Q2 2019 Earnings Call

Good day and welcome to the see limited second quarter 2019 results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star Key then zero on your telephone keypad.

After todays presentation, there will be an opportunity to ask questions to ask a question May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Yang Ming.

Mr. Wang Please go ahead.

Thank you operator.

Good evening and good morning, everyone welcome to see.

Oh, Yeah I played write your name please.

As the operator would you want to call your name please.

You are now rejoining the main conference future for various reasons, stating press release.

Also this call includes discussions of certain non-GAAP financial measures such as adjusted revenue and adjusted EBITDA. We believe these measures can enhance investors understanding of the actual cash flow of our major businesses were used as a compliment to our GAAP disclosures for discussion of the use of non-GAAP financial measures and reconciliation with the closest GAAP measures. Please refer to the section.

non-GAAP financial measures in our press release.

Oh the call with me are chairman and Chief Executive Officer of costly and group Chief Financial Officer, Tony Hole for Us and Tony will share our strategy and business updates operating highlights and financial performance for the quarter. This will be followed by Q and a session, which we welcome any questions you have with that let me turn the call over to forest.

Thank you Andrew Hello, everyone and thank you as always for joining today's call I'm very pleased to report that we had another weak quarter across the business, we saw strong growth and the further improvement on the top and bottom line.

We're seeing on the whole our adjusted revenue tripled year on year to reach $655.4 million an hour adjusted EBITDA improved once again to negative $11 million.

Our results for the quarter show last we continued to drive revenue growth and the improved efficiencies across our business.

We are increasingly able to fuel our growth with cash generated through operations, which we believe positions us well to continue driving long term sustainable growth.

As you know at the start of the year, we set ourselves some very ambitious targets for adjusted.

Revenue growth in 2019.

With our strong performance in the first half of the year. They have decided to raise our guidance for our full year adjusted revenue for both digital Entertainment and E Commerce.

For digital Entertainment, we now expect full year 2019, adjusted revenue to be between $1.6 billion and $1.7 billion, representing 142.0% to 157.2% growth from 2018.

This compares to the previous guidance of between $1.2 billion and $1.3 billion, representing 81.5% to 96.7% year on year growth.

We are also increasing our guidance for full year adjusted revenue for e-commerce to between 700, and the $18 million and a $220 million.

Which represents 158.3% to 182.1% growth from 2018.

This compares to the previously stated guidance of between 600, and a $30 million and $650 million, representing 100, and a 15.7% to 120 and 27.0% year on year growth.

Our increased the full year targets reflect our confidence in both the growth opportunities ahead and in our ability to execute our strategies to capture those opportunities.

Let me start with arena, where we saw healthy growth across key metrics in the second quarter.

On the topline adjusted revenue for the digital entertainment business more than tripled year on year to $443.2 million in terms of the bottom line adjusted EBITDA for digital entertainment was up 443% year on year to $253.8 million.

Adjusted EBITDA margin further increased to 59.5% for the second quarter of 2019 from 34.9% for the second quarter of 2018.

Our quarterly active user numbers or Kelly, you almost doubled from a year ago to reach more than 300, and the $10.5 million.

The paying user ratio, which quarterly which is quarterly paying users as a percentage of key use more than doubled from 4.1% a year ago to 8.4% in the second quarter.

There are three key highlights to bring the success this quarter.

First we continued to drive strong organic growth in active users globally in particular three fire. Our self developed this machine game was the third most downloaded mobile game and the most the downloaded Banco Royals game globally across the Google play and the iOS App store in the second quarter.

According to App Annie.

We are excited to see continued user growth across our core markets of Southeast Asia, and Latin America as well as in other growth markets like India, Russia, Turkey, and the Middle East.

Second we are strengthening our foothold in Latin America.

As we mentioned in previous quarters, the future success of three fire in Latin America is opening up opportunities for greener in this high growth market of more than 600 million people.

I'm pleased to report that in late July we launched a greener speed drifters across Latin America.

This is the first third party license a game that we are publishing in Latin America and it is an important step forward expanding our footprint in this very exciting market.

Finally, we continue to deepen our engagement with our gamers well driving monetization across our game portfolio.

For example throughout June we'd rather a series of themed competitions in free fire and offered a wide range of in game items based on campaign things.

Which were very popular with our gamers.

This translated into both user number and the revenue growth for the game.

And at the same time, our esports and a community building efforts are also enhancing engagement across our titles.

In Brazil for example, we hosted our largest ever esports tournament for free fire in that market in July which attracted over 12 million views online.

During the growing sign off the tournament the peak concurrent views on Youtube alone exceeded 800000.

In June and July we also hosted arena Vela reward Tempe shaping be none.

This was the first the time that this global tournament was held in Southeast Asia and it was a huge success.

We recorded cumulative online views of over $74 million with over 850000 concurrent views at the peak.

We believe that this showcases arena bettered popularity as one of the regions top mobile mobile games.

Looking to the quarters ahead, our pipeline remains strong.

For example, we recently launched pre registration for co-op duty mobile in our core markets in Southeast Asia.

We also see plenty of headroom for our existing titles to continue growing in particular as we further deepen engagement with free for our growing global user base. We believe that this game and the battle Royal Gener in general are still young and evolving.

For the upcoming quarters, we believe that the arena is in a great position for long term growth. This is also reflected in our decision to raise the full year outlook for the digital entertainment business.

Turning to shop.

In the second quarter, we continued to deliver on our strategy to scale with efficiency to capture market share and to deepen monetization.

Looking first at growth.

Shop, you further strengthened its market leadership in the second quarter. It ranked the highest in the shopping category by both average monthly active users and by App downloads across the Google play and Apple as App store in both southeast Asia, and Taiwan and the rent the third the app downloads in the same category globally. According to App Annie.

Gross orders for the quarter increased to more than 90% year on year to 246.3 million.

And the Dnbi for the quarter increased 72.3% year on year to $3.8 billion.

This data point underlying our success in building and sustaining a strong and engage the user base across the region and the continuing to capture market share.

As we scale, we also continue to improve our.

Gross efficiency.

Shop is adjusted EBITDA loss per order decreased by 46 cents or 31.3% compared to the same period in 2018.

More importantly, we continue to see sustained improvements in monetization and the take rate and adjusted revenue more than tripled year on year to $177.4 million.

The adjusted revenue as a percentage of total GMV increased to 4.6% in the second quarter up from 2.6% for the same period a year ago.

Adjusted marketplace revenue as a percentage of total GMV reached 3.6% in the quarter.

Indonesia, the BTC E Commerce marketing Southeast Asia, and also shop is begin to market our growth accelerated in the second quarter as we further extended our market leadership.

We reached over 100, and a $10 million for the quarter, which represents a daily average of over $1.2 million orders.

In Taiwan.

Choppy continued to record a positive quarterly adjusted EBITDA before allocation of the headquarters comp expenses for the second quarter.

This is a powerful demonstration of the long term profit potential of our E Commerce model.

Our focus for shop, he is not only on the quantity of growth, but also on quality.

We believe that long term success for sharpie is based on capturing the hearts and minds of shoppers in our region and translating that into deep and assistant user engagement. That's why one metric that we track closely is total time app.

Which we believe is a measure of our ability to attract and the deeper engagement with our users.

By this metric Choppier was once again number one in the second quarter in southeast Asia, as a whole and the each of our five biggest the markets on Android According to App Annie.

From the beginning we designed to shop, the shopping experience to be highly engaging and social by pioneering in App lifetime.

Games and the social features in our region.

And we are constantly working on new ways to enhance the user experience.

For instance.

We rolled out our new live streaming feature across all of our markets by the second quarter.

This feature offers a new and powerful way for consumers to engage with our platform brand and sellers through live video streams created by sharpie or better sellers themselves.

As consumers discover new products. There were these feature that can make immediate purchases without leaving the stream.

We also employed AI, an HR technology to further enhance consumer experience. Our platform for example, our new AI and Aer powered tools, which were introduced in partnership with a lower ROE enable our users to try different shades of makeup or get personalized professional skincare device in the shop App.

In addition, we leverage our unique strengths in both digital entertainment and social commerce by introducing it or streaming on sharpie platform.

This has helped us attract and the better engage with an even broader audience across market segments.

And just last week, we announced the world famous footballer Cristiano Ronaldo as shop is new bread and butter in southeast Asia and Taiwan.

Who nardo, it's one of the world's best the norm athletes and that an icon across our region.

We are confident that our partnership with key will resonate with consumers and deepen their engagement with the shop brand.

We believe that our focus on keeping our users engaged and the entertained gifts shockey unique strengths in better attracting and retaining users.

It also offers us numerous opportunities to better understand our users' needs and preferences to help them discover more new products on our platform.

To conclude.

Looking to the second half of the year. We believe we are in a great position to drive sustained growth across both E Commerce and the digital entertainment and to do so with increasing efficiency.

That said, we are still very much in growth mode across our businesses.

We have a great opportunity ahead of us to grow our market over the long term.

And we are very well placed to capture the largest the slice of this growing pie.

As we have always said.

We believe scale and the strong market leadership will translate into long term profitability.

Our results for the second quarter demonstrates that our businesses become increasingly efficient as we scale and we are committed to continuing scaling up to maximize those efficiencies.

With that I will invite Tony to share more about the financials.

Thank you for it and thanks to everyone for joining the call. We have included detailed quarterly financial schedules together with increased funding management analysis in today's press release. So I will focus most of my comments on the key financial metrics for the overall, our second quarter total adjusted revenue was $665.4 million, an increase of 203% year on year.

This was mainly driven by the growth of our digital entertainment business, especially our self developed games and our continuous monetization effort in our e-commerce business in the past quarters.

Digital Entertainment adjusted revenue was $443.2 million.

An increase of 219% year on year growth was primarily driven by the enlarged paying user base as we continue to improve the monetization of our games, especially see fire.

Digital entertainment adjusted EBITDA was $263.8 million, an increase of 443% year on year, mainly due to strong topline growth and our self developed game accounting for an increased share of revenue.

The increase was also partially due to the improved operating efficiencies as shown by the lower sales and marketing expenses as well as general and administrative expenses as a percentage of adjusted revenue.

E Commerce adjusted revenue was $177.4 million up 202% year on year.

Within this marketplace revenue was $137.8 million.

269% year on year, while product revenue was $39.7 million up 85% year on year.

E Commerce adjusted EBITDA loss was $248.3 million as we continued our investment to fully capture the market opportunity in the region.

We will continue driving a high quality growth by serving the USIS needs better and improving operational efficiencies in the long run.

Digital financial services adjusted revenue was $2.8 million, a decrease of 18% year on year from $3.4 million in the second quarter of 2018, as we focus our efforts on strengthening the infrastructure to support our existing platforms.

Adjusted EBITDA loss was $18.1 million in the second quarter of 2019 compared to a loss of $6.8 million in the same period of 2018.

This was primarily due to our continued efforts to integrate our LP and shopping platforms.

Returning to our consolidated numbers, we recognized a net non operating loss of $29.2 million in the second quarter of 2019 compared to a net net non operating loss of $30.8 million in the second quarter of 2018.

We had a net income tax expense of $15.3 million in the second quarter of 2019, which was primarily due to withholding tax and corporate income tax recognized in our digital entertainment segment.

Finally, net net loss, excluding share based compensation and changes in fair value of the 2017 convertible notes was $215.1 million in the second quarter of 2019 as compared to $198.7 million for the same period in 2018.

With that let me turn the call back to you in June .

Thank you filed in China, We're now 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 your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then too.

Our first question today comes from me to cope with Goldman Sachs. Please go ahead.

Hi, Thank you put up a good season.

On the gaming business it appears to the average revenue per paying user.

So quite a bit quarter to quarter.

I recognize there may be some dilution from all three buyer paid uses but then again the paying users increased even more acute in fiscal <unk> and the upward Paul its Mike.

On a sequential basis. So just wondering what drove sort of the larger.

Than usual for decline in.

And secondly.

Revenues in the quarter as opposed to give us some indication.

And then secondly on your expansion plans globally, especially in places like that.

Can you give us a sense of whether we should be expecting a lot more head count increases in some of these regions and how that would affect your opex.

Structure in the second half of this year.

And then if I may as well on the ecommerce side, a couple of questions as well one.

The take rate increased 70 basis points.

QQ, which is quite high.

Can we have a sense of how much of this 70 70 basis points increase was from value added services and how much was from commissions and advertising and finally, Indonesia.

We see institute charges stocks sell list.

Obviously on the CPC markets. Please.

In July .

What exactly do you see from the industry perspective that gives you confidence in that and what does it mean, Florida markets as always escalate and flow questions. Thank you.

Thank you and happy to answer questions regarding the ARPU trends.

I think as we discussed before when we look at a.

EA sports titles that has such a large user base and long game life, we tend to focus on different things.

Yes.

And usually darwish growing the user base and then gradually ramping up monetization deepening deepened the payout ratio and then optimize for AFP.

So firstly fire in particular as you can see.

We see very strong growth both on the user side as well as paying user penetration quarter on quarter.

And this is.

Contributing significantly to the revenue increase as well and in terms of GPU.

It is not totally focus for us roughly fire. We believe the game is still very young and has a long runway and we're focusing on broadening the use of base as well as continued to deepen that pay user penetration. For example, one tool that we find pretty helpful and bring more pay users to our our game.

We'll be the only passed on a fire pass.

It has a.

Lower ticket size at $5 a month, but it's a very effective in converting we used to pay.

Time.

And for that we'll be focusing on.

Promoting more of a fire path.

User engagement over the periods.

So as you can see overall, our revenue trend has been very positive and just at the margin has increased also over time, even though we already started with their high margin compared to the gaming industry as a whole. So we think this is a positive trend and shouldn't be of any comp SAR.

And we think in the longer run there will be growth potential on the revenue as well as happy to use that for the game business and in particular.

In terms of.

Revenue.

As mentioned earlier, we think that game is still yes.

Evolving and we are very focused on bringing new content into the game.

We have more than 300 developers our studio now and about half of them are devoted to creating new content on new innovations for the game to engaging user better.

Recently, we have offered.

I mean, the competition and themed virtual items that have been very effective to attract new users. This is a new mode of Teradata, we have introduced.

So we are quite confident about three fires revenue and the trends going forward as you can see in our revised guidance that we.

Basically guiding towards a more than a 140% too.

What I had to 50%.

Growth in our game revenue.

And that is largely attributable to the strength in the fleet fire game performance.

Over the longer run and.

Also.

Our other existing games so.

East pretty stable performance. So we are confident of our.

Longer term gain performance.

Markets.

In terms of the Tam expansion, we have set upset operation locally.

Brazil, and Mexico, and we are.

Quite carefully expanding into new markets and these teams are focused on local operations.

Payment partners.

And organizing local sports events and community building as well as.

Local customer services.

So our focus will be to gradually ramp up operations, but as you can see from our past practices and track record of gaming operation has been highly efficient.

In terms of DNA spending has been fairly low and that gives rise to that high EBITDA margin.

In our game business compared to the industry standard.

Now turning to e-commerce .

Yes.

Observed our take rate continued to rise and.

This is the basic to us is a clear sign that.

As we scale and continue to gain market leadership and market share.

Plus there are some markets. We are also able to.

Ramp up monetization.

While we continue to grow and to.

In terms of the uptick in the take rate.

Vast majority of that is Bob.

Hi margin.

Type of parts of the revenue E.

The commercial commission a handling fee.

Yeah.

Advertisements income.

So we think we are oh.

Very healthy growth path over time to monetize over the.

Ecommerce platform however.

At this stage, we are very much focused on growing the platform and attracting more users.

More sellers.

As well as building up our assortment and services to the sellers were not worried about.

Potential to monetize it as we finish we have shown.

This is has a huge.

Runway to go and.

His time, we're focused on building on our leadership market leadership across the market, well, which is showing all of the various affleck sample where the top ranked app in terms of downloads time user time spent monthly active users.

The shopping category our region and these are also important indicators of the growth of the platform and solid leadership. It is.

Able to command across the markets.

And in terms of the.

The star sell a a few.

Currently pointed out we have started to charge a commission on the star Sellers Indonesia.

Again, we see very robust growth in each of our E Commerce platform as we continue to extend our market leadership.

In Q2, our daily order.

[noise] volume has exceeded $1.2 million.

Accelerate as well.

From quarter to quarter.

And even though Indonesia is Walt is actually our largest market. It is also enjoying the highest growth rates across different markets.

So as a result, we are also providing.

More services and returning greater value to our sellers as they derive the most the sales volume and income from our platform.

And they are happy to pay the rate.

Because they see the value in working with us in providing the access to the vast user base. The services the integrated logistics and payment services, we provide as well as the other services and therefore, we believe over the long run we can gradually ramp up continue to ramp up monetization across different markets, including Indonesia, our biggest market, where we are commanding a stronger even stronger leadership now and we are confident about that.

Got it thank you.

The next question comes from Mike Olson with Piper Jaffray. Please go ahead.

Hi, Thanks for taking my questions. So as you just talked about Latin America has been surprisingly strong region, but outside of Latin America.

Do you believe there is a significant opportunity in some of these other regions that you mentioned like.

Eastern Europe , India, Middle East et cetera, and we focus on building out those regions with free fire first or with other third party games and then just overall you mentioned continued opportunities for growth broadly for the business across both major segments. What do you expect your key areas of investment across the company will be in the next few quarters will be new game development or new content for existing games or marketing or subsidies or what kinds of things, we specifically be investing in for growth. Thanks.

Thank you.

In terms of expansion to the the other high growth markets.

We have mentioned before that till we see very strong user growth.

In markets like India.

Russia, Turkey, the middle East.

Our self developed games free fire and we believe that.

With the wealth of user data and deepening you know understanding over time, we acquire from this global hit game.

We are very well positioned to introduce continue to build upon the success of that game onto deeper monetization as well as potentially introducing new content and even new IP. What is self developed or third party to these markets just like when we did tap we started out with three five self developed game go the user base there.

Monetize over time and now we are reaping the fruits of that efforts and.

In addition, we have recently rolled out a second game, which is a third party license game from Tencent detractors in the market. We believe this approach can also potentially walking the other high growth markets and I think given that.

Our unique advantage in being able to operate well and deeply.

In so many complex diverse but high will young markets across the globe, we're very well positioned to capitalize on the other new opportunities in these emerging markets.

With the rise of mobile technologies that enable a lot more new content to be introduced to our users across the world.

In terms of key areas of investment.

We are very much focused on the gaming side of both.

Deepening our development capabilities as well as a global expansion.

On the other hand, if you take a look at our gaming performance. So far we enjoy very high growth at the very high EBITDA margin.

That doesn't mean that we're not investing games, we actually investing heavily in terms of human capital.

This business, we believe is a creativity based business.

It's not all just dumping money to buy growth. It is about deepening understanding of the U.S.

Making good use of that well use that data we have.

Leverage the experience and understanding of our complex diverse markets.

Filled up.

Content development capabilities and that is very much talent driven.

As well as you know.

Knowledge, driven so to that spot, where we devote a lot of time and resources to them as a management timing and management focus on continuing to develop our game businesses.

In to offshore in understanding of global markets better to introduce more content globally.

On the E Commerce site.

As we mentioned.

Better than ever position to build up our e-commerce ecosystem.

As the old platform contentious scale as you can see we're enjoying increasing efficiency in terms of the EBITDA loss per order. So it continues to decline over time and our sales marketing has been fairly stable as a percentage of GMB that a you know as we mentioned before.

Shipping subsidy is the increase in a minor part of the sales and marketing a lot pot.

Majority of the sales market spending is now discretionary brand marketing.

For example, our partnership with Mr. Christiana, Ronaldo and our sponsorship of legal one Indonesia, which is the most popular football event nationally and these are very efficient marketing activities during high ROI for us and promoting our brand awareness across the region as well as globally. So we will continue to.

Optimistic about it and leverage good marketing opportunities too.

Further promote our brand.

As we become a go to market place.

In our region.

Thank you.

Your next question comes from John Blackledge with Cowen. Please go ahead.

Great. Thanks, a couple of questions on choppy and one on green.

How should we think about the for choppy the GMB trajectory in the back half of the year and if you can talk about kind of market share positioning and any update on the competitive competitive environment across the different markets and then second on choppy on the second quarter growth was really strong, obviously, particularly order growth but.

The A.O. view was a little lower than we thought just any color on what drove the lower HIV and how we should think about that going forward.

And then on Greece, just any color on the free fire pass and whats the monetization around that and what that looks like going forward. Thank you.

Thanks.

Income from shock me.

GLP trajectory.

As we continue to scale the platform across different markets.

For Q2, we have.

Percent.

Growth in GMP.

More than 90% year on year growth in quarter.

And the Jimmy goes slightly lower net order growth is.

As you mentioned relating to the average order value.

And.

To that.

We do have a view on what will be a optimal value or range of optimal value for all our markets in building out a.

General merchandise marketplace E Commerce, if you look at some of the.

A large.

E Commerce general merchandise e-commerce platform such as Telkomsel.

We understand there.

Basket size is also around the mid teens range.

We think that's a good range to have.

For building.

The e-commerce platform in all markets as well with a focus on the key categories of fashion health and beauty.

Home a living as well as maybe baby products. These are the high margin on non standard non standardized products that lend themselves very well to build up a large diverse seller base buyer base.

And eventually the largest ecommerce marketplace.

In China.

So we believe we will focus on.

Building these core categories and drive user base as well as by frequency.

While maintaining healthy range of order value in particular.

Relating to the Q on Q fluctuations.

For example, there are different reasons.

Forensic factors that could affect the period to period orders average order value.

During the Obama that for example, we see higher demand in the fashion category, which tend to have smaller basket size.

And therefore.

Could the effect the order value as a whole so theres. These out the extreme factors, we think as we maintain a healthy mix of the.

In terms of the TMB of different categories, our marketplace ecosystem, we are.

Track to continue to grow the marketplace and extend our leadership further.

So that follows.

To the next question regarding competition.

No I think it's a obviously, we take competition very seriously and have a.

Deep respect for our peers in the market.

And the but some context I think it's important to note that none of the competition, we kind of new to us.

All 10 of our peers have.

Been longer established should be in the market for many years before we even started e-commerce business and yet we managed to grow from zero to market leadership with more than 15 billion of annualized TMB and.

Q2, or 4.6% take rate in less than four years time.

Over such diverse complex markets.

None of them are in all the markets that we are.

So we have local competition, but we don't even have competition across all these markets. So I think.

Our track record has shown that we have been there.

Just competition.

And we believe we will continue to be so because our competitive advantages are.

In our understanding of the right timing right model right markets for the ecommerce marketplace.

Business.

As well as our ability to execute them well.

Hi diverse complex market was highly localized operation.

And that our business strategies over time based on our deep understanding of local users as well as market conditions of the addition to our deep understanding of the essence of marketplace E. Commerce that business model. So I think these are competitive advantages for me and we now have additional advantage of being the market leader across markets in E Commerce and.

You know as you can see some our peers now follow in our footsteps.

Using some of their operations for example, focusing more on mobile switching from a lumpy to a marketplace model and focusing on the social aspect of it or even being charting shouldn't take rates et cetera.

You know we have a lot respect a thoughtful all peers and their efforts in this regard and we believe that collectively all of these industry players including us.

Growing the pie for all of us as a whole given the low penetration rate for online retail.

Currently in our region. We believe there is a huge potential opportunity for all of us to tap and being the market leader with existing scale and to give our growth rate. We believe we have the best opportunity to tap the largest.

To take the largest share of the growing part of the time.

And in terms of the fleet fire.

Monetization and outlook as mentioned before we believe.

This revised Isabella Ruelle game. It has a lot of death in it is very young and still evolving and we're constantly building new content new modes of play into this game and we believe that a you know as we can to see organic user growth across markets, including core markets in South East Asia, Taiwan.

In Latin America, as well as the new frontier markets in India.

Russia Middle East, Turkey, We believe the game has a huge potential and a long runway and we're now still focusing on continuing to grow the user base as well as deepen that user penetration.

Thank you.

Next question comes from Ranjan Sharma with JP Morgan. Please go ahead.

[noise], Hi, Hi, its engine from JP Morgan. Thank you for the call.

Two questions from my side, Firstly on the gaming side you have of course had a very strong second quarter.

But if I look at this.

If I look at the top end or feel Gamings, Oh revenues guidance.

It seems like you don't you're not expecting any further growth in quarterly revenues.

In the third and fourth quarter of this year, despite having two strong launches in speed Drifters, and then call of duty.

If we can to airports around low on on how do you get to this guidance are you.

Expecting any kind of.

Maturity in a in few five coming through so that's the first question secondly in terms of Indonesia, we have seen.

Linkage of our local payment business.

Getting access to a number of platforms.

Across a across the market places.

I don't think its photo shop here, if you can share like if you're looking to add them as well or if you're looking to grow your own Shelby pay business. Thank you.

Sure.

So.

If you look at our guidance it is.

Based on the year on year growth. It is a very high rate at a 142%, 257% and if you look at our EBITDA adjusted EBITDA for this quarter I believe it's a higher than adjusted EBITDA for last year or the entire year. So we are continuing to see very strong growth.

Our game on the game side and Ah as usual, we hope to be able to deliver beyond expectation.

And for the new games, we have launched or stopped pre registration for.

Including speak Drifters in 10 markets as well.

<unk> called beauty mobile in Southeast Asia and Taiwan.

As mentioned our focus what initially still be ongoing the user base understanding the user preferences for these huge honor in the case of director of racing game, Oh for the Love 10 users and in case of the a odd.

Mobile Fps game.

With a very big IP, but also being newly introduced to our region. As you know free to play kind of mode. So there are a lot for us to walk onto a with a in collaboration with the developers and to understand our markets better understanding user preferences go the user base before we gradually ramp up monetization.

So in terms of Ah.

Payment.

Uh huh.

We obviously don't discuss specific any specific commercial arrangement that but weeping or supporting our shop be platform also with our own payment app and Ah with the integration of our own Oh, you want it with their shopping app over time.

We've seen a user.

Option, there are encouraging signs that use adoption until we believe that the additional financial services will be a lot. The largest opportunities. In addition to economy of of our region and we sent the is very well positioned to benefit from the growth of that and given our own.

Capabilities check back or in that front.

In building up the payment as the infrastructure for Allah Shockey as well as securing a businesses as a sort of growing DFS Ah overall.

Well. Thank you for that maybe just one quick follow up.

So in terms of speed to schools are you, saying that you have not followed monetization full for the game in Latin America right now.

Yes, so we haven't been focusing on monetization yet.

Okay. Thank you.

Next question comes from Conrad Werner with Macquarie. Please go ahead.

Hey, Thanks, a lot.

Maybe just a first question on the ecommerce side of the business. The take rates are continuing to show. Good momentum you are it sounds like you're starting to charge. Some more commissions can that trend continue in other words I guess, we can assume that take rates should continue to rise in the second half of the year and if that is the case, what's going to drive that are you able to.

Put some more commissions into the market given your scale right now.

Then one other question on the e-commerce side of the business.

[noise] was was there any impact on the on FX from exchange rates on your GMP in other words might your GMB has been slightly understated due to exchange rate impacts just thinking about the average order value stuff. We were talking about before and then just last question on the E. Commerce. When you say you are leaders in all your markets. What metric is that on is it on GE envy or is it on on orders or something else.

Then maybe just on the digital entertainment side of the business in the past you gave a range.

For what percentage free fire was of the total revenues it was 50% to 60% in the first quarter could we just have an update on that and then also could we get an update on how much a free im sorry, how much of the games business Digital Entertainment business was X Southeast Asia, and then maybe just as.

The last question on the digital entertainment.

And.

Beyond call of duty and speed Drifters, I guess, which is reasonably new title relatively speaking any other games in the pipeline that we should be looking out for and are you monetizing speed drifters in southeast Asia to a a good degree right now and then sorry, I know I'm asking a lot of questions here, but the last one is I'm just trying to on a group level.

I know that you are still in investment mode et cetera, but the margins in the digital entertainment are very good I mean, as you say, you're starting to fund the business with internal cash could we see group level of profitability before the end of the year. Thank you.

On an EBITDA basis. Thanks.

Thank you.

So on the first question regarding the take rate expense, we will continue to gradually ramp up monetization.

Hi.

That is.

Going to be driven by first the scale of our platform as we continue to grow.

Engage with a larger user base larger seller base and the seller shall platform direct more income on the platform.

And so.

With their margin and with the right mix of categories.

We believe that does continue to be.

Very good potential to gradually ramp up monetization.

And.

In terms of the.

The composition of the take rate.

We believe that.

One there is.

Essential for higher.

Commissions was handling fees as well as advertisement.

And the same time, we are rolling out a full spectrum of services as that cielo.

Very happy to to utilize pay for.

So if you look at Taiwan market.

Hi. This is the first market that we have achieved positive adjusted EBITDA was up call my expense allocation.

And this is a market where we start monetizing bust.

A couple of years ago with advertisement and then followed by the.

Spectrum.

Commission handling fee.

As well as the us value added services.

By now we have rolled out commissions for our sellers be it lost sellers prefer sellers or other sellers across border at of course differently based on the types of sellers and based on the category.

In that in that market and that has helped to increase the monetization for us and lets say time that platform in Taiwan continues to grow at a very healthy rate and this is what we ideally we'll like to gradually build outs.

All other markets as well so I know, we have rolled out commission handling fee.

And for the Marcellus in all markets and more recently, we have rolled out.

Commission Das dollars, Indonesia and to increase the rate for some of them are sellers for example.

So we believe this trend will continue and the reason we are able to do that is a value delivering to our sellers buyers.

Our market.

For the infrastructure for ecommerce.

Tail tends to be underdeveloped.

That also gives us more opportunities and more touch points with our sellers and buyers to sell better.

And that means we also have more opportunities to touch a higher take rate.

So that is what we believe will gradually roll out.

And.

In terms of Ah.

Forex question I'll invite our CFO Tony to answer that.

Yes, sure. So we constantly mines for the constant currency key metrics like G.N.V. and revenue growth and then actually due to the appreciation of U.S. dollar against some of our regions currencies like Indonesia rupees and.

Alan dollars gross profile headley to 2% using constant currency would be better than using the.

Actual exchange rate and having said that we will be continue monitoring the gap and that would choose to present the constant currency if that gap is becoming larger.

Okay regarding the in terms of the metrics, we used to measure market leadership.

Now when you look at a rate of metrics to see how well our ecommerce business is growing in selling the market. Obviously, our leadership is so clear so strong that whatever metrics you use pretty much we are the clear leader in other metrics you know that might be.

People might say all this market has different kind of GSV metrics et cetera. Now the reason, we look at a range of metrics based on the disclosure in our.

T R, including order number down no active user time spent ink app et cetera.

Looking at GMP unknown.

Can be misleading.

For the business as a whole we tell our people to just look at GMP the outcome might not be ideal.

Well in the ecommerce business because then the team will be trying to focus on growing the basket size with a higher ticket.

Items in those more standardized the goods, but lower margin no competitive modes categories, such as virtual goods.

Electronics wholesale stuff.

These are easy to grow GMP and.

But they don't need that to a healthy.

Ecommerce platform with a core category focus.

That we mentioned again and again these are a fashion.

Health and beauty.

On the Navy and pay the pod.

That's why when we look at GMP.

Well a size of GM, we have to ask the next level question, what's the basket size, what the order number.

Are you growing the GMB by growing the basket size skewing towards the different categories of goods.

It was just the core ecommerce marketplace categories or are you actually going to order and these orders a sustainable high value high margin orders that are real and will come back.

So these are the categories, we focus on and we look at actual orders that we believe will be Corey and then Kent allow us to attach a high take rate allow us to build a healthy e-commerce platform.

Diverse sela and user base and eventually ecosystem around it. So that's why we look at a rate of different things. Another example will be time spent and we focus on that because.

We have a deep understanding of our young users in all regions. These social community based.

Latest generation native to the mobile.

Technologies, and they like to socialize and the like to.

Talk to each other engage with each other and they that's how they express themselves live their lives and also do their shopping transactions.

On that front, we have built in lot of social game application features a live streaming a our features human Eastland stream for example, leveraging our strength in the E Sports front.

To engage our users and build a community fall and that also helps too.

Retain users better as well as the Hollywood acquisition costs and make our scaled much steady much more efficient over time.

So therefore, when we look at a market leadership, we look at as a host of metrics together and.

And the the healthiness. It helps also of the of the ecosystem as a whole.

But that.

We have disclosed consistently that we are the market leader and for example in Asia. We have mentioned that we are the market leader by order.

For several quarters already and with a specific order number being disclosed.

Going back to digital entertainment.

As you can probably imagine if I continue to be a large part of the of the revenue we don't specifically disclose the percentage, but it's been increasing contribution of fancy fire.

In the revenue mix and in terms of region outside of Southeast Asia.

Also without disclosing the specific percentage for competitive reasons.

This is increasingly significant part of our revenue as we diversify our game businesses again as we mentioned you know if you look at the <unk>, our core markets now not just including South East Asia, and Taiwan also refer to that 10 minutes I'll call part of a core market collectors say there about a 1.2 to 1.3 billion population. That's almost the size of population of China, but was even younger or others will fall and Uh huh.

So it's a very attractive demographic features and we're probably the best.

Its standing in a best position.

Given our track records and capitalize on such a high high walls, but high diverse and complex the emerging markets.

In terms of a pipeline again for competitive reasons, we don't disclose specifics about pipeline.

But as you can imagine when we said, we devote half hour studio to a building on the fire the remaining half well, we devote to build up our self developed pipeline I'm seeing small teams actually it doesn't take a lot of people do come up with a prototype when you became a while we build up free fire. Initially there was a team of four or five people and so we continue to.

Good luck with all the game talent, we can fight in a market and build out that team and.

Right with their creativity and come up with all kinds of.

Potential ideas that we collect a built into our game portfolio and the same time, we work with a top studios in a world. If you look at our track record of pretty much work with everybody in the U.S., Japan or Korea, as well as China.

So we I think given our wealth of using data from all the emerging markets globally with the with the hugely successful if we fucking.

I think were very well positioned to introduce a new content into those markets, whether its self developed or licensed by the parties.

And in terms of the group level EBITDA as you rightly pointed out we are seeing.

Increasingly.

You know last.

Loss, adjusted EBITDA and it increasingly wear our funding growth with internal cash generated.

Obviously you know.

Do we if we want to break even can we yeah, we can't right.

But as I said before it's not the focus of the business as we are in a better than ever position to grow our ecosystem of digital economy of consumer Internet platform with some of the largest opportunity we see in the region and beyond.

Internal Entertainment E Commerce, and digital financial services, Yes. So you know you don't have these kind of today's coming along.

That easily for many generations that might be one time, we believe that you are in the.

The historical moment, where we can capture that growth.

Right region, where there is a still low penetration, but high growth potential and we believe given our strong cash position.

Given our cash also from the game business that can fill alito investments. We believe we want to invest in the long term growth of our eco system and will not trade that for a short term profitability and in the longer run when we.

Do achieve clear leadership and build out the.

The entire ecosystem that in Wheaton vision of our self all employees and all the stakeholders. We believe it's a much more valuable business.

This concludes our question and answer session I would now like to turn the conference back over Tianjin Wang for any closing remarks.

[noise] <unk>. Thank you for joining the pot today, and we happy too.

Keep talking with all investors analysts day case, you have any further questions and Oh, we look forward to speaking to you all again next quarter.

This conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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