Q2 2022 Sea Ltd Earnings Call
Good morning, and good evening and welcome to the Sea limited second quarter 2022 results conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to MS. Men's you saw please go ahead.
Thank you, Jason and Hello, everyone and welcome to <unk> 2022 second quarter earnings Conference call I made yourself from the Chief Corporate Officer.
Before we continue I would like to remind you that we may make forward looking statements.
Risks and uncertainties and may not be realized in future for various reasons as stated in our company.
This call includes discussion of certain non-GAAP financial measures, such as adjusted EBITDA and net loss, excluding share based compensation and impairment of goodwill.
We believe these measures get an accurate understanding of the actual cash flows of our major businesses.
When used as a complement to our GAAP disclosures.
A discussion of the use of non-GAAP financial measures and reconciliation to GAAP measures. Please refer to the section on non-GAAP financial measures in your press release.
I have an easy chairman and Chief Executive Officer, Importantly, Chief Financial Officer, Tony Hawk and Gucci.
Sure.
I imagine that will share strategy and business operating.
Operating highlights and financial performance for the second quarter of 2022.
This will be followed by Q&A session in which we welcome any questions you have.
Let me turn the call before.
Hello, everyone and thank you all for joining us today.
I'm going to start with an update on our plan to further focus on efficiency and it's strengthening our ranking system for long term profitability and competitiveness.
I will also share a few highlights across our businesses as we made steady progress towards these objectives.
During the pandemic lockdown, we rapidly scaled our business it will answer to the path of rising market demand for online consumption on a Thursday.
As a result, we significantly expanded our businesses and the total addressable market and addressing our market leadership, while improving gross efficiency.
We were able to achieve this result by focusing on doing the right thing at the right time in setting our direction and being agile and adaptable in our execution.
Now we are in that environment increased micro uncertainty.
With rising inflation rising interest rates.
Local currency depreciation against the U S dollar and ongoing we opened a new trend.
In this environment.
Hi, Joe and adaptable is even more crucial to the long term success of our business.
We believe the right thing to do at least offered the dentist time is to focus even more on a self sufficiency long term profitability and the defensibility of our business operations.
Our results for the second quarter demonstrate the early success of this effort.
Because of our strong execution in the quarter shop is unique economics improve significantly.
Driven by efficiency gains across our market.
In particular, adjusted EBITDA loss per order before allocation of HQ costs in our Asia market combined with lesser Websense.
And we are on track towards achieving positive adjusted EBITA before HQ cost allocation in this region.
At the same time shopping continued to grow at healthy rates, despite the tough year over year comparison.
With GAAP revenue up 51% year on year, or 56% year on year, but adjusting for currency fluctuations.
Yes.
Well garena quarterly active users were stable quarter on quarter.
This positive I'll call. What's the result of our efforts are wrong user retention to serve our large games community through more engaging experiences.
We will continue to focus on user engagement around our existing franchisees, especially refi.
Indeed, we are encouraged by three power retaining a top ranking position.
Hi, supporting mobile game in South East Asia, and Latin America during the quarter based on data AI.
Synergies between Shockey and see money also expanded as we continue to cross sell more financial products and services to our underserved user base across more markets.
Close to 40% off sharpest quarterly active buyers in South East Asia used to see money products or services during the quarter.
See modest revenue has enjoyed strong growth and adjusted EBITDA loss.
<unk> has also continued to narrow during the quarter.
With the solid performance across our businesses.
GAAP revenue was $2 $9 billion up 29% year on year.
In the second quarter.
Gross profit grew 17% from last year to reach one $1 billion for the quarter.
Yeah.
Let's now discuss each business segment, beginning with e-commerce.
Shockey continues to appeal to more buyers than sellers of course, our market.
As evidenced by continued leadership in active user and engagement metrics as well.
Revpar operational and international battery.
In the second quarter shop, just GAAP revenue grew 51% year on year to reach $1 7 billion.
Driven by gas marketplace revenue growing close to 52% over the same period.
Gross orders were 2 billion up 42% from last year and the GMB grew 27% year on year to reach $19 billion.
The currency fluctuations negatively impacted both GAAP revenue and the.
Dnb year on year growth rate by more than four percentage points.
We also drove further improvement in monetization during the quarter as we deliver more value to our centers.
Across the board.
Centers are investing more with us to pursue growth on our platform.
These efforts continue to translate into positive financial results.
What a pure rate gap.
Marketplace revenue as a percentage of total GMB increased both year on year and quarter on quarter to reach seven 7%.
The increase was mainly driven by increased from high margin revenue streams like transaction based fees and advertising, which underscores the success of our platform in driving greater economics for our sellers.
As a result Deere was strong for through to the bottom line with the better monetization contributing directly to work better profitability.
In the second quarter was incorporated or sharpie grew by close to 85% year on year and the gross margin continued to improve sequentially from the last quarter.
Sharp is oral adjusted EBITA loss also improved sequentially by 13% quarter on quarter.
Moreover, in southeast Asia, and Taiwan, and adjusted EBITDA loss for older before allocation of HQ costs for the quarter, what's left on Wednesday.
Which shows that we are well on track towards achieving positive adjusted EBITDA before HQ cost allocation in our Asian market combined.
Even Brazil shopping is also driving greater efficiencies, while growing revenue rapidly.
The adjusted EBITDA loss per order before allocation of HQ costs, there was $1 and 42%.
Improving quarter on quarter.
At the same time GAAP revenue in the market grew more than 270% year on year.
We are also optimizing spend around our HQ costs.
During the quarter total HQ cost for shockey increased by $28 million quarter on quarter, driven by an increase in research and development staff and some of our hosting costs.
As we expanded our technology core capability and the service offerings.
This represents a deceleration in cost increases.
Third to the last quarter.
While we will continue to invest to enhance our products, we have been able to strengthen our team significantly in the past theory.
And the plan to be prudent you further expanding the team.
Yes.
Meanwhile, Shockey continued to achieve top ranking globally and in our region.
In the second quarter shop eat ranked first in the shopping category globally by total time spending app and a second by average monthly active users on Google play According to data to AI.
We also remain the top ranked app in the shopping category.
Average monthly active users and the total time spending I E top southeast Asia, Indonesia and Taiwan.
In Brazil, we are further strengthening our leading position with sharpie ranking first by average monthly active users in the second quarter.
While continuing to read sports by total time spent in App for the shopping category during the quarter.
Yeah.
Besides engaging consumers. We are also working closely to support our seller.
We continue to empower our merchants.
Our new patient training in addition to providing them with better tools and services.
This remains a key area of focus for us.
Of course, the shop, you stellar platform resources, including our shop University and the master classes have been especially helpful to the local entrepreneurs and I met Amit.
We are also growing our brand partners are shopping more closer collaboration will enable greater engagement with their customers.
Staying close to and collaborating with our sellers has enabled shockey to grow and thrive together with us.
For example in Brazil, we estimate that Shockey has become the main source of income well over 300000 local entrepreneur and has brought 430000, new digital entrepreneurs to e-commerce.
This has been partly driven by our investments behind training, our Brazilian seller with more of that 50000 et cetera attending classes at the Shockey agitation center.
Yeah.
Now I would like to discuss our decision to suspend the full year revenue guidance, where sharpie driven by the highly volatile and unpredictable micro environment.
As shared earlier, while we think the right thing to do during the pandemic lockdown was to prioritize growth with improving efficiency.
We think the right thing to do in this time of continuing heightened macro volatility is to prioritize efficiency and the self sufficiency.
As we have always maintained we think about managing our businesses that's more like marathon rather last spring.
Adjusting our pace to match the moment is therefore highly important.
Our ability to navigate changing times will help us win this long rates ultimately.
Given our strategic shifts.
Coupled with the virus macro factors that are hard to predict as mentioned before we.
We believe it is prudent to maximize our focus on efficiency across our business rather than all work on meeting, which we believe would be yield a device at this time of uncertainty.
As such we are suspending the full year guidance for Shockey, which we lost are provided in may.
Even though we have stopped providing guidance.
Our forecast for the rest of the year remains very clear, which is to continue to improve efficiency by both deepening monetization and optimizing our cost structure.
We will be more tightly managing our operating expenses, such as marketing cost and the logistics costs.
We'll also gradually increasing monetization across wireless income stream with a focus on the high margin wise.
More importantly, I want to emphasize that the current macro volatility does not affect our highly positive long term outlook for our region.
Current macro uncertainties do now is chip do not change the fact that our markets remain some of the area with the highest long term growth potential in the ward with positive demographic feature and the deepening digitalization.
The current macro uncertainty also do not change our demonstrated track record in capturing some of the largest opportunity across the consumer internet industry in our market.
We believe our strong market leadership position will continue to allow us to disproportionately benefit from the long term industry growth.
And our strategic edition and operational focus it today Oh directed at the best positioning us to capture the long term opportunity.
Turning to digital entertainment.
Yeah.
In the second quarter, the arena GAAP revenue was $900 million and the bookings were $717 million.
We remain the most downloaded mobile game globally during the second quarter based on data or AI.
It was also the highest grossing mobile game in Southeast Asia, and Latin America during the quarter.
Maintaining the leading petition for 12 consecutive quarters.
It is encouraging to see that <unk> continued to perform well, we think the mobile game industry.
Over through far shows some early signs of active user stabilization with quarterly active user, reaching 619 million compared to $615 million in the fourth quarter.
We continue to focus on investing in user engagement around the brief of our franchise and the platform.
Ensuring a consistent cycle of fresh and new content for our communities.
I think sample we celebrated Ramadan with our local communities in the second quarter.
You weren't Ramadan, we worked with local celebrities introduced the more themed items and hosted a number of community gatherings.
These highly localized the effort allowed us to better engage our local users and enjoying strong monetization during the Ramadan season.
New content that we introduced in the form of game mode.
Also helped to diversify the experience is that our gamers came joint on <unk> platform.
Alongside the Battle Royale mode, we're increasingly seeing solid long lasting retention and engagement around other game mode.
Clash squad, which is the four before game mode and the loan pools, which is a one be one or two b two game mode.
Besides being highly engaging and social experiences.
This game modes also shorter and the more fast paced, which are preferred by some gamers.
Especially as time available for entertainment, it's more fragmented with reopening.
While short term gaming industry trends remain relatively uncertain due to reopening trends as well as the potential impact from macro volatility.
We are highly confident in the long term structural tailwind of the segment.
We expect this to be even more apparent across our market, where we are well positioned and that the growth runway for digital entertainment is substantial.
We also expect needs to support the long term system lifespan.
Our existing franchises and the platforms.
Okay.
Lastly, our digital financial services business.
In the second quarter, the synergies between both Shockey and <unk> continued to expand driving revenue and value across the ecosystem.
Seamless GAAP revenue for the quarter was $279 million, an increase of 214% year on year.
Quarterly active users across our sea money product that authority reached close to $53 million.
Growing 63% from last year.
Our mobile wallet total payment volume also grew.
Healthily at 36% year on year to reach five $7 billion during the quarter.
With the stronger adoption of our growing portfolio of financial products and services across our sharpie and see money ecosystem we.
We are driving greater efficiency across platforms.
Such see monies adjusted EBITA loss continued to improve quarter on quarter.
A significant population in our market is still underserved Eros digital financial product and services.
And we are well positioned with our strong ecosystem to serve the largest segments of our market sort of direct relationship and the insights we have accrued.
But at the same time, we are working closely with our partners and other local stakeholders to build a healthy and a sustainable environment for the long term.
In closing.
As we navigate an increasingly uncertain market environment they.
The need for us to be more thoughtful prudent and disciplined has only grown.
Well, we have ample resources to achieve self sufficiency.
It's a business, where I, nevertheless, rapidly prioritizing profitability and cash flow management.
In this current volatile environment.
We believe our focus on these areas will be key in setting the business with us for long term sustained success.
We are also confident that our ability to execute to achieve our objectives. During this period will be further supported by our scale leadership additions and a proven business models.
We have articulated clear commitments.
And now well on track to achieving them.
We also continue to be highly optimistic about the long term potential of the opportunities in the market we are addressing.
With that I want you to like 20 to discuss our financials.
Thank you Floris.
Thanks to everyone for joining the call. We have included detailed financial schedules together with the corresponding management analysis in today's press release as far as has discussed some of our financial highlights. So I will focus my comments on the other relevant metrics.
For sea overall.
Total GAAP revenue increased 29% year on year to $2 $9 billion. This was mainly driven by the growth in our E Commerce and digital financial services businesses.
As we continue to leverage the synergies across our platforms.
On E Commerce, our second quarter GAAP revenue of $1 $7 billion included marketplace revenue of $1 $5 billion up 62% year on year.
GAAP product revenue or zero by $3 billion up 14% year on year.
E Commerce, adjusted EBITDA loss was $648 million.
Adjusted EBITDA loss per order worth 33 cents compared to <unk> 41 for the second quarter of 2021, as we further improved our growth efficiency and unit economics.
Digital entertainment bookings were zero by $7 billion and GAAP revenue was zero point $9 billion for the second quarter of 2022.
Adjusted EBITDA was $334 million.
It's slowed down compared to the second quarter of 2021 was mainly due to a moderation of user base and the user trends post COVID-19.
Digital financial services GAAP revenue was $279 million, an increase of 414% year on year from $89 million in the second quarter of 2021.
The growth was primarily due to the growing adoption of our financial products and services.
Adjusted EBITDA loss was $112 million compared to $155 million for the second quarter of 2021.
We further improved our growth efficiency.
In the second quarter of <unk> with all that in train two we.
We recorded an impairment of goodwill of $177 million.
The goodwill in parallel was primarily due to the change in carrying amount of goodwill associated with our prior acquisitions.
Driven by the lower valuations Amit the market uncertainties.
We recognized a net nonoperating loss of $33 million in the second quarter of 2022 compared to a net non operating loss of $25 million in the second quarter of 2021.
Our operating loss in the second quarter of 2022 was primarily due to investment losses recognized amidst lower valuations in the broader market.
We had a net income tax expense of $65 million in the second quarter of 2022, which was primarily due to a corporate income tax and withholding tax recognized in our digital entertainment business.
As a result net loss excluding share based compensation and impairment of goodwill was $517 million in the second quarter of 2022.
As compared to $321 million for the same period in 2021.
Net cash used in investing activities in the second quarter of two without that in 'twenty two.
Is primarily attributable to an increase in loans receivables.
Purchase of property and equipment to support the growth of our businesses.
At the end of second quarter of two without it and then 'twenty two we had $7 $8 billion of cash cash equivalents and short term investments on our balance sheet.
What is that that May turn the call to meet you.
Thank you for that Tony.
I'm ready to open the call for questions operator.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on you touched home phone.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
In the interest of time, we will take a maximum of two 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.
Yeah.
Our first question comes from paying visits from Goldman Sachs. Please go ahead.
Thank you very much for the opportunity two questions from me Firstly on E. Commerce can I. Please clarify on the pension.
Pension of guidance, what are mannesmann current D C and that speaks to that decision is the outlook that we are facing right now is the elite that cloudy and at this point in time, they understand that macro has become very challenging but at least up until middle of August .
Any color you can provide in terms of how choppy has been doing so far for the quarter. All that much about 2022 second question is related to how piece in that breakeven is that any update on your breakeven postpaid QUADRA tactic flush I'll be asking in Taiwan, right now asking in Taiwan.
And then in sight, but headquarter cost to increase on a quarter on quarter basis can be understand what drives this increase and take them on a clock and when can we actually expect to see this improve going forward.
Thank you Ken.
Got it no guidance, we just want to clarify this is a.
Proactive decision on the matched meant to continue to shift our strategy and we want to be very upfront and open to the market about it and if you look at our kitchen yourself, you're already starting to see that.
Our actually not just for shopping I think Gary not just on a unit economic basis, but also on a total.
And in the shop level basis, including all the cost concerns.
And at the same time, we still achieved significant growth at.
40%.
More than 40%.
Yeah.
It's important that I believe shared earlier.
Given the macro uncertainty.
Our goal is to be the ultimate.
To achieve ultimate success in the long run.
For the consumer Internet settlement in all markets.
I think that pace ourselves well and manage the business prudently in accordance with the macro environment is very important and nimble execution adaptability has really helped us in achieving great success through the COVID-19 period, as well and now.
But the time for us to manage.
In a different direction and we want to communicate proactively to the market about the just different direction now of course doesn't mean that we think the market immediately are deteriorating.
Well, we see anything destiny significantly netted it isn't more of a proactive communication to the market about management challenges to focus on.
Efficiency focus on the overall strength and health of the ecosystem and focus on continuing to Hum.
Heightened operation and that has been.
In our operations since earlier this year and do we want to continue in that trend.
But of course to put things in context as we also shared our mountain view about the market have not changed and we remain very positive.
About the amount of cost opportunity across all these countries Ethernet shipments and that we currently have leadership.
In our market.
We're doing this to best position us to really capture these opportunities in a better way and to also put this into context County, we have strong market leadership.
Our cautionary statements.
Yes.
And also based on historical results so far our market leadership has continued to.
To widen the gap with our peers also in that case, we have ample resources as well as.
Their strong position to manage the shift in our strategy and position us really well for the moment.
In terms of the breakeven target for the Asian market close HQ costs, while we previously shared that we expect that to happen by next year, There's no change to our <unk>.
Expectation on that skin care of course, we continue to manage that.
Cost and we do expect that that will try to move closer to that target over time and you can see pre HQ costs are we almost achieved the targets given.
How do I get a lot is left in that sense.
Asia, and HQ cost wise, although theyre still increased clump Q quarter on quarter. The increase has the pace of increase has slowed.
As we shared in the earnings and this is mostly related to R&D as well as service costs now.
Now of course the.
Gross R&D and service will also be commensurate with.
With the overall growth of the business as we continue to manage the quote we also very much focused on efficiency and in terms of the operation in China and also overall calls so we do expect that to continue to pursue.
Glass in a positive direction for us.
Okay.
Our next question comes from Alicia Yapp from Citigroup. Please go ahead.
Hi, Good evening management, Thanks for taking my questions I wanted to follow up on the E. Commerce, our guidance expansion. So can manage I think you guys in the past few years management has proven very penetrated on providing insight into.
Your forecast so I wonder if these challengers mainly.
Is that the frequency of the spending or the S P where the country might become more cautious on the spending on the big ticket items.
You know some of these uncertainties that forecast or is it because of the.
Wondering willingness from the smaller merchants that you watch.
That create that'd be cookies on forecasting a bad thing.
So on this is that.
Last question on E. Commerce are very quickly on E G.
Just wondering be dealt with.
What should we expect in terms of the free fire franchise to trend going forward, what would that be more stable.
Stable or could that be also potentially growing the paying ratio based asset base that can actually support the gross bookings going forward. Thank you.
Yeah. Thanks Felicia.
I think what we're trying to say here is that Oh for us. The reason we are suspending.
The guidance now.
Mainly because on the management of the business perspective.
We will see growth top line growth what output.
Rich.
<unk> as a target.
And what is the target now is going to be increasingly efficiency improvements and long term health and strength and profitability of the platform and that's why I wanted to put things into perspective, even though we don't put as a target nationally.
Country to sequels.
And overall the market conditions, there are headwinds, which are as we mentioned inflation.
And should be opening a tough comps against last year, especially given that are we have supercharge Clos are in fact sharpie has achieved.
10 quarters of <unk>.
So difficult in the past 20 quarters. Since we are public I think that is probably a historical record.
For any business, but also given the.
And Maarten market and we are in with underdeveloped infrastructure and all the work we have to.
You are paying to grow a highly complex ecommerce fitness across so many markets. So we have no problem.
We don't have to prove that we can execute plus that has been very well established and a very strong track record and also got US here and then a strong leader and continue to extend our leadership, even despite all the headwinds.
Everybody has experienced in the market. However, all we're saying that as a prudent business management perspective, we think now the direction need to shift and we want to go after.
Indicate a shift of that direction to the market to all stakeholders and that's what we are saying here.
Now in terms of the police fire trends.
So as you can tell by given the size of free fire, our Q2 results on the.
Just trying to attainment sentiment.
It also largely driven by ceasefire.
On the active user sites, while we saw some stabilization quarter on quarter compared to last question, we're not making any forward projection here regarding user trends and also appears the trends of bookings because.
As you can tell this is hard to predict a.
For gaming industry as a whole, but also to put things into perspective.
Of course, the inflation and also the opening up.
Hold it ended up against a tough comp against last year in particular, the outstanding performance of free fire throughout the year that make the comparison.
It looks tough for us and does affect anthema consumption and engagements are naturally, it's not particularly don't see firearms arena.
On the industry and keep trying to keep its top ranking in terms of global downloads in terms of where else in a key market in South East Asia and I can so that seems to be more of an industry.
Children into a macro driven kind of impact.
On the other hand, we also see some other franchises and our current games portfolio for example.
Performed yet.
Steve I, just quite a stable showed stable performance and even in some quarters.
We saw improvement is also another game that we have been running for many years.
So it's not necessarily a true that's a you know given the headwinds given the lifespan of the game now we definitely will see a continuing downward trend.
Think part of it is also.
Appendage.
Effort.
Belichick to continue to manage that and that's what the team is focused on.
In the past quarter I think the team has done a different takes in terms of esports activities engagement new content new game modes.
More user friendly packages and game sighting.
In various S that try to continue to improve and retain our users and engage with all use it better I.
I think the trends you see is really a given the tough comps in the macro environment against us on the other hand, we are also making a lot of effort in this regard and we see all game and it's very important long term franchise.
And yet as I said, we think the online virtual consumption is going to be an increasingly important that's what else. What are your younger generation and that's where we have done in terms of the long term future of the company as well.
Our next question comes from Piyush Choudhary from HSBC, Singapore. Please go ahead.
Yeah, Hi, good evening to the management, Thanks, a lot for the opportunity two questions.
Firstly can you talk a little bit about the outlook for the E Commerce industry G. M V growth.
<unk> market in 2022 and 2023.
Which markets are proving more resilient than the chart showing signs of weakness.
Secondly, could you give us the breakup of gross orders and revenue in Brazil, and what is the likely cost savings with your recent initiatives taken is it already reflected into cure yet to come.
Thank you.
Yeah.
Oh, I think in terms of the industry, Jeremy well there a lot of research are outstanding and and <unk>.
I think obviously, it's going to be a slower but also it really depends on the various industry players into us and our peers, how do we manage this close.
Among the various market.
We see that.
There are some markets are for example.
Like Malaysia, Singapore that enjoyed.
Spectacular growth during the previous years, there is a slowdown given the tough comp and also.
Open up opening up versus a period a strict lockdown.
I think the continuing into this year.
And of.
Of course does it does.
Tough comp is going to remain in effect and at same time, we also see markets like Indonesia, Philippines, and Vietnam continue to enjoy relatively faster close that.
That also.
In a way and sometimes is affected by the comp relative.
Relative to in terms of.
Opened auspicious lockdown.
The ratchet backhaul situations people facing the physical tools Uh huh.
The central banks and the government in terms of interest rates and fiscal towards apartments have been employing to manage the inflation and holiday deployed those tools, whether its on price cap on coupons and if it's on subsidies holiday channel the subsidy.
All of this can affect a overall consumption growth and where the consumption growth.
Whether it's a discretionary or necessities or whether it's a physical consumption such as services and also the e-commerce relative to share online versus offline, but.
But I think there are many factors that could affect well in general the big picture, it's going to be smaller.
Compared to last year, and how much silver I think remains to be seen in O'hare and we hope that.
We can continue to see our resilience, but again as we shared on the management perspective.
We think it's much more it's much much better much better to be disciplined and prudent and manage for.
Macro uncertainty and to be prepared for any negative events in situations as opposed to hoping for a resilience and the market staying positive.
Oh in terms of the.
Well its borders and GAAP revenues for Brazil, I think we disclosed our strong growth in Brazil has continued to it.
Enjoy it for us and we also more importantly continue to narrow our improved unit economics in Brazil. So everything is on track for sulfides in Brazil.
And in terms of total group level I think the.
On the cost initiatives, when we talk about our projections in the future. If only a few trained himself EBITDA positive after HQ cost allocation for the Asian market, we do taking too and he should initiate it visible to us.
As a point of course that we don't have a perfect prediction for the future.
The next question comes from Thomas Chong from Jefferies. Please go ahead.
Hi, Good evening, Thanks management for taking my questions I would like to ask about <unk>.
Digital entertainment side.
Hum you should think about the new games in the pipeline, we understand that we haven't before and that's driving that.
You got it but I just wanted to see how the pull glass.
And should we expect any minions.
Meaningful titles to be released in the second half or kind of trying to create and all that fun, we should think about the EBITDA margin.
Digital entertainment piece of it in coming quarters.
Can we expect.
Invest in driving day, we kind of said that engagement.
He wishes.
Continue to work.
Thank you.
Yeah in terms of the pipeline, we do have things in the pipeline, whether it's from our own self development or publish titles or it's a L. M. S. D titles might publish later this year and as you know we will.
Announce it when they were public when they are officially launched into it.
I think that in the long run we do our goal is to continue to diversify.
Our portfolio and in terms of genres.
In the midst of the esports.
Esports and in more casual type of games and across a more diverse markets. So the direction is the same oh from a N.
And a financial perspective, we don't think there'll be anything that will have an immediate meaningful significant impact like that on free fire in the immediate future future because it's a you know a two five it does vary a lot of the largest mobile.
Mobile titles in the world and to and be.
And so any game that we launched initially also because it's more going to be user engagement and building up the the momentum and also the user base and solidify that before.
Before we focus more on monetization even for free fire actually took down the game are quite a number of quarters or I would say I'm on a year to gradually ramp up monetization and to develop into more of a full potential. So that that's all of you and in terms of the.
EBITDA margin for our insurance coming in coming quarters.
I think the Oh EBIT margin is still are very much on the high end Oh, the industry added more than 45%.
And now to some quarter to quarter as we shared before there could be fluctuations depending on it for example, E sports events and other campaigns for example.
The second quarter, we had or the world series and the competition for free fire and then it also depends on launch timing for new games.
New games, then there'll be some sales and marketing investment to build up the momentum our Florida public she based on publishing tiny.
But generally I think you know, even though there'll be fluctuations we do so I do expect our EBIT margin will continue to remain on the high end.
Compared to the industry range.
The next question comes from Joan Chow from Barclays. Please go ahead.
Thank you very much for taking my questions I have two questions I'd like to ask one at a time if that's okay.
As a company our focus is on a some monetization efficiency cost control.
Any comments on your take rate expectation I think in the past you talked about.
<unk> take rate about roughly 200 basis points each year.
She was asked to be our expectation or your expectation any comments would be super Super helpful. That's my first question. Thank you.
Thank you John .
I don't recall, we gave any takeaways.
Take away the guidance right, but on the whole I think that you know it.
In terms of the take rate, we do expect our take rate to gradually rise and as we continue to see.
Deepen monetization through better services to our sellers and.
And consumers and to growing the ecosystem. This is Paul.
Okay.
My apologies I think maybe or what I remember it was I think.
You might have talked about the increasing takeaway. This year is going to be similar to the increasing take rate last year, which was roughly 170 or 200 basis points, if I, if I'm not mistaken.
But maybe another way to just follow up on this is it any change in your expectation for your take rate things now you sort of.
<unk> suspended the the revenue guide is there any changing your expectation on the monetization specifically regarding to the take rate.
Oh, I think John there can be many factors affecting the take rate, we won't be providing any specific guidance on that on the take rate, but suffice to say that a there will be gradual.
Increase overtime, we don't set a specific target kicked right, so any particularly here and ill, let integrating the races right. This it can be also based on different our income streams.
Himself transaction based fees.
And I didn't want to take away that we set on the other hand, you also take rates that are the sellers adopt because for example, we offer opt in programs for sellers, who joined these programs that pay at the Hyatt teach me and getting more services.
And offering right.
And this will also increase our take rate, but it is not something that is directly set by us but its more based on the seller adoption and also advertisement again that is something based on adoption.
Then Theres also me, yes N V S take rates are in a way also depends on.
The rollout of our and logistics and in terms of how we manage logistics and there's also a county are related to.
Changes in my affected at the take rate. So there are many different factors that affect it but I think overall all the countries a focus on the unit economics improvements and overall platform ecosystem growth.
One of our platform.
Our next question comes from Ron Children Sharma from J P. Morgan Singapore. Please go ahead.
Yeah.
Hi, good evening and thank you for the presentation two questions from my side Firstly.
On the giving the without giving guidance I guess theres no change if you can confirm that.
Secondly on your AD revenues, if you can just give more color on how fast they're growing in there.
And if I look at it from a percentage of jewelry perspective will be thank you.
I think George in.
In terms of a gain guidance no change to it and in terms of AD revenue. We we don't break that out but there is also a gradual upward trend on that front and that's also part of the reason is that the combined with the increase in transaction based fees that we see.
Continual increase in our high margin revenue and improvement on our margins almost.
Shopping.
The next question comes from John Choi from Taiwan. Please go ahead.
Thank you for taking my question. My question is on your strategy to shift more of it.
Management.
Agree on what are the you hundreds of examples that you could give us about how you're going to really.
No I'm trying to improve the efficiency of the margins as it may be more by.
Cut it anymore.
I'm doing some very good and a quick follow up is on the Brazil strategy I know that we are growing very nicely here. How are you going to balance the group opportunities in that sense versus your new ERP system.
Charters going forward. Thank you.
Yeah. Thanks, John .
The efficiency ratio I think you had said.
It's not as simple as we just caught right. It is important just wanted to focus on or efficiency of the ecosystem.
For example, as we all know logistics is a big parts of the ecosystem cost and when it's borne by the sellers to fight the fires all by the platform like US are at is it one of the biggest cost component and there are many ways to continue to improve it.
Sounds only work even more closely with our three P. L partners and other agents if service providers to better route.
Delivery and that our plan a and then B and also increase the density of delivery. There are many ways to improve the overall ecosystem efficiency.
And on the payment function. For example, we continue to tools improve adoption of all E wallets.
And also increased other.
Online payments adoption over time and that can also no other payment costs and to reduce the transaction friction. So there are many things that we focus on ecosystem site that and we want to make sure that can be more efficient and also in terms of that.
Other cost management sadly country to review various costs.
Hum.
And to see if that can be savings needs.
During this process and I think it's actually a very good exercise that Oh, we sure do we see this as a business that's running a marathon and.
And during this time I think it's good to tighten up Shoeless Joe water.
And divvied up and also then that prepare us to run faster down the road.
And in terms of our business.
Oh, well in Brazil.
Yeah in terms of balance sheet growth and efficiency I think that's the big picture is still doing the right thing at the right time to the right place and so Brazil are we look at show what is C potentially.
On natural or a reasonable growth rate for us.
And then and what is sufficient.
For us so that's it.
It was always emphasize efficiency.
Any growth in region and are increasingly given the micro trends little puppy, So let us focus on that and emphasize on that and so again as I said are we going to see a close rate as more output and during this period of time.
More focus on efficiency at that kind of allow us to essentially build a stronger and more profit.
Profitable platform, there a long time.
Yes.
Our next question comes from.
Maroon.
From Credit Suisse. Please go ahead.
Yeah, Hi, thanks for the opportunity. So I've got three questions first on the you called much sorry to harp on it again so the team in study that you're talking about to the suspension in guidance is.
As for the fuel for next year.
Do you think.
You'll get back to giving guidance for the segment and more importantly have you ever going to change the metrics that you track internally that couldn't have assumed revenue growth, but without any other metrics or that you're going to focus on now when you provide guidance so any color on decrementals.
Secondly on the Fintech side.
If you can tell us how the.
Digital banking initiatives going across the various countries and if you look at the loan Oh.
The C V boats home your balance sheet is around $2 billion how.
How much more launch that you're getting out of this in collaboration with the digital bank. So any color that you can ship.
That's going to be good and lastly, if you can give more color around the goodwill impairment, which segment of this investment relates to E Commerce logistics gaming.
How much is still left on the balance sheet up that didn't listen thank you.
Yeah. Thank you got it wrong time in terms of the guidance suspension, we are suspending our guidance for this year no decision has been made with anything regarding.
Future events and are in terms of the digital bank initiate is.
We continue to as I shared before we continue to focus on quality.
Quality as opposed to close for all of our bank initiated a.
Engine.
Going to be a very long time.
Effort and also yeah. Thank you so much and with the trust and.
Reliability and integrity, driven business and it's very important to film system for it. So we're not so focused on driving growth.
France and the same with our.
Credit a business, where we continue to build out models and.
And it provides needed services to our customers in various markets and collaborating with third party financial institutions and doing so.
Again, we're not driving growth, let's say in that area, yes were looking more for us.
To build a robust model that can withstand cycles.
It can be a long term sustainable business model for us.
In terms of the goodwill impairment a these are related to various paths to investments not just any specific segments focused but as you know given the macro environment and Oh good.
Movements in the market Oh, that's a lean.
The company's renovations and stock prices. We also think it's a prudent for us to proactively manage and review all our portfolio that we hold on our book to assess the overall impairment need it so.
So far I think we are if you look at our balance sheet too there's still around 400 million and of course, we are at.
At this stage, we don't currently expect all of this needs to be written off.
But only in a handful will continue to assess over the periods.
This concludes our question and answer session I would like to turn the conference back over to MS. Zhu song for any closing remarks.
Thank you. Thank you all for joining today's call and we look forward to speaking to all of you again next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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