has grown well. A couple of quarters ago, the platform found a stable way to credit rate users in Brazil, which has allowed for a gradual increase in the penetration of S - Pay Later on Shopee each quarter. Additionally, a loan business has been launched in Brazil, with products customized for the Brazilian market, sharing the same limit pool for cash loan users and aspiring users, which is different from the Asian market. In Brazil, the platform has also incorporated more data and used various methods to attract users for S - Pay Later and cash loans. Brazil is expected to become one of the markets with faster growth in overall financial business.

Q: In the Asian region, Shopee Express has a situation where 50% of orders are delivered in less than 2 days. Is there an operational goal or priority for 1-day delivery, and does the improvement in delivery speed lead to a significant increase in order frequency? Can you provide examples of countries with significant differences?A: Shopee has already started offering same-day delivery services in countries such as Indonesia, Thailand, Malaysia, and Vietnam. In Singapore, due to cost structure reasons, same-day delivery is still relatively rare. The overall direction is to improve service quality and increase the share of same-day or next-day delivery as much as possible. This helps to enhance user order frequency and retention rates.

Q: Shopee's core market monetization rate has increased to 8.5%. What is its outlook, and as advertising revenue increases, does the monetization rate trend have seasonality?

A: The commission rate consists of two main parts. One part is the commission, and the other part is the additional service fee rate. We see growth potential in both areas. Over time, the proportion of advertising revenue in the commission rate is increasing, which may become one of the main drivers of growth. For example, during long holiday periods, this does indeed affect the commission rate. However, we believe there is still significant room to increase our advertising commission rate on a quarterly or annual basis. As for seasonality, fluctuations do not have a major impact on the trend, but they do exist. Nevertheless, growth can still be achieved in the advertising segment.

Q: How is the delivery situation for SPX orders, and what are the future plans?

A: About half of SPX orders can be delivered within 2 days, with significant growth in same-day delivery services. However, the same-day delivery situation varies by country; for instance, there is a large-scale standard delivery in the Greater Jakarta area of Indonesia; same-day delivery services have also been launched in Thailand, Malaysia, and Vietnam; in Singapore, due to cost structure issues, same-day delivery is still relatively rare in the market. The overall direction is to enhance service quality and delivery business levels, increasing the proportion of same-day or next-day delivery as much as possible. Users enjoying next-day delivery services have seen an increase in order frequency, and in many markets, reducing delivery costs helps improve user retention rates and order frequency.

Q: What is the company's commission fee rate situation, and what are the future development trends?

A: From the feedback of the ecosystem, the company's commission fee rate remains healthy. The company reviews the commission fee rate monthly, considering factors such as seller profit margins, competitive conditions, and the overall economic situation in the country, which is a dynamic process. The company still believes that there is potential for growth in the commission fee rate over time, although the growth rate may be slow, similar to what was observed last year in terms of commissions.

Q: How is the company's cash reserve usage and deployment planned?

A: Currently, the company's cash situation is strengthening quarter by quarter, which is a good state. Sufficient funds provide more operational space not only financially but also in daily operational execution. The company maintains an open attitude and will consider how to achieve better returns through cash, including dividends and stock buybacks, among other options. At the same time, the company hopes to better serve customers by utilizing financial results, such as continuously improving service quality and efficiency through the use of artificial intelligence. This requires certain funds to deploy and develop AI capabilities, but currently, there is no capital expenditure investment plan like some industry peers. The company will remain prudent. Additionally, historically, the company has focused on organic growth, and now, with an increase in available cash, it is also open to potential acquisition opportunities. The key consideration is how to enhance capabilities in various ways to better serve customersQ: What impact does AI technology have on business?

A: The impact of AI technology on business is mainly reflected in two aspects. On one hand, it promotes business growth. In search and recommendation, using large language models can better understand user queries, making discovery more accurate and helping users find relevant content faster. It can also expand the understanding of queries from a textual and knowledge perspective; by utilizing AI, products can be better understood, generating a richer understanding of products by combining existing images, descriptions, and reviews, thus better matching products with user intent. The platform also has many AI-generated contents, providing sellers with tools to create product images, descriptions, or videos, which is a significant improvement compared to before, greatly enhancing the platform's conversion rate. On the other hand, it saves costs , with about 80% of user inquiries answered by chatbots, which saves a significant amount of operational costs, and also leads to good cost management in e-commerce. For the 20% of inquiries answered by customer service personnel, AI tools help customer service personnel understand the context, enabling faster responses to customers and assisting in managing the number of customer service personnel. Additionally, using AI models can make better judgments on return and refund decisions, which is faster than manual judgments in the past, shortening problem resolution time and reducing the number of customer service personnel needed to handle returns and refunds.

Q: What benefits does AI bring to companies? Does it achieve cost efficiency (saving a significant amount of labor costs) or better monetization?

A: The benefits that AI brings to companies are mainly reflected in two aspects: cost efficiency improvement and better monetization. Through AI technology, companies can more accurately match user needs with advertising content, increasing the click-through rate and conversion rate of advertisements, thereby increasing advertising revenue. At the same time, AI technology can optimize logistics routes and delivery times, improving delivery efficiency and reducing logistics costs. In addition, AI can also reduce manual intervention through intelligent customer service and automatic processing of returns and refunds, lowering operational costs.

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