Q4 2019 Earnings Call
is Officer for
And group Chief Financial Officer Tony whole forest and Tony will share a strategy and business update operating highlights and financial performance for the quarter. This will be followed by a pack in a session in which we welcome any questions you have with that. Let me turn the call over to Forest.
Hello everyone. And thank you as always for joining today's call 2019 has been an extremely successful year for C. And the year when we achieved a number of significant milestones in particular, we celebrated our tenth anniversary last year this Milestone give us an opportunity to look back at just how far did not come over the last decade our business has grown rapidly and has been constantly evolving in just the ten years. We have grown from being a PC game publisher who are leading game publisher and developer with the Diverse Mobile and PC game for folio. We have evolved from being a game platform to a consumer internet platform not covered Digital entertainment e-commerce and the digital Financial Services.
I know we have to.
Update from our humble beginnings as a startup in a small shop house in Singapore to become a regional leader with strong footprint across Global high-growth markets off the rest might be surprised by the pace and extent of seed growth and evolution over the last few years while we benefit from economic and the technology showing our Market. We believe the key reason for see success is our form focus on identifying what we see as the largest opportunities in the consumer internet industry wage and our Relentless efforts to capture the opportunities with the right business model timing and execution.
We started our Digital entertainment business arena in 2009 because we passionately believed that gamers in our region deserved a better way to access and offer top quality games and sports over the past ten years. Karina has evolved from a PC game publisher in Southeast Asia and the Taiwan to a leakage in Publisher and developer our first self-developed. The mobile game free fire is a global heat and was ranked the worst most downloaded mobile game 2019. The success of Three Fires has significantly expanded our total addressable markets globally, for example, the Latin America or laptops with their large and fast-growing populations and the faster depending mobile penetrations have become the second-largest original market for our Digital entertainment business wage.
after Southeast Asia
And the Taiwan collectively the Latin Market and the other faster-growing Frontier markets such as India Russia and the Middle East already accounted for about half of our Digital entertainment adjusted revenue for the fourth quarter of 2019.
Our proven capabilities in both game publishing and development as well as our strong track record in global growth Market which are highly complex and diverse. I've driven such and strong financial performance in 2019 our Digital entertainment at adjusted Revenue grew by over 167% year-on-year to reach 1.8 billion dollars. Well adjusted ebitda grew by over 289% to over 1 billion dollar wage more importantly, we believe we have built a very strong foundation and develop the core strength that position us very well for continued growth globally am looking to the decade I had our forecast for Galena is to continue to bring top-quality content and more billion dollar game games to our Global users through both our own developed off.
and capabilities and our
table of top-tier publishing Partnerships
We will also focus on strengthening our in-house capabilities which global top talent through both organic growth and strategic Acquisitions and the Partnerships.
Just ask Arena success was filled out addressing the needs of gamers in our Market. Sharpie was billed on addressing the unmet needs of consumers and small businesses in our March. Shelby was also able to grow quickly. Thanks to the local operational strength. We developed through our Digital entertainment business. We launched the shop over 7,000 in South East Asia and the Taiwan simultaneously in late 2015 within a short period of time shop. He has grown to become the leading e-commerce platform across our region.
In 2019 just about four years from its exception shop achieved over $17 in GM be with over 1.2 Billion Auto. Either. What's the worst fifth most downloaded shopping app and it ranked first in key user engagement metrics of monthly active users and downloads off Google Play and the IOS app store combined in both sides decision and the Taiwan.
mean well
We have significantly different monetization over the last year in 2019 shopping generated more than nine hundred forty two point 1 million dollars of tax revenue representing more than two hundred and 24% of year-over-year grows. Well adjusted Revenue as a percentage of total gmv rejected 5.4% benefiting from increasing economy of scale with growing Market leadership. We also saw rapidly improving unit economics for Sharp key, for example, but adjusted ebit a loss for order decreased significantly year-on-year from $1.34 in the fourth quarter of 2018 month to seventy cents in the fourth quarter of 2019.
We believe that shop is strong track record is attributable to our managerial organizational and execution of capabilities. This strength have enabled us to quickly identify and the Gang a deep understanding of the emerging trends of social commerce among the mobile native generation determining the right business model and the timing sucked into the right markets built on a rapidly scale a new business across diverse complex Market with high efficiency to achieve Market leadership enjoying strong Network in fact and economy of scale and the constantly focus on high-quality decision making and execution with Hyper localized operations.
Looking ahead. We will continue to focus on growing.
Our e-commerce business with efficiency expanding our Market leadership to maximize long-term returns and depending monetization over time.
More importantly, we believe that the capabilities we have demonstrated in growing Sharpie from a standing start to the regional leader will continue to help us to achieve greater success in building up a full ecosystem surrounding our consumer internet platform. This inter presents huge growth opportunities that we are deeply focus on capturing.
Our third Core Business in digital Financial Services. See money is the key component of this ecosystem and The crucial instructor that presents significant long-term growth and the monetization opportunities.
We started see money in 2014 with the form believe digital Financial Services or DFS is a key infrastructure for our consumer internet ecosystem off the represents one of the largest growth opportunities in the digital economy of our region based on recent Google automatic billing report the DFS industry in the 6,000 Mi South East. Asia is expected to grow at 22% Tigger between 2019 and 2025 to reach $38 billion dollars in Revenue.
based on the report
Three out of every four adults in South East Asia have insufficient access to financial services and the forty-nine percent unplanted by comparison with just the 7% of people in the United States are unbanked and the 20% in China according to US government and World Bank data respectively similarly wage World Bank estimates that just 5% of adults in South East. Asia have access to credit cards compared to 66% in the US and the 21% in China. This reflects that the region has massive untapped opportunities in DFS. And this opportunity is will only continue to grow as the overall digital economy of this region expanse.
And we believe that c is very well positioned to capture the most significant portion of this growing. Hi first, we are building our our core strength in identifying the capturing market trends and the strong execution and the more importantly we are the market leader in both e-commerce and the Digital entertainment which are two of the largest black take the growing and hide the quality and frequency use cases in the digital economy served by DFS. This is well demonstrated by the rapid growth of our seamen a 2019.
our
Pretty paying users for our invoice Services have exceeded eight million in the fourth quarter as we deepen integration of our wallets with the shopping platform expanded our services to third-party online and offline merchants and the use cases in January 2020 about a year after we started integrating our already with shopping in Indonesia more than 30% of shock is gross orders in that market already paid using our own usually services.
Such integration has shown clear benefits in reducing payment friction and improving user experience for consumers and shopping.
To sum up we believe that our Core Business is of e-commerce Digital entertainment and the digital Financial Services represents the three largest opportunities in the digital economy of our region as we begin a new decade, we will continue to focus on strengthening our Market leadership and the core competencies across all 3 segments to position off well for long-term continued growth and profitability more importantly our leadership and strength across the business has provided an unparalleled opportunity to develop a comprehensive consumer internet ecosystem that generate significant value for the consumers and small businesses on our platforms.
we this
Action on what we have achieved so far in the past decade and the path of growth. We will continue to focus on for the future. I will now turn to a more detailed discussion of our strong results for the fourth quarter.
Looking first at Green has performance in the fourth quarter. We once again hit new high for adjusted revenue and ebitda, but adjusted Revenue was 479.9 million dollars one hundred and 7.4% year-on-year. Well adjusted. Ebitda was 266.4 Million month 150 3.2% This was primarily driven by continued quarterly active user growth and further deepening of paying user penetration and in particular the continued strong performance of our self-developed the game free fire.
Let me highlight some of the key drivers of free first success this quarter first our user base continues to grow and pleased to note that free fire. Please set a new historical high with over 60 million pic daily active users. According to ephiny in the fourth quarter free fire was ranked among the top ten games a globally by monthly active users and was divorced most downloaded game globally on Google Play.
second
Continue to depend engagement with our massive user-base last November we held our largest-ever a sports event for free fire the free fireworks. In real according to each book charts. This event attracted the most concurrent viewers for any mobile a sports event in history, which over two million worth watching the live streamed final at the same time. The success of our Sports content is reflected in Three Fires popularity and streaming sites free fire. The fourth most-watched game on YouTube globally in 2019 behind only Minecraft fortnite and the Grand Theft Auto it was also the most watched movie Deadly game.
Start as we mentioned before we are increasingly building freefire into a social platform for the hundreds of millions of people around the world who played Free Fair it is not simply a game that they play. It has to become a community. Our players meet up with their friends in three far. They watched r e sports events and the chair or your favorite team. They even enjoy music created just for our players.
for instance
We launched a music video featuring characters from the game in the virtual band performing a song in multiple languages that we commissioned specifically for free fire to accompany the video. We launched the specific specific in-game events and promotions as well as special schemes and other in-game items the launch wage huge success with our players with the video attracting over ten million viewer online within a week.
Over the last two years. We have developed a unique ability to build and the system huge and highly-engaged a free-fire communities across diverse markets Global. We're also seeing not holders of other high-quality ipone to work with us to reach these communities. We recently unveiled a partnership with gravel the developers of the classic MMORPG game Ragnarok to launch a range of exclusive in-game content in brief are based on ragnaroks IP.
generations of gamers
Court Southeast Asia and Latin America have a strong Affinity with Ragnarok and its characters and the response to this in-game collaboration has been very encouraging.
We will continue to focus on growing the user base and deepening user engagement for free fire with an increasing emphasize and building the game into a well-loved and the long-lasting IP and the highly active social platform serving hundreds of millions of global users. We believe that this will in the longer-term translate into system performance for free fire.
Another exciting recent development is our acquisition of Phoenix Labs were not the top independent game development studios in North America this brings a team of more than a hundred of the past the AAA developers in the industry into the green of family and the significantly enhances our in-house content creation capabilities and wage Affinity to serve diverse markets globally. The acquisition also underlines how Karina is increasingly being recognized as a leading industry players worldwide off sex to our strong Global footprint for green as a whole. We are moving into 2020 in a great position and which exciting plans for growth
Our Focus for the year ahead. Well
Need to continue creating captivating content that will help us grow and engage more deeply with our Global communities and to continue strengthening our game development capabilities and the publishing Network to bring to Market more Global hits and the top grossing games.
Or Digital entertainment guidance for the coming year reflects our confidence in our ability to continue depending engagement with Gamers globally and to build on the momentum that made 2019 a stand out here for gerena for the for year of 2020. We currently expect adjusted revenue for Digital entertainment package to be between one point nine billion dollars and the 2.0 billion dollars.
Can you to shop key in the fourth quarter? We recorded another impressive set of results growth in the e-commerce industry in our region continues to accelerate and the shop here at the clear market leader is scanning and outside the slice of the pipe across. The region are ordered grows is accelerating with gross ordered for the quarter green about one hundred and 13% year-on-year to 414.5 million DMV for the first quarter also reached five point six billion dollars increase of more than 64% year-on-year as we continued to expand our Market leadership shop is soft scent strong engagement in both South East Asia, and the entire one shock is ranked number one in the shopping category by average monthly active users across Google Play and the IOS app birth.
combined in the
Quarter according to epiny I total time spent on app which have any measures on Android phones shall be also ranked number one in Southeast Asia as a whole and the each of our five largest market.
In fact, what wide shop you was among the top five most downloaded app in the shop Key Shopping category across Google Play and the IOS app store combined wage imposed the fourth quarter and it's a free year of 2019 based on estimates.
At the same time we are seeing that consumers are building and increasing Affinity with the shopkeeper and according to your golf 2019 Global Brand Banking, which mirrors the branch with the most about which consumers in different markets around the world. Sharpie was the top-ranked brand across all categories in each of Indonesia, Thailand and Malaysia and the top-ranked e-commerce brand in Vietnam.
well
Encouraged to see that shopping is enjoying strong user retention as we continue to strengthen our Market leadership shop his three-year order retention from January 2017 to December 2019 was close to seventy percent with the order retention rate Indonesia our largest market even higher than the growth rate for the same Theory Indonesia Shorkey further solidified its Market leadership in the first quarter. We recorded an average of 2 million hours a day not is more than double the same number from the same quarter a year ago.
In fact year-on-year growth for Shopkins gmv and orders a celebrated each quarter in 2019 shop. He also continued to rank off the top app in the shopping category Indonesia by monthly active users and the downloads on Google Play and the IOS app store as well as time spent in app on Android in the fourth quarter according to Danny as we continued to benefit from our growing Regional leadership and the deepening monetization. We reported strong growth on the top line and the further Improvement in operating efficiency during the quarter e-commerce adjusted Revenue increased over $182 percent year-on-year to 358.3 million dollars in Q4 and increased over two hundred and 24% year-on-year to reach $900 a month.
42.1 million.
For a year, which meant that we exceeded the high end of our twice increased guidance for 2019 and adjusted Revenue as a percentage of DMV reached 6.3% in the fourth quarter a new high for Sharkey. This strong Revenue performance is a result of a dedicated Focus to bring the services we offer to our Sellers and the buyers and grow the platform to create more value to them. We also recorded a positive gross profit for the fourth quarter of 2019.
During the quarter. We also continue to drive Improvement in cost efficiency and adjusted ebit a loss for order decreased by 47.8% to 70% in the fourth quarter of 2019 compared to $1.34 a year ago and the $0.79 in the third quarter. I'm I'm also pleased to note that shot. He was coerced perfect positive in the force culture as we continue to benefit from the economics of skill that come with Mercury leadership. Well improved operating efficiency moreover in Taiwan or second largest market will continue to record a positive quarterly adjusted ebitda wage up to our location of the headquarters, expenses.
the justice
Submerged in Taiwan before a location of the headquarters, expenses already exceeded 20% in the first quarter of 2019.
Looking to the year ahead Shorkey is in an ideal position to continue capturing the Lion's Share of the growth in our region e-commerce Market. We are increasingly benefits from the scale and the brand recognition. We enjoy as the clear industry leader and we will continue to invest prudently to extend our leadership by continuing to grow our Cellar and a consumer base and the building ever stronger bonds of affinity with done across the region.
Our Ecommerce guide us for 2020 underlines our belief that we will continue to scale the platform with speed and efficiency. Well further depending on a station for the year of 2020. We currently expect adjusted revenue for e-commerce to be between one point seven billion dollars and the 1.8 $5 as I mentioned at the start 2019 was the year of major successes for see we have been fortunate to be in this region at a time when the market has been growing rapidly. We have been in the right place to capture this growth opportunities, but we also have been highly strategic in the areas. We have chosen to focus on
highly disciplined
How we build and skill are businesses and highly skilled in managing their growth.
We see future growth opportunities ahead each of our business lines leveraging our proven capabilities in building and scaling businesses with efficiency off our ability to achieve strong profitability in diverse growth markets. We believe we are in an ideal position to capture this and other Global growth opportunities that may present themselves in the coming years.
And more excited than ever as we move into 2020 and would like to close by thanking our investors and the partners on behalf of all of us at 6 for your support over the last decade. We have big goals for 2020 and Beyond and we are humbled to have your continued packing with that. I will invite Tony to discuss our financials.
Thank you.
And thanks to everyone for joining the call. We have included detailed quarterly Financial schedules together with the corresponding management analysis in today's press release. So I will focus my comments on the key financial metrics for see overall. Our fourth-quarter total adjusted Revenue was 909.1 million dollars an increase of 134% here up here. This was mainly driven by the growth of our Digital entertainment business, especially ourselves develop game free fire and our continued monetization efforts in our e-commerce business in the past quarters.
Digital entertainment adjusted Revenue was 479.9 million dollars and increase of 107% year-on-year. The girl was primarily driven by the increase of our active use space and the depend paying user penetration and in particular the continued success of ourselves game free fire.
Digital entertainment adjusted ebitda was $200 and sixty six point four million dollars an increase of 153% year-on-year may be due to strong top-line growth and our self-developed game accounting for an increased.