| Quarter | Q2 FY25 |
|---|---|
| Call date | 2025-08-12 |
| Results reported | 2025-08-12 |
| Length | 61 minutes |
| Speakers | Casey Ong, Investor Relations; Boris Lee, Chairman and Chief Executive Officer |
Results, guidance and Q&A analysis for this call
Operator (Operator)
good morning and good evening to all and welcome to the sea limited second quarter 2025 results conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you'd like to ask a question during this time please press star followed by one on your telephone keypad if you would like to withdraw your question
Casey Ong (Investor Relations)
press star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr. Casey Ong to begin the conference. Please go ahead. Hello, everyone, and welcome to SEIS 2025 Second Quarter Earnings Conference call. I am Casey from SEIS Investor Relations team. On this call, 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 the discussion of certain non-GAAP financial measures such as adjusted EBITDA. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For 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. I have with me CEE's Chairman and Chief Executive Officer, Boris Lee, President, Chris Fung, and Chief Financial Officer, Tony Ho. Our management will share strategy and business updates, operating highlights, and financial performance for the second quarter of 2025.
Boris Lee (Chairman and Chief Executive Officer)
This will be followed by a Q&A session in which we welcome any questions you have. With that, let me turn the call over to Boris. Hello everyone, and thank you for joining today's call. The momentum from our strong start to 2025 has continued into the second quarter. All three of our businesses have delivered robust, healthy growth, giving us greater confidence of delivering another great year. Shopee's GMV grew 25% year-on-year in the first half, and we expect this growth momentum to carry into Q3. Money's long book continues to expand rapidly while maintaining a healthy NPL ratio. And for Garena, we now expect full-year bookings to grow more than 30% year-on-year. Given the high potential of our market and the stage of our business now, we will continue to prioritize growth. We still see huge opportunities in our market to serve many more users and better many more lives with technology. Expanding both our addressable market and capturing more market share will pave the way for us to maximize our long-term profitability. At the same time, our company has reached a stage where we can pursue growth opportunities while improving profitability. By being disciplined and cost-efficient, we have turned all three businesses EBITDA positive since the second half of last year, and we are accumulating cash each quarter as we scale. We remain committed to growing profitably with a strong balance sheet. that enables us to capture future opportunities. With that, let me take you through each business' performance. Starting with e-commerce, Shopee has shown stellar growth performance throughout the first half of this year. After a record-high Q1, we have delivered another record-breaking Q2, with quarter-on-quarter growth in gross order volume, GMV, and revenue. This was driven by a sustained increase in our active buyers and their purchase frequency, reinforcing our leadership across all our markets. We also delivered year-on-year profitability improvements across Asia and Brazil, enabled by our expanding scale and improving cost efficiency. Our monetization improved in the second quarter, largely driven by strong growth in advertising revenue. We have deliberately worked to both drive seller adoption and encourage existing ad paying sellers to use our latest ad tech solutions. Since early last year, our dedicated ad tech team has worked hard to improve algorithms enhance traffic allocation efficiency, and deploy AI technologies to better serve our ad-paying sellers. And we have seen very encouraging results. During the second quarter, the number of sellers using our ad products rose by around 20%. And ad-paying sellers' average quarterly ad spend grew by more than 40% year on year. Our tech enhancements have allowed us to more effectively optimize Shopee's GMV and advertising revenue at the same time. We saw an 8% uplift in Shopee purchase conversion rates and improved our uptake rate by almost 70 basis points this quarter, year on year. Our operational priorities have proven to be a winning formula, and they remain consistent. enhancing price competitiveness, improving service quality, and strengthening our content ecosystem. In the second quarter, we reinforced our price competitive value proposition with the launch of the campaign slogan, Cheaper, Faster at Shopee. It resonated well with buyers. We saw a more than 10% year-on-year uplift in overall purchase frequency during the quarter. and the buyers continued to rank us as the most price-competitive e-commerce platform in Qualtrics survey across Asia and Brazil. On service quality, our logistics capabilities continue to be an important depreciator for us. In the second quarter, we reduced the logistics cost per order and improved delivery speed across Asia and Brazil year-on-year in both urban and rural areas. We continue to roll out new initiatives to address specific customer needs such as instant delivery options in dense urban areas. This lets some buyers receive their orders within as little as four hours of order placement. Our fastest shipping channel yet. We piloted it in Indonesia and it proved so successful that we have now rolled it out to Vietnam and Thailand as well. Another example is intelligent demand forecasting, where we pre-ship commonly ordered products to warehouses closer to where we know buyer demand will likely come from, reducing buyer waiting time when actual orders are placed. Our logistics innovations not only delight our customers by improving the service quality they receive, but they also make us more cost-efficient, letting us pass savings on to buyers. We have also been doing more to enhance buyer loyalty and stickiness. Our Shopping VIP membership program, a paid subscription service giving buyers exclusive benefits, has shown very good momentum in Indonesia. Total GMV from VIP members there grew nearly 50% quarter on quarter, and VIP members bought a monthly average of around 30% more after subscribing. VIP members have also shown a roughly 20% higher retention rate compared to non-members. Building on this success, we have expanded the program to Thailand and Vietnam. At the end of June, total VIP subscribers in this market reached 2 million. We plan to roll out the program to more markets over the rest of the year. Our content ecosystem continues to be a powerful engine of buyer engagement and conversion. Our AI tools empower Shopee sellers to produce high-quality video content. helping them improve user conversion and make more money without having to invest in their own studio setup. In Southeast Asia, orders from live streaming and short-form videos accounted for more than 20% of our total physical goods order volume in the second quarter. Our collaboration with YouTube has also continued its strong momentum. As of June, more than 7 million YouTube videos featured Shopee product links across our Southeast Asian markets, an increase of more than 60% quarter-on-quarter. Moving to Brazil, Shopee has continued to deliver exceptional growth while maintaining its positive adjusted EBITDA. Average monthly active buyers rose by over 30% year-on-year in the second quarter, much faster than the industry average growth rate. Our strong growth in Brazil is built on solid fundamentals, especially logistics improvements and product category expansion. We have brought logistics cost per order down by 16%, while also reducing our average delivery time by more than two days. year on year. In the greater Sao Paulo region, about 1 in 4 Shopee parcels were delivered the next day, and 40% within 2 days, up from single-digit percentages in the same period last year. We added over 100 well-known brands to our platform, especially in higher value product categories. This contributed to steady and healthy increases in buyers' average basket sizes in the second quarter. This combination of improving delivery service while expanding our product selection has allowed us to both serve our existing users more effectively and expand into more user segments, such as urban and more affluent buyers. We will continue to push on this front and keep our strong momentum going in Brazil. This quarter, we celebrated Shopee's five-year anniversary in Brazil, and I'm very proud of what our team has achieved in this relatively short time. We have become the market leader by other volumes, we continue to grow fast, and we are operating profitably. I'm especially happy with the role we have played in promoting digital entrepreneurship to over 8 million Brazilians. 30% of our active sellers see Shopee as their first experience selling online, and more than half of our active sellers say they rely on Shopee as their primary source of income. In summary, Shopee has delivered an exceptional performance in the first half of the year, with 25% GMV growth year-on-year, and we are confident that this growth momentum will carry into Q3. We remain committed to delivering strong, profitable growth while reinforcing our market leadership across Asia and Brazil. Next, moving to digital financial services. Money had another very strong quarter. Both revenue and adjusted EBITDA continued to grow more than 50% year-on-year, and our loan portfolio remained healthy thanks to our prudent risk management. In the second quarter, our loan book grew over 90% year-on-year to reach $6.9 billion. driven by both our expanding user base and our wider range of products addressing more user needs. We added over 4 million first-time borrowers during the quarter, and our newer cohorts are scaling well with positive unit economics. At the end of the quarter, active users for our consumer and SME loan products exceeded 30 million for the first time. representing more than 45% year-on-year growth. Our loan portfolio remains healthy, with the 90-day NPL ratio staying stable at 1.0%. We have delivered this strong and healthy growth across multiple markets, reducing our reliance on any single market and improving our ability to weather local economic cycles. I'm happy to report that Malaysia's loan book surpassed $1 billion at the end of June. It is our third market to reach this significant milestone after Indonesia and Thailand. Brazil also delivered robust growth in the second quarter, driven by strong adoption of escalator and personal cash loan products. We have achieved such high growth while managing risk very well thanks to three unique advantages that money has. First, deep and seamless integration with our Shopee ecosystem. Second, a very large base of users who are growing their credit track records with us over the years. Third, our increasing use of AI to improve our credit models. Together, these advantages uniquely enhance our underwriting capabilities in each market, enabling us to very effectively push for growth across our three credit product lines, on-Shopee as pay later, off-Shopee as pay later, and cash loan products. On-Shopee as pay later continues to deliver solid growth across our market. with GMV penetration now in the mid-teens on a market-blended basis. We promoted SPLater's one-month interest-free option at Shopee checkout, mimicking the benefits of credit card usage. We used tier-based pricing to offer lower interest rates to prime user segments who have access to more credit options and are more price sensitive. We also introduced a feature that allows users to request a higher credit limit by voluntarily submitting proof of income. Such initiatives contributed to our record high monthly numbers for first-time as pay later borrowers in June. In addition, these measures have enabled us to capture more prime users with stronger repayment capacity and higher lifetime value. We see further runway to scale this product by deepening its penetration on Shopee in all our markets. All Shopee SPLater is also growing healthily. In Malaysia, we recognize the significant user demand for greater payment flexibility. So we integrated SPLater with Malaysia's national QR network. Do it now. enabling seamless and flexible offline usage on many everyday purchases. Our off-Shopee SPayLater portfolio grew over 40% quarter-on-quarter and accounted for more than 20% of our SPayLater portfolio in Malaysia at the end of June. Building on this success, we have just launched a similar user experience with Thailand's national PromPay QR network as well. We have also gained good traction with personal cash loans, addressing the strong demand we have seen in our market for credit access in people's daily lives. We have scaled this product category both quickly and profitably by cross-selling personal cash loans to escalate users with good repayment trends. As a result, Personal cash loans outstanding has almost doubled year-on-year as of the end of June, and a lot of headroom remains for these products in our market. In summary, money has delivered excellent growth throughout the first half of the year, diversified its loan portfolio across markets and products, and maintained high asset quality through prudent risk management. It is exciting that our credit business is still in the early stages in many of our markets, reinforcing our strong conviction in money's long-term growth and earnings potential. Finally, moving to digital entertainment. After a flying start to the year, Garena continued its strong growth momentum into the second quarter. Bookings were up 23%. and adjusted EBITDA was up 22% year-on-year. Multiple key titles delivered double-digit growth in the second quarter, including Free Fire, Arena of Valor, EA Sports FC Online, and Call of Duty Mobile. Free Fire continues to be at the core of Garena's strong performance, sustaining its massive global user base of more than 100 million average daily active users. Free Fire continues to grow well even after 8 years, bringing joy to more users in more markets, because we always put what gamers want at the heart of our work. A great example is the high-profile launch of our new map, Solora, in celebration of Free Fire's 8th anniversary during the second quarter. Solora blends enjoyable nostalgia with exciting innovation. Our veteran gamers were thrilled by the return of an iconic train from Free Fire's earliest maps that used to be a central part of their game experience. And gamers both old and new were very excited by the new full map slide-thrill feature, allowing them to more rapidly across entire terrain, completely changing their gameplay strategy and pushing them to come up with new techniques to win. since its launch on May 16 at the Free Fire World Series. Response from players has been exceptional. It has already become our best performing new map. We also capitalized on excitement around this new map by introducing a new camera mode that lets players capture photos and videos of their gameplay more easily, boosting social sharing and engagement. Within a month of releasing this feature, average daily shares of in-game footage grew by nearly four times, dramatically expanding Free Fire's visibility. Building on this excitement, we extended our anniversary celebrations into July with two high-impact IP collaborations, Netflix's Squid Game and Naruto Shippuden Chapter 2. Initial response from gamers has been extremely positive. In summary, Garena has delivered a very strong performance in the first half of this year. We believe Free Fire has established itself as an evergreen franchise, both sustaining its user engagement and growing its appeal in more markets globally. We are also committed to trying out new genres and new markets. and testing the boundaries of future game experiences by embracing AI. Given all of this, we are raising our full year guidance for Garena and expect bookings to grow more than 30% in 2025 year on year. In closing, we are very happy with the strong set of results we delivered both in Q2 and the first half of 2025 overall. All three of our businesses have extended their track record of excellent execution, robust growth, and improving profitability. This gives us greater confidence about the second half of the year, and we look forward to delivering a strong 2025 and beyond. Thank you as always for your support. With that, I invite Tony to discuss our financials. Thank you, Forrest, and thanks to everyone for joining the call. For C, overall, total gap revenue increased 38% year-on-year to $5.3 billion in the second quarter of 2025. This was primarily driven by GME growth of our e-commerce business and the growth of our digital financial services business. Our total adjusted EBITDA was $829 million in the second quarter of 2025 compared to an adjusted EBITDA of $448 million in the second quarter of 2024. Shopee's gross orders grew 29% year-on-year to $3.3 billion in the second quarter of 2025, and GMV increased by 28% year-on-year to $29.8 billion in the second quarter of 2025. Our second quarter GAAP revenue of $3.8 billion included GAAP marketplace revenue of $3.3 billion, up 34% year-on-year. and GAAP product revenue of $0.5 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues, was $2.6 billion, up 46% year-on-year. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.7 billion, up 3% year-on-year. E-commerce adjusted EBITDA was $228 million in the second quarter of 2025 compared to an adjusted EBITDA loss of $9 million in the second quarter of 2024. Digital financial services GAAP revenue was up by 70% year-on-year to $883 million. Adjusted EBITDA was up by 55% year-on-year to $255 million. As of the end of June, our consumer and SME loans principal outstanding reached $6.9 billion, up over 90% year-on-year. This consists of $5.9 billion on-book and $0.9 billion off-book loans principal outstanding. Non-performing loans passed due by more than 90 days as a percentage of total consumer and SME loans was 1% at the end of the quarter. Digital entertainment bookings grew 23% year-on-year to $661 million. Gap revenue was up 28% year-on-year to $559 million. The growth was primarily due to the increase in our active user base, as well as the deepened paying user penetration. Digital entertainment adjusted EBITDA was $368 million, up 22% year-on-year. Returning to our consolidated numbers. We recognized a net non-operating income of $83 million in the second quarter of 2025 compared to a net non-operating income of $56 million in the second quarter of 2024. We had a net income tax expense of $144 million in the second quarter of 2025 compared to net income tax expense of $61 million in the second quarter of 2024. As a result,
Casey Ong (Investor Relations)
Net income was $440 million in the second quarter of 2025 as compared to a net income of $80 million in the second quarter of 2024. Thank you, Forrest and Tony. We are now ready to open the call to questions. Operator?
Operator (Operator)
We'll now begin the question and answer session. If you'd like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star one again. In the interest of time, you will take a maximum of two questions at a time from each caller. If you wish to ask for more questions, please request to join the queue again after your first question has been addressed.
Operator (Operator)
At this time, we will pause for a brief moment to wait for the questions to come in. Your first question comes from the line of of Goldman Sachs. Your line is now open. Hi, good evening, management, and congratulations for another solid quarter. Two questions for me, both on e-commerce. Number one, on the GMV performance, first half of the year has already been very impressive at 25% year-on-year, and you also expect momentum to carry into third quarter. With this, are you also looking to raise your full-year guidance that you gave in the beginning of the year on the back of this strong performance? That's question number one. question number two can you share with us on the latest competitive landscape have you observed any changes in momentum in particular in brazil have you seen any changes since your competitor reduced its free shipping threshold
Boris Lee (Chairman and Chief Executive Officer)
Yeah, I think on the first question regarding the growth momentum, as we shared in the opening, we do see the Q3 momentum will continue. I think what we are saying is that in Q3, likely to be around similar growth rate as we observed in the first half of the year as well. Obviously, if you take into consideration the four-year growth will be better than what we shared before. I think that's one. Second one, regarding the competitive environment. For Brazil, as you shared, we do see certain actions from the competitors in the past few months. On our side, our Brazil business has been growing very well, even in the last months after the competitor did the adjustment. We didn't see any observed impact to our growth as far as we can see for now. I think the key thing, if you look at Brazil for us, is number one, to make sure that we operate in a best cost structure, especially on the logistic side, even with the improved speed of delivery as far as sharing the opening. that we are two days faster than last year. We still see the costs are coming down, and our costs, we believe, are much lower than where our competitor is. Even compared with their slow shipping, our cost structure is still very competitive, and our speed is a lot faster than their slow shipping. So we believe that we are in a... a pretty good position on that. I think that's number one. Number two is around the price competitiveness. And I think this is probably available. You can do your own benchmark that our pricing is still very competitive in the market across all price categories, even with the adjustment from the other side. I think number three is if you look at our brand seller side, we're expanding our seller base to a higher ticket items, especially in the past few quarters. We believe that trend will continue as well and will be not impacted much by the competitor movement.
Operator (Operator)
Just all in all, we believe that in Brazil, we are still well-positioned. Our growth trend will continue, especially with our core segment group, giving the strong focus that we have on the fundamental cost structure, our price competitiveness, and also the growth of our seller side. Thank you. Your next question comes from the line of Piyush Chaudhary of HSBC. Your line is now open.
Piyush Chaudhary, HSBC (Analyst)
Yeah, hi. Thanks for the call and congratulations for a great set of numbers. I have two questions, both on e-commerce actually. Shopee VIP membership program in Indonesia has seen great progress. So could you share what's the potential for the user base in mid-term as you are expanding across markets? And how should we think about the cost implication of this program on logistics and other benefits which you offer? Also, if you can talk about your new initiative on instant delivery, which countries you're targeting, and cost implication of this. Second question is on the Shopee EBITDA margin. With the push on VIP membership and instant delivery, should we expect margins to remain around similar levels in second half, and what's the outlook for 2026? Thank you.
Boris Lee (Chairman and Chief Executive Officer)
On the VIP program, we do see very good traction in Indonesia as the first country we started. We see a very good take-up from the VIP program, especially given that we are able to, over time, making sure the user can renew with a credit card or pay later products, which is the biggest problem for any of these programs in this market before. We are still in the very early stage of rolling this out. As you can see, it's only a few months since we started this program, and the first two, three months was really a pilot process. So I think it's too early to tell, but we see very good potential there to be a meaningful program in our market, comparable to the other programs you see in other e-commerce retailers in the region or outside the region. And as it's a new program, we do foresee some investment in the early time to grow the acceptance, especially getting users to sign up to it, especially renewing the program to get into the habit. But we don't see this as a fundamental impact or too big for impact to our cost structure in the medium term or long term. For the instant delivery, instant delivery by itself is essentially to expand our product offerings to the... user base, especially on the high-end user base. Actually, those users typically are better possibilities compared to the low-end user base. So we don't foresee any negative EBITDA impact from these services. Rather, on the other side, we do believe this will give us better possibilities in our businesses as we grow it. But obviously, the delivery cost, for instance, of course, the actual cost is slightly higher, but typically for those segments, people have a better acceptance for how much they're willing to pay for the sponsor services. Regarding the EBITDA margin, there is a slightly fluctuation on EBITDA margin, as you can see, from Q4 last year to Q1 this year to Q2 this year. I think there is a lot of similarity involved in this. Q1, the exceptional quarter, which is the first year in our business history that Ramadan for Indonesia and Malaysia especially falls into Q1 and the holiday falls into Q2. So that has a big seasonal impact for the businesses, impacts EBITDA meaningfully. So going forward, we...
Operator (Operator)
we do expect a long-term trend of EBITDA margin will continue to improve. Although, again, there might be seasonal fluctuation quarter to quarter, but the general trend will stay. Your next question comes from the line of Alicia Yap of Citi Group. Your line is now open.
Alicia Yap, Citi Group (Analyst)
Thank you. Good evening, management. Thanks for taking my questions. Congrats on the solid results. I have a follow-up on the competitive landscape in Brazil. I understand we talk about the money impact is limited, but how should we think about the newcomer, for example, the Teemu and also TikTok in Brazil, if you can comment on that? And then just curious, what is the current percentage? contribution from the higher ticket items currently in Brazil. And then second question is on the gaming. Given the increased booking guidance for this year, just wondering is it mainly because of the outperformance of the Free Fire or you actually will expect a higher contribution from the new games? Thank you.
Boris Lee (Chairman and Chief Executive Officer)
I think for Brazil, cross-border for Brazil has been relatively a smaller percentage due to the tax structure. So Timor has remained to be a relatively smaller player in the market. So far, we will observe how this evolves over time. For TikTok, it just started. And again, the amount of orders, the size of orders still relatively small in the market. We will continue to observe as we've been quite familiar with their businesses. And Brazil is quite different market compared to Asia. I think it's something we will observe, but structure-wise, we don't see any fundamental change to the market structure that will impact our view on the market or change our trajectory of the growth in the market so far. But again, just to reiterate, if you look at e-commerce businesses, the fundamental business we're focusing on is make sure our cost is right. We can serve our customer well through our logistics and making sure our pricing is right for the market. Then there will be a long-term mode that we can build for the market. Second question, I mean, it depends on the high ticket item. It depends on how you define what is high ticket item. I think if you look at our mall segment of Brazil, which is probably one of the transformations you can look at, it's in the range of things. If you even compare to Asian market, there is a meaningful room we can grow from there. And in the long term, I do believe that the penetration of mall businesses in Brazil should be higher. um lean asia giving the uh the gdp capital and income gaps versus our asian market hi alicia on your question for uh garena the recent guidance in terms of the bookings and considering the scale and the size of a free file. So the main driver will be still a free file for this revised app guidance. And we feel very excited. I think as I shared in my remark, and we see a very, very strong momentum of growth. across all the metrics for Free Fire and in Q2 we launched a new map. This is the first new map actually we have launched since like in the past three years. It has been a tremendous effort behind it and there's like a very sizable developer team across the different countries and this is the result of their two years of hard work. It's very, very well received by the gamers, both the new gamers and the old gamers. So we do focus on both the new gamer boarding experience and at the same time the retention engagement with our veteran gamers. And the confidence also comes from the, like, in some collaboration, IP collaboration we mentioned in Q3, specifically Netflix's great game and the Naruto chapter 2. So we have a very, very exciting and promising result, like, from these IP collaborations in Q1, as we shared last quarter. And this is kind of like the... another new episode of the IP collaboration. We learned a lot and we have done great, but we also see things we can even do better. So we fine-tune our collaborations and so far we have seen great results from the IP collaborations. So I think that gives us the confidence of the full-year outlook of Garena. Thank you.
Divya Kathiyal, Morgan Stanley (Analyst)
Your next question comes from the line of Divya Kathiyal of Morgan Stanley. Your line is now open. Thank you very much. My first question is on e-commerce. Could you talk about the upside to take rates from here on beyond advertising? Could you also maybe discuss what the seller response has been to the rising commissions in ASEAN and how does that impact the overall competitive landscape? And my second question is on FinTech, specifically for Brazil, because you mentioned that that has also started growing quite robustly in this quarter. Could you talk about your strategy of ramping up FinTech in Brazil? Where is the BNPL penetration now and how fast do you expect it to grow? And if you can maybe point out some differences between the way it should ramp up in Brazil versus how you've been able to grow the business in ASEAN. Thanks.
Boris Lee (Chairman and Chief Executive Officer)
On the tick rate side, obviously, as we shared in the opening, that we see that still a strong potential on the ad side through technology improvement and also a better product that will go out to the sellers. I think beyond the commissions, as you already pointed out, we did some adjustments in the past quarter on the tech rate on the seller side. Overall, we have been seeing a relatively calm response from the ecosystem. I think the key thing that you will be looking at is how the pricing structure will change in the ecosystem. in response to the tick rate change, which is a good parameter to ensure the health of the ecosystem. We're seeing relatively expected response on the pricing side. We didn't see any particular seller drop out of the system, etc. So I think from all the indicators that I think we have been getting a reasonable response, a calm response from the ecosystem. And at the same time, we're able to invest some of the tick rates back to the ecosystem, which is very well received by both the merchant on the seller side and on the buyer side. And on the competitive side of this, as you probably can observe, that relatively healthy competitive ecosystem, we observed that some of the competitors also increased their tick rates. In fact, some of them copied exactly the same thing as we did as well in certain markets. So we are left kind of worried from that front. On the second question regarding the Brazil digital finance part of the services, we do see Brazil as a very important market for us on the digital finance side. We have seen very good growth on the loan books in the second quarter. Our active user for loans grow two times year to year. Our outstanding in Brazil also grow more than two times year to year. One of the key things we did, I think we shared in the last call, is we combined the personal cash flow and escalator limit to one limit, which is different from how we operate in Asia. We also integrate more external data to our risk assessment system compared to Asia, and this is because in Brazil, there are more external data available compared to Asia in the market. And we also have that integration between our money for offering and the shopping for the offerings. All this enable us to grow our loan book quite meaningfully and reduce our risk in the market. On top of that, just to share a little bit on the Brazil as well, that we do acquire SE license, and we also get initial approval for SEFI license, which will enable us to have better funding sources in future. In fact, we have formed partnership with some external lenders already to support the lending funds in Brazil market. Yeah, so in general, I think we are very optimistic about the potential upside on the digital financial services in Brazil. And I think we are still in a very early stage compared to Asia in terms of the growth trajectories. The penetration of SPL later on Shopee's side is still...
John Troy, Delaware Capital Markets (Analyst)
We're still around the single-digit to double-digit range. If you compare to Asia, we still have a very large room to grow, and our personal loans are still very early stage. We have many other products in the top line to be rolled out to the market. Thank you very much. This question comes from the line of John Troy of Delaware Capital Markets. Your line is now open. Thanks for taking my question. My first question is about advertising take rate. I mean, this quarter, obviously, you know, 70 bps, meaningful improvement. But can you kind of share, like, how much more upside that you see? I know that you've been implementing quite a bit of ad tech, and you guys all shared some metrics about ad products rose, number of sellers using this, you know, quarter by 20%, and et cetera. In terms of the users or the advertisers, how much more conversion do you think you could expect? That's my first question. The second question is on, you know, Brazil right now. I think you mentioned, I think, you know, the delivery has improved substantially to 20%, 40%, as you mentioned. What kind of, like, investments do we have to do furthermore in order to further improve? Would that be able to improve our profitability, I mean, the EBITDA margin along the way, or is it going to be, you know, kind of a prudent approach trying to balance? investment and also profitability in the Brazil market. Thank you.
Boris Lee (Chairman and Chief Executive Officer)
On the ad side, there are two main drivers for the ad take rate. One is we have a better traffic allocation algorithm between the ad and organics. We are able to mix the ad slot and the organic slot in a more efficient way, which will improve how much we can essentially improve the conversion rate of the ad placement, which will improve the return of investment from the sellers, so we can essentially cater for more seller demand on the ads. I think that's number one. Number two is whether better seller-facing products. We roll out GMB Max, which helps the seller to automatically allocate the ad spend more efficiently and maximize the ROI. And we also simplify a lot more ad setup UIs. to more and more sellers. I think all this helps to achieve essentially the better take rate. As you can see that we increase both how many sellers are involved in the ads products. We have 20% increase in the active ad sellers. We also have 40% rise in the ads revenue per sellers. So we are improving on both sides in terms of the seller and the number of sellers and revenue per seller. Going forward, we do see still a meaningful improvement on the ad tech rate improvement because number one is our product are still going out to more and more sellers. So that is just simply, you know, there are more sellers joining the new products. I think number two is we do see a very good potential on using especially AI technology, are improving our algorithms on how to improve our conversion better. There are few experiments we're running which yield pretty good results so far, and some of them will be brought out in the later part of the year, which will hopefully giving us a meaningful improvement. on the tick rate. I think the improvement at tick rate, I think it will be ongoing for a period of time. I think it will not finish this quarter. I think in the next few quarters, you will see the number as we go. On the second question on Brazil. regarding the investment Brazil in general our logistics service has been relatively less capex heavy so we don't buy land we don't buy our own trucks even in Brazil so the majority of the investment in term of capex is number one our sorting machines our automatic sorting machines in our sorting center number two is the just setting up the delivery hub across the countries. So it will not give us a big, I guess, probability burden in general. And in fact, as we're expanding more and more SPX coverage and improving the efficiency more and more, this will help us on the EBITDAs.
Zhong Xiao, Barclays (Analyst)
in brazil actually this trend's been ongoing for a period of time if you track our path um we have been profitable in brazil uh since uh a few quarters ago and we we are still profitable in brazil even we grow uh in such high speed uh for the market next question comes from the line of zhong xiao of barclays your line is now open thank you very much for taking my questions um and congrats first on the very strong results I have two follow-ups. One is just on ads. I think Chris just talked about some of the elements for ads. I was wondering, what's the current take right now for the ads? And I recall a few quarters ago, you talked about longer or medium to long-term target of 4% to 5%. I just wanted to check in to see if that remains the case. The second question is about AI. I think both Forrest and Chris talked about using AI to improve the ad tech and among other things for your internal operations. Could you... expand a bit on your thoughts outside of using AI, improving your internal efficiency. The reason I'm asking is that one of your e-commerce peers in Asia recently, for example, started to expand their cloud services to external customers. Since along those lines, think about what are some potential other businesses that can go beyond your core businesses by using AI. Thank you so much.
Boris Lee (Chairman and Chief Executive Officer)
For the attic rate, our current attic rate is still well below the peers you have seen in the regions. We have probably around 2% as we are. And as you already pointed out, I think they are quite a sizable room we can grow over time. On the AI side, I think, as we shared in a few occasions, we use AI at this point in time for two main purposes. One is to improve our current businesses across all different dimensions. For example, we talked about the app improvement just now. We also use AI a lot in our general recommendations, and this improves our conversion rate quite a lot. by understanding user intention better, by understanding the buyer's query better. We also spent a lot of effort on the AIGC initiatives that we can generate a lot more attractive pictures for the product descriptions. We also generate many of the video products to help the conversion of our sellers. On the customer interaction side, our customer service chatbot is 80% managed by an AI agent. helping the seller to interact with the buyers through the CS chat by agent as well. Not only reducing the cost for the sellers, but also improve the upselling potential for the sellers while talking to the buyers. We have many initiatives like that across our businesses just to make our business better. That's the first type of category. The second type is to improve our internal operations for example obviously the product development side but also many of our daily operations like for example if you look at the way we run our marketing campaigns a lot of mind camping are very ultimate right now through AI tools many of the the the the the process to process the payment AI enabled through the agent etc I think obviously we are actively looking at what are the potential
Operator (Operator)
potential business we can expand from the AI evolution. At this point in time, there's no concrete business yet. The next question comes from the line of Thomas Chong of Jefferies. Your line is now open.
Thomas Chong, Jefferies (Analyst)
Hi, good evening. Thanks management for taking my questions and congratulations on a very strong set of results. My question is about the gaming business. Can management comment about... other than the success of Free Fire, how are other games performed like Delta Force? And on the other hand, how does AI actually benefit the gaming business in driving the time span, the monetization, et cetera? Thank you. Sure. Thanks, Thomas. Yeah. For our philosophy, we always want to not only continually make Free Fire more engaging, attractive games, but we also focus on a new game. We do see a lot of opportunities in the different genre and the different market. think it's a it's a but I would say like I think that this moment even we see some promising result and I think the like the game like a like a Delta force or like a free cities are still at an early stage I think it's a like we still kind of like a fine-tune stage like rather than saying okay, this is will be another fantastic big heat for us and So we'll keep keep our like investors updated when when we continually see like a things that still are fine tuning the product although for some of them we see some initial attraction And we are very, very excited about the AI perspective in the game industry. And personally, I believe game industry will be among the first batch of industries largely benefited by the AI advancement and the technologies. And so far, we have seen a lot of... kind of upside on the entry on the development and the production side and and I say for example like for to develop any new content new map we need to generate or a lot of original art And now a lot of very, very basic arts can be generated by AI. So the quality is very, very decent. In terms of the efficiency, the volumes are generated and the varieties are generated. I mean, you can imagine it's much, much better than what humans can do. So this has largely improved our productivity. And it's really, really exciting. uh like on the as you mentioned from the gamers uh like engagement perspective like uh so uh there is a very clear opportunity we we we have seen in the use case it's like uh uh we we do believe like say for example free fire is a it's a very very social game it's a it's a design for for team play so it's like there's a much much more fun if you play with other players and there's a much more combination of the strategy, the technique you can use than you play as a solo gamer. But we observe in Free Fire, we do have a very, very sizable gamers like only play solo games. I mean, they enjoy it, but I think they haven't really fully experienced the amazing part of the game. And maybe because they are shy, they don't know how to reach out to other players. So we think like the AI enabled bots. it's a kind of like their it's a it's a it's a ai game agent like as their teammates as a peers for them to play the game together kind of play a a brother's roles a sister's roles and a coach roles in the game and give them a little bit flavor of how this interaction will kind of feel and taste in the in the gameplay and as an encouragement for them to reach out to play to play as a as a as a team rather than individuals i think that largely help on the on the on the on the retention and uh furthermore i think we are we are very actively experiencing and trying to figure out and uh uh how to kind of uh uh leverage the generative ai to let gamers and uh to generate the content rather than okay so now all through the today's game experience the preset and how the experience will look like. And I think with the AI tools, actually this experience can be much more immersive and much more interactive and much more individualized. I think it's still early stage because we can see some success, but we want to make sure the experiences can be applied in the large scale and in a very, very consistent quality. I think that's the things we have been working on. But we're sure, I think, like this...
Casey Ong (Investor Relations)
this will happen sooner or later yeah thank you this concludes our question and answer session i would like to turn the conference back over to mr casey ong for any closing remarks thank you all for joining today's call we look forward to speaking to all of you again next quarter the conference is now concluded thank you for attending today's presentation you may now disconnect
Other transcripts: Q1 FY26 transcript · Q4 FY25 transcript
All SE earnings · Back to SE overview
Transcript produced by Signals.AI from the company's own earnings call audio; speech recognition can mishear a word. Not personalized investment advice.