Sea Limited (SE) Q3 2026 Earnings Call Transcript

Operator: And welcome to the Sea Limited third Quarter 26 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 would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star 1 again. For operator assistance throughout the call, please press star 0. And finally, I would like to advise all participants that this call is being recorded. Thank you. I would now like to welcome Mr. Elson Choi to begin the conference. Please go ahead.

Elson Choi: Hello, everyone, and welcome to Sea's 26 third quarter earnings conference call. I am Elson from Sea's 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 a discussion of the use of non GAAP financial measures, and reconciliation with the closest GAAP measures please refer to the section on non GAAP financial measures in our press release. I have with me Sea's Chairman and Chief Executive Officer, Forrest Li, President, Chris and Chief Financial Officer, Tony Hou. Our management will share strategy and business updates. Operating highlights, and financial performance for the third quarter of 26. 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 Forrest.

Xiaodong Li: Hello, everyone, and thank you for joining today's call. Our strong momentum from the first half of the year has continued into the third quarter. We achieved a new record high of $8.6 billion in revenue up 43% year on year. And over $930 million in adjusted EBITDA up 29% year on year. We are pleased with this solid performance and we will continue to focus on executing our priorities with the discipline. With that, let me take you through each business' performance. Starting with Shopee, Shopee delivered another strong quarter again, achieving new record highs in both top and bottom-line metrics. GMV rose 23% and the gross orders rose 26% year on year. Revenues reached a new high, and adjusted EBITDA reached $259 million, making this our most profitable quarter ever. The acceleration in new user growth we saw in the second quarter has continued into the third. We engaged and reengaged a broad range of users through both online and offline campaigns. brought our content to more social and video platforms, and widened our service options especially in delivery, to serve different user needs. With these efforts, our new average monthly active buyers grew more than 50% and the total average monthly active buyers increased by 20% year on year. Monetization has also continued to do well. Driven by ads. Sellers are responding well to the greater value they see in our AI driven ad solutions. As paying sellers, it was more than 35% while average ad spend per seller increased around 13% year on year. And revenue grew more than 55% and our ad take rate improved by over 80 basis points year on year. Our operational priorities to enhance service quality price competitiveness, and the discoveries remain consistent. And continue to be driven by our efforts in logistics Shopee VIP, and our content ecosystem. Each made good progress this quarter, First, logistics. We expanded our delivery options to serve a wider range of buyer needs. From instant and the same day delivery to low cost services. Our instant delivery service can now deliver as quickly as 1 hour. This has funded our addressable market by unlocking new spending scenarios where speed matters most. This tends to be high frequency categories, such as the grocery, and the pharmaceutical items. Boosting our overall purchase frequency In Indonesia, orders using the services more than doubled year on year. With cost per order declining year on year. Retailers have embraced the service. We now have more than 12,000 offline stores on our Shopee platform, and growing. Adoption is also growing in Thailand. Where instant and the same-day delivery now account for nearly 15% of orders in Greater Bangkok. We will continue to grow this service in areas where demand is high, and the unit economics make sense. At the same time, we have continued to expand lower cost delivery services to ensure that all users continue to have affordable convenient options on Shopee. In the third quarter, higher self-selection order penetration reached more than 30% in Singapore and more than 15% in Malaysia. Indonesia, our economical shipping option has gained strong adoption and now accounts for more than half of total orders. This cost per order is more than 20% lower than the platform average in the market. These initiatives allow us to offer free shipping at a lower minimum spend. Giving our buyers the flexibility to choose between cost and speed and letting us serve a broader range of buyer needs. We have also continued to scale fulfillment quickly. Sellers have responded well to our fulfillment offerings as we help them take on the complexity of storing, packing, and shipping. This represents significant efficiency gains for them. Especially during peak campaign periods where orders may be several times higher than normal. With our services sellers can build their businesses more easily, without having to increase their own warehouse space or staff size. In the third quarter, fulfilled order volumes, accelerated to around 25% quarter on quarter. Unit economics for our fulfilled by Shopee service improved sequentially in Asia and we see further room to gain efficiencies through higher warehouse utilization and automation. Fulfillment also drives the synergies with delivery, enabling us to deliver more packages more quickly. The number of parcels delivered by the next day or sooner grew over 50% year on year. More than twice as fast as our overall order growth. Second, ShopeeVIP is growing fast. Membership across markets exceeded 21 million at the end of September, up more than 40% quarter on quarter and members contributed close to 25% of Shopee's overall GMV, The program is demonstrating stickiness with monthly retention around 80%. Members show a consistent double digit percentage uplift in spend On average, after subscribing. And with more sellers and the partners investing alongside us in membership benefits, The program's unit economics improved sequentially. We have also continued to enhance the program's value proposition through new subscription tiers with more benefits. In September, we introduced the Shopee VIP Plus in Indonesia, Thailand, and The Philippines. As a higher subscription tier, that combines core member benefits with the Netflix subscription. Third, our content ecosystem continues to make discovery more engaging. Orders from live streaming and short form video grew more than 45% year on year, and accounted for more than 25% of physical goods ordered in Southeast Asia. Unit economics also improved sequentially. Beyond our app, our affiliate program remains an effective and growing channel to bring new buyers to Shopee from other platform. In the third quarter, orders driven by YouTube content more than doubled year on year. And the Shopee affiliate orders generated by Facebook lead creators grew more than 90% sequentially. On Instagram, more than 4 million views have been tagged with shopping products since we launched the partnership in April. With the number growing more than 4x quarter on quarter. Shopee is also 1 of the early connector partners for Meta's new AI personal assistant that has just launched in Singapore. Users will be able to research and compare products on Shopee through Muse, helping them make purchase decisions tailored to their preferences. The partnership is still at an early stage, but we see potential for it to become a solid additional channel for buyer acquisition and incremental GMV growth over time. Brazil remains our fastest growing market. And we again grew faster than the broader market in the third quarter. Logistics improvements underpinned this growth. We continued to widen the range of faster delivery options we offer across the country. With average buyer waiting time improving 12% year on year. We have branched into air delivery, cutting delivery time to the North and the Northeast regions significantly. In greater Sao Paulo, around 40% of parcels now arrive by the next day and nearly 60% within 2 days. Our new instant delivery service there, Shopee Turbo, already delivers in under 4 hours from more than 7000 partner stores. Stronger delivery capabilities have enabled us to onboard more sellers to fulfillment. For example, we rolled out an in house delivery service for bulky items such as large appliances and the furniture. Combined with our strong service reputation, reliable nationwide coverage, this has made more large item sellers willing to fulfill with us. Across the country, fulfillment order volume more than doubled year on year. This service quality improvements have helped drive stronger growth in higher value categories. More upmarket buyers are joining Shopee and the existing buyers are shopping across more categories with us. Automotive and home improvement categories grew more than 80% year on year. And more brand sellers have come on board. Tiffany from Shopee Mall sellers was up nearly 2.5x from a year ago. And Shopee Mall orders carried an average basket size almost 3x the platform average. Looking ahead, we see a lot of headroom to grow in this exciting market. In summary, Shopee delivered another quarter of strong growth while generating the highest quarterly profit we have ever achieved. Our strategies have proven effective at strengthening our fundamentals giving us a growing buyer base, stronger monetization, and improving unit economics. We do see a long runway of opportunity ahead and we will keep executing with the discipline to capture it. We remain on track to deliver GMV growth of around 25% and adjusted EBITDA of $1 billion for the full year of 2026. Next, moving to Monee. Monee has grown well beyond its origins as the payment infrastructure serving our internal business needs. Today, it has evolved into a financial services business across mobile wallet, credit, digital banking, and more. Monee has shown consistent strong growth and has been profitable the last 3 fiscal years. We believe Monee has reached the scale and the maturity to stand on its own and would benefit from becoming more independent Today, Money is already 1 of the largest consumer lending companies in Southeast Asia. Serving nearly 44 million active credit users with a loan book of over $12 billion. Increasingly, Monee's growth is coming from Beyond Shopee. And it is building direct relationships with users through standalone apps across Southeast Asia and Brazil. Personal cash loans and off Shopee loans made up around 50% of our loan book at the end of September. An average monthly transacting users on this app more than doubled year on year in the third quarter. Our ambition is to keep growing Monee into a full financial ecosystem with inclusion at its heart. Serving users across their life cycle needs from unsecured loans to secured lending, insurance wealth management, and more. We believe a standalone listing would give Monee a dedicated capital base, it needs to build this ecosystem. And then let it invest for growth while managing risk with discipline. I want to be clear about what does not change. Monee and Shopee will continue to work closely together as they do today. Monee will remain a key payment and credit partner for Shopee and Shopee will remain a key platform for Monee to reach users. Insights from our businesses will continue to empower Monee's growth. We hope to list Monee at the right time in the next 1 to 3 years. Taking into consideration factors such as market conditions, macro environment, and regulatory requirements. We will approach this carefully working closely with our stakeholders in each market. Throughout, we aim to deliver value for our shareholders. I am very excited about what lies ahead With that, let me take you through Monee's performance this quarter. Monee delivered another quarter of healthy growth, Our loan book grew around 50% year on year, to $12.6 billion at the end of September. Unit economics are healthy and we continue to invest where we see a clear path to attractive long term returns. We continue to expand our credit business of 3 fronts. Acquiring new users, deepening our relationship with existing users, and expanding our credit use cases. Our user base continued to grow healthily in the third quarter. We added nearly 6 million first time borrowers bringing active credit users to nearly 44 million. Up around 28% year on year. As borrowers build longer credit histories with us, we can progressively offer them higher limits. Longer tenures, and more products. Average loan outstanding per user grew 23% in the third quarter year on year. And over 40% of our active credit users were using 2 or more of our credit products at the end of September. SPayLater is becoming an everyday way to pay both online and offline in many of our markets. Our off-Shopee SPayLater portfolio more than doubled year on year to nearly 25% of our entire SPayLater portfolio at the end of September. In Malaysia, its share is nearly 40%, In Thailand, the Shopee Pay unlimited card allows SPayLater users to access their approved SPayLater later credit limit. Wherever Mastercard is accepted. Monthly transacting users of the card in September grew more than 50% compared to a quarter ago. We are rolling this card out at the pace set by risk performance and we plan to bring it to Malaysia later this year. Risk management remains our top priority as we continue to grow our loan book. Our 90-day NPL ratio was 1.3% at the end of September. The modest uptick primarily reflects an evolving credit environment especially in Thailand and Brazil. As well as market and product mix including faster growth in Brazil, and Off-Shopee SPayLater. Our underwriting is highly responsive to market conditions. We proactively adjusted our underwriting criteria and credit limit management for selected customer segments. At early signs of softness. To maintain disciplined growth and optimize risk adjusted returns. We are staying close to the data and we will keep adjusting as needed so our loan book growth stays healthy and sustainable. In summary, Monee delivered healthy growth while staying disciplined in how we manage risk and how we invest. Our credit playbook remains consistent. Start small, prove economics, then scale. We are reaching more users deepening relationships with existing ones, and extending credit into more everyday spending scenarios. Both on and off Shopee. Many of our initiatives are still in the early stages, and we are making good progress capturing the large underserved opportunity across our markets. Next, turning to Garena. Garena delivered a solid third quarter with bookings continuing to grow from the high base set last year. Profitability also improved. Free Fire anchored this performance with a strong bookings growth, and Arena of Valor continued its strong momentum from its tenth year anniversary celebrations. In January last year, we released our Smash Hit IP collaboration NARUTO SHIPPUDEN Chapter 1., This year, by popular demand, we brought it back with upgraded gameplay and a fresh rewards. We built around top 5 requested content. Our players love original campaign's most iconic moments. When the IMA giant knight tailed fox descended on the battlefield as a threat that everyone had to survive. To build on it, we brought in 1 of the most important powers from the Naruto universe the Sharingan, This iconic ability the anime's most powerful characters used to control the 9-tailed fox. Here, you could use it to make the giant creature attack their opponents bringing the excitement of the moment to a new level. We also expanded the map with places for fans to explore. Like the Ninja school where the main characters first trained. We continued to pay close attention to detail, including small but important elements like the stream, where a young Naruto sat alone in the original anime, that gives players an extra boost for the rest of the game. Our careful authenticity has resonated with the players and the industry alike. Concerts around our Naruto Shippuden collaborations has generated more than 6.5 billion views on social media today. This quarter, we were also honored that our Naruto Shippuden Chapter 2 collaboration won the award for best use of IP for license at the 2026 Pocket Gamer Mobile Games Award. Beyond Free Fire, the Arena of Valor is celebrating its tenth anniversary this year. Instead of 1 single event. We are making the entire year a celebration with a series of in game content releases, and our biggest ever real world event. We hosted AOV's biggest ever offline celebrations with a concert at Taiwan's largest indoor venue. The Taipei Dome, the first ever gaming event to be held there. Around 30,000 fans turned out to see k pop and the local artists many of whom had previously collaborated with us on music for AOV. We also transformed parts of Taipei into an AOV themed city collaborating with the metro stations and 7-Elevens putting an anniversary exhibitions and holding a light show at the iconic Taipei 101. The campaign went viral, becoming the number 1 trending topic on social media in Taiwan. 10 years in, AOV is still winning over new generations of players and the deepening its bonds with long-time fund. With this strong engagement, we believe that just like Free Fire, AOV will continue to be an evergreen game. In summary, the Garena's performance this quarter showcases our ability to keep successful games fresh by listening closely to our players, and to build lasting relationships with them. We will remain focused on delivering engaging experiences and strengthening our franchises for the long term. In addition to our great existing business segments, we have always been exploring and experimenting with the new businesses. The most recent of this is a SeaCloud as we announced recently. As AI has taken off, have built up meaningful capabilities over the past 2 years across the infrastructure, model, and agentic application layers. And our own businesses have benefited significantly from them. SeaCloud looks to bring these capabilities to other organizations across all 3 layers. Today, there is a lot of focus on compute prices and cyclical margins. And having enough compute certainly matters. But we believe the ultimate price lies elsewhere. The cost of tokens is falling rapidly and structurally. And as it does, AI becomes affordable for far more organizations and the far more use cases. The real opportunity is to build a significant business around the long term decline in token prices helping organizations drive much broader AI adoption. We see much of the lasting value in the layer above bare-metal capacity. 1 is running AI efficiently, getting more out of every GPU through better utilization, faster deployment, and leaner operations, which we have mastered for our own businesses. The other and the more important 1 over time, is the agent software and orchestration that soft organizations put AI to work. Running models reliably and securely, adapting them to their own data and languages, keeping that data close to home, and moving from newer and more cost efficient models. Including open models, as they emerge without having to rebuild each time. Many organizations want this but few have the specialist teams to build it themselves. That is where we intend to focus. And it is not theoretical for us. It is what we have had to do for our own businesses running AI at scale in areas such as a fraud detection, customer service, and the content generation under real-world, commercial pressure, And in many cases, in highly regulated environment. We see this as an opportunity to turn our AI capabilities today across our businesses into a profit center We are already making this investment for our own businesses. By serving external customers on top of that existing base we can spread our fixed cost across more users, and earn attractive incremental returns on capital. This is consistent with how we have entered new businesses throughout our history, like money beginning as a payment infrastructure serving our own platforms before going into a business, earning customers well beyond them. We are setting up SeaCloud as a frugal startup. So that it can stay nimble and respond quickly to market demand. Our focus is the software and the customer relationship. not on large amounts of physical capacity, where customers need dedicated computing capacity. We will only pursue opportunities with clear customer commitment and attractive returns. We will mainly look to partners and customer prepayment to fund the physical infrastructure. As a result, we do not expect SeaCloud to have a significant impact on our financials for now. It is still early, and we will update investors on any meaningful developments. We also want to give an update on our share repurchase program. As of today, we have almost fully completed our $1 billion share repurchase program announced a year ago. We are pleased to announce that we plan to buy back an additional $1 billion worth of shares In conclusion, we have delivered another strong quarter. Our 3 businesses have all expanded their addressable opportunity and strengthens their competitive position. Unit economics continue to improve across many of our initiatives. Attachment to our financial discipline and operational efficiency, Our profit momentum across the first 3 quarters give us greater confidence for the rest of the year. As always, we greatly appreciate your trust and support. With that, I invite Tony to discuss our financials.

Tianyu Hou: Thank you, Forrest, and thanks to everyone for joining the call. We will see overall total GAAP revenue increased 43% year on year to $8.6 billion in the third quarter of 26. This was primarily driven by growth in Shopee and Money. Our total adjusted EBITDA was up by 29% year on year to $931 million in the third quarter of 26. Our Shopee gross orders increased 26% year on year to 4.5 billion in the third quarter of 26 and GMV increased by 23% year on year to $39.7 billion in the third quarter of 2026. Our third quarter GAAP revenue of $6.1 billion included GAAP marketplace revenue of $5.3 billion up 41% year on year, and GAAP product revenue of $700 million. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction based fees and advertising revenues, was $4.6 billion. Up 51% year on year. Value added services revenue mainly consisting of revenues related to logistic services was $700 million. Shopee adjusted EBITDA was up by 46% year on year to $269 million in the third quarter of 2026. Monee's GAAP revenue was up by 64% year on year to $1.6 billion in the third quarter of 2026. Adjusted EBITDA was up by 15% year on year to $298 million in the third quarter of 26. As of the end of September, our consumer and SME loans principal outstanding reached $12.6 billion up 60% year on year. This consists of $11.2 billion on book and $1.3 billion of book loans principal outstanding. Nonperforming loans past due by 190 days as a percentage of total consumer and SME loans was 1.3% at the end of the quarter. Garena's bookings grew 6% year on year to $890 million GAAP revenue was up by 29% year on year to $840 million. The growth was primarily due to the increase in our active user base and deeper paying user penetration. Garena adjusted EBITDA was up by 46% year on year to $458 million. Returning to our consolidated numbers, we recognize our net non operating income of $123 million in the third quarter of 26. Compared to a net non operating income of $61 million in the third quarter of 25. We had a net income tax expense of $280 million in the third quarter of 26 compared to net income tax expense of $161 million in the third quarter of 25. As a result, net income was up by 34% year on year to $502 million.

Elson Choi: Thank you, Forrest and Tony. We are now ready to open the call to questions. Operator?

Operator: We will now begin the question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star 1 again. In the interest of time, we will take a maximum of 2 questions at a time from each caller. If you wish to ask more questions, please request to join the question queue again after your first questions have been addressed. At this time, we will pause momentarily to assemble our roster. Your first question comes from the line of Alicis a Yap with Citigroup. Your line is open. Please go ahead.

Alicia Yap: Thank you. Good evening, management. Congrats on the solid set of results. Thanks for taking my questions. 2 questions. First, wanted to ask on SeaCloud. So I see plans to invest in cloud and AI infrastructure Hou should you have to think about the expected return profile for this investment? What are the key use cases or demand drivers that give you confidence that SeaCloud can become a meaningful business over time. Second question, money Monee has reached a meaningful scale with over $12 billion in loan outstanding, 44 million active credit user, and also an increasingly diversified business beyond the shopping ecosystem. As you look ahead, what milestone do you believe are still needed? Before money can be viewed as a stand alone financial platform? And strategically, how do you think about the benefits of keeping money integrated within Sea versus creating a more independent segment over time. Hou.

Xiaodong Li: Thank you, Alicia, for the SeaCloud business, as I just have mentioned, in my remarks, this is-- it is a very pretty new initiative, and this is at a very, very early stage. So we are always thinking what is the potential new business opportunities we may have opportunities during the AI era. And continually and increasingly we believe eventually, because of this new technology, both the consumers and organizations across the whole world and especially in our region as well, will go through the AI transformation. And every organization needs to build up certain AI capabilities. Right? This is-- including across all the layers, including the compute capacity and including the models and also how to use the model, how to deploy the model, and in affordable way, in an efficient way, in a secure way, And, also, on top of that, what is the software that can be used and what is the agent can be built. Right? And this is a going to make a meaningful impact. And I think, actually, it is not an easy process, and this will take time, and it will take quite some effort for that transformation. In the past, few years, we have gone through this for our own business. it is firsthand. Although this is very, very challenging, we put a lot of effort We are also very excited about the impact it can be made. Right? And so in my remarks, I mentioned specifically several cases like fraud detection, customer service, content generation. So, like, this is a benefit our business significantly on a daily basis. And we have a strong conviction and what this capability we have built, which is the know how and the knowledge we have learned through our own use case experience will be valuable to other organizations as well. And, also, like, for. If not every other organization has the same tech. Technical capability and uses as we have today in-house, allowing us to build such capability from the like, from the scratch. that is why we think it is a the aspiration is really extra. Externalize what we already have. And build on its internal capabilities and resources But, like, become a standard kind of like a new business to serve external customers. And we also believe, like, the adoption and the acceleration. will be accelerated because of the model is getting better and better and that the agent can do more and more things. And, also, the token cost will be continually go down. So this is all make a make the entire kind of this AI demand more affordable and more accessible and in an accelerated pace. So that is the kind of the big picture where we are looking at. We think the demand will be huge. And this is just at a very, very early stage. So we want to get into this business early. there is a lot of things we do not know yet and it is. Again, this is very early. This is a kind of a start up. So there is a lot of things we need to figure out For example, where exactly segment we should focus on, what exact type of customers we should focus on, and what is the best the business model we should use. We think we will get a better picture when we really get into the. Get our own feet into the game and we start to get a firsthand experience. I hope I am. Also, I am sure the learning will be very, very quick. Right? And we would really have a kind of a real business working on that. So we feel in the past. Although this is very early, like, in the past few months, we have gained a lot of insight and the learning about the potential opportunities we have. I think we are going to keep investors updated And at the same time, because of this is a very new and it is a very dynamic situation and opportunity, We want to make sure. I will be very, very frugal in terms of the in terms of the capital expenditure, in terms of the cash flow spending, I think whatever the opportunity we are looking at, the top down, we just shared, we believe in the big potential ahead of us. But, like, a bottom up, when we look at each, potential, each project, each customer each potential deal will very much kind of a discipline in terms of what is the like, a return we are looking at, what is the what is the mean to us financially. I do not think at this moment, we have a very, very clear. As. Or as a business, what will be the return on investment will look like. We believe this is to be very, very good. But again, so we also want to stay humble to be. We do a lot of things. We do not know what we do not know. But, bottom up, for each project, we will keep the financial discipline very, very seriously. And we want we want to make sure every project we work on will be generate attractive return for us and minimize our potential financial risk if there is any. So I think that is the a overall thinking we have for the. For this to see SeaCloud businesses. it is at the. Still at the formation stage. it is very, very different profile compared to the 3 existing businesses we have. it is a take us a decade to build up those 3 existing business to this stage. I think the SeaCloud will be really, really a long term bet. Right? And this is our kind of the 1 of the best we have in the AI times. We are very excited about it. And we will keep our investors and our shareholders updated if there is any major development on that front. And for your question about the money IPO, again, this is a very, very exciting project. It always has been our aspiration to build Monee into a stand alone financial services business and we believe. And the Monee has the potential to be 1 of the best in the world in the fintech businesses. Think we are on the right track now And now we feel comfortable I think it is reached a stage-- it has reached the stage and scale that can be sustainable itself, I think being listed standalone will give more room and more flexibility for Monee to continue to grow. In the past, Monee has been benefited hugely from being part of Sea and being integrated, being part of the integrated system. I think that is a like, a very, very critical success factor for Monee in the past. But I think, like, moving forward, we expect the money will continue to grow and it is not only rely on the Sea ecosystem, but really have the courage and have the have the flexibility and have the room to grow out of it. And meanwhile, please do not do not get it wrong. I think whatever the as I shared in my remark, whatever the benefit and being, like, like, together with Sea and with Shopee in the past will be still there. Right? And as I mentioned, there will be still very, very integrated type collaborations between Shopee and Money. Right? And there is a huge synergy. We are definitely not giving it away. And, also, at the same time, I think, like, whatever the from the Sea perspective, the capability we built during the AI era, will be a continued technical support enabler for Monee's growth. So I think that is that is kind of like our thinking for now. Again, so we are not in any rush and I think this is-- we just want to share this directional move with the investors shareholders as early as possible. And we are looking at 1 to 3-year timeline. And there is a lot of things when we start to tick off the process. there is some-- there will be a lot of learnings, and there will be we will weigh the different ways of doing that and the pros and the cons. At the same time, we are going to keep all the shareholders and investors updated along the journey as well.

Operator: Your next question comes from the line of Divya Kothiyal with Morgan Stanley. Your line is open.

Divya Kothiyal: I am My first question is on Shopee and really how does the monetization actually start flowing through profitability? We saw that despite the strong growth in take rates and advertising, margins are still flat quarter on quarter at about 0.68%. Could you elaborate what absorbed these monetization gains specifically And which investments should start delivering some sort of operating leverage next year? If you could also comment on the profitability runway difference between ASEAN and Brazil, as well as between content ecosystem versus shelf? So that is my first question on Shopee profitability. My second question is just on agentic AI and Shopee. You are an early connector partner for Meta, as you mentioned. If product discovery moves to an internal agent, how do the economics of a Shopee order change? Particularly the advertising revenue and the contribution profit? Do you actually retain the customer relationship and data if you could also comment on how MUSE is performing on adoption and conversion, how do you see its role in Shopee as the agent AI going forward? Thanks.

Gang Ye: On the Shopee side for the monetization that you mentioned, we do see better monetization over the quarters. As you point out that our EBITDA also remained stable. from quarter to quarter. And I think overall, the thinking we have is that we still see that it is quite a lot of growth potential in both South Asia and the Brazil market. In fact, that if you look at our growth rate, we grow 23% plus this quarter. If you look at the growth without the ForEx impact, we grow more than 26%, close to 26.5%. So we do see a lot of potential in our market. And we will. We would like to grow ecommerce penetration further in both South Asia and the Brazil market. At the same time, as Forrest mentioned in the opening remarks that we commit to have our EBITDA more than $1 billion this year. and we still hold that as our standard. We expect going forward, our monetization will also be better primarily from the ad side, less from the fixed commission side. And part of that will flow to the bottom line EBITDA improvement over time. And part of that might go to the investment to grow our market further as well. Between Brazil and South Asia, I do not think there is a particular difference in terms of trends between the 2 regions. I think both Brazil and South Asia are relatively stable. If you look at from quarter to quarter perspective, For the content side, content for us, comprises, let's say, of both videos and live streams our content ecosystem has been growing year to year and quarter to quarter. At the same time, our profitability also grew better for content as well. If you look at contribution margin perspective, our content part of business has been profitable already for this quarter, which is a very good milestone for us to achieve. Coming to the second question on the agentic AI, if you. We actually partner with a range of partners starting from now. As you mentioned, MUSE. At this point in time, all the checkout and seller relationships and buyer relationships happen within the shopping platform. And we did not see a meaningful impact to our economics for the near future At the same time, I would like to point out that we work with many platforms as well. For example, we have been working very closely with both YouTube and Meta. For Facebook and Instagram as affiliate partners, which works similar to the fashion we have worked with. platforms like MUSE. And affiliate partners have been generating a sizable new user to our platform, generating a sizable traffic to our platform, and it is been part of our unit economics in the past. Years. So we do not see this dramatically change the picture when we work with MUSE or other large language models.

Operator: Your next question comes from the line of Piyush Choudhary with HSBC. Your line is open.

Piyush Choudhary: Yeah. Hi. Thanks a lot, and congratulations on good set of numbers. 2 questions. Firstly, on Shopee, when do you think the peak investments would pass considering the ongoing investment in Shopee VIP, instant delivery, fulfillment, And did I hear correctly that content ecosystem is now EBITDA positive? Or if not, then how much is the drag on profitability And can you also share what is the progress on fulfillment both in Asia and Brazil? Second question on SeaCloud. Hou have explained in detail your aspirations. But can I check if you have secured any enterprise contracts already and just to clarify, would you invest in data center and GPUs, or would it be capex-light where you will lease these assets? And any guardrails that you have put on max capital investment over the next 2 to 3 years in this segment would be great. Thank you.

Gang Ye: Yeah. Think we are thinking backing in the shopping that we and fulfillment and also the other initiatives like the instant delivery, etcetera, across our countries. it is a bit hard to argue when is the peak investment as we roll out this program in different countries different markets at different time frame. So if you look at our early countries that we started, let's say, some of a program, it does pass the peak investment, but know, there are some other countries came in later. So the mix of country and the pace of it has a lot of impact to the pace of the investment But in any case, as I shared earlier in the previous answers, we do see our the bottom line, essentially, the EBITDA per GMV. The EBITDA will continue to improve year-over-year, which includes all the investment. to these programs. So we manage it within sort of how much takeaway we can take and how much investment we can make. While growing the ecosystem and the user base. For content ecosystem, which includes video and live stream, I think it is a bit hard to split a particular segment of the EBITDA levels because there are many shared costs below that. I think for us, we look at sort of variable cost or contribution margins for our platform. content platform does have the positive contribution margin. Essentially, what we are saying is if we grow the content business more in our platforms, we will have more profit rather than have less profit. For our businesses. The fulfillment penetration I think the overall fulfillment has been growing quite a lot. year-over-year. We started this in South Asia earlier than Brazil. So in reality is the penetration in South Asia will have a slightly higher percentage as overall platform than Brazil. But we do believe that the penetration will further grow in both Brazil and South Asia. The other thing that we spend a lot of time on is to optimize the cost to fulfill, which is very important for us. We are seeing meaningful reduction in both South Asia and Brazil for our cost to fulfill for our fulfillment businesses. The part of that is contributed by the scale that we have been built over time. Part of that is contributed by a better automations, which is very important tool for us to reduce the cost to fulfill compared to many of our sellers. Part of that also come from how to optimize the way we work with the sellers, the way we do inbound, the product selection we have, how long do we keep the product, in our local fulfillment centers, etc. I think all those contribute to the growth of fulfillment while improving the economics of fulfillment over time.

Xiaodong Li: Piyush, for SeaCloud, for your question, as you know, this is a. This is just at the very, very beginning of the of the business. At this moment, we do not have any. We have not secured any enterprise contracts. And for the investment in the data center and the GPUs, we let me put in this way, like, we definitely probably will invest in GPUs and the primary for our own use. So regardless, there was a SeaCloud business or not, like, how the business progress down the road. We are going to invest into GPUs, primarily for our internal use cases And in the data centers, so we will see how the opportunity look like. In general, we are not interested kind of like to spend. To invest in the data centers, but we may spend the money to build data centers for our own use cases for our. Primarily for our uses. For example, for our financial services business for Monee. Right? And the based on regulations, a lot of like, data need to stay in Singapore. So that is the. And the. So for those cases, it is could be we will evaluate the options, right, in terms of the build up our own data centers. And because this is a very, very clear like, usage and a very, very clear use case, versus leasing the data center capacity. Right? And so I would say we are going to be open minded on that part. But again, I would say this is have nothing to do with the SeaCloud business. it is-- in general, from c perspective, we will keep those options open. And in terms of the guardrail on capital investment here, as I mentioned, will be very, very cautious. Right? And the good thing is, is that it is different from the consumer business. Like, you have to have to spend a huge amount of investment upfront And then along the way, like, to reach the critical mass and then start to because of the density, because of the because of the volume, and you start to see the unique economics from negative to positive Like, we have we have gone through several roundup that we know that part very, very well. But, like, the business nature could be different for from the SeaCloud. I think it is a will be very much deal by deal driven at least at the beginning stage and with very, very specific targets in terms of the customers, in terms of the projection of the revenue and like, what is the timeline for that, and what is the potential investment we put in. I think it is a I think we are going to have a guardrail. We want to as I mentioned in the in the in the remark, we are only pursue opportunities with a clear like, a clear customer commitment and a clear return profile. Right? And we are going to make a case-by-case judgment if that return is good enough for us or not. We do not have to pursue the opportunities if we do not like the return profile. And at the same time, we are going to try all the ways to minimize the impact on our own financials and especially the cash flow, the balance sheet. I think there are a lot of ways to work with the potential partners, right, and a lot of things can be worked with the. Through the customer prepayment. Right? So but the speed rate is going to. We are going to minimize our own financial impact. Yeah.

Operator: Your next question comes from Thomas Chong with Jefferies. Your line, is open.

Thomas Chong: Hi. Good evening. Thanks, management. I also have 2 questions. The first question is also on the SeaCloud business Given that we have talked about it is a project by project basis and we also look into the return profile. Just wanna get some color, for management, a strategic perspective, If we look at 3 years or 5 years down the road, in terms of our business mix or our profit mix how significant is SeaCloud to our overall business Would that become another very meaningful business in 3 to 5 years down the road? that is my first question. And then my second question is back to Shopee business outlook. Given that we are seeing the macro is very dynamic, a fuel price and other macro uncertainties how should we think about our GMV outlook or growth rate down the road. And, and, are we actually, expecting like, a meaningful slowdown or a gradual slowdown given all these happens? Thank you.

Xiaodong Li: Thank you, Thomas. Yeah. For SeaCloud and strategically, and in the big picture, are very, very bullish. We are very optimistic. As I shared. And so, number 1, we believe AI, this is a fantastic technology tool. This is what we make huge impact for every single organization, every single business. Every organization, every single business will need today, but need to figure out their own strategy and the and the action plans executions, how to make that the transformation, and how to make them relevant in the in the in the in the AI era. So if you if you look from that perspective, the demand is huge. And the second thing we bet on is the AI adoption across the all the industries will be accelerated, and it is mainly because of the model is getting better. And the agent can do more things. And can really make an impact in the in the workflow and in the in the day to day use cases. At the same time, the token cost and the token price is going down rapidly. So that is-- so this is the things we. This will give us the conviction and that the opportunity could be huge. And by the end of this-- will this happen in 3 years or 5 years. I think that depends. I do not have a very, very clear view, and things go very, very fast in this industry. Right? And so to be honest, I do not have the exact kind of perspective on the specific timeline. But, I mean, we view this business it is not only for 3 years or 5 years. We want to build it like a, for to become a sustainable business, become a part of our businesses permanently. So that is the that is the aspiration. And, of course, the we only do this. We do believe this will be generated very, very meaningful, very, very sizable revenue and profit for us down the road. Yeah. Yep.

Gang Ye: On the Shopee growth, first of all, we do not see a big sharp GMV growth rate slowdown yet. As we shared earlier, in Q3, we do see a meaningful growth, a similar growth rate compared to last quarter from a year-to-year perspective if we take away the ForEx impact, You are right that there are many macro factors like fuel price, etcetera, impacting the consumption The overall picture, we see that although we have noticed some more value seeking behavior in our market use of this macro environment that the general overall demand has been vastly resilient. But, again, I would like to reiterate that our competitive advantage will continue to differentiate us from the peers. Even in the macro situation that we are in right now. Given that we have-- We built our platform around long tail products and also the pricing in our platform is a lot more competitive compared to other platforms online or compared to the alternative offline as well. On top of that, many of our. Much. I mean, a large part of our platforms GMV are driven by the people have the needs to purchase rather than people as an impulse buying. All those make us put us in a more. a resilient position on the growth for our ecommerce in our market. I think we will continue to monitor our market very closely for any changes But again, given all the things we mentioned above, and also the ecommerce penetration are still relatively low compared to many other markets. We still believe there is a big runway for us to grow our ecommerce in the regions.

Operator: This concludes our question-and-answer session. I would like to turn the conference call back over to Mr. Elson Choi for any closing remarks.

Elson Choi: Thank you all for joining today's call. Look forward to speaking to all of you again next quarter.

Operator: The conference has now concluded. Thank you for attending today's presentation. Hou may now disconnect.