SEA Q2 2025 Earnings Report

SEA EPS Results

• Actual EPS: $0.65
• Consensus EPS: $1.03
• Beat/Miss: Missed by -$0.38
• One Year Ago EPS: $0.14

SEA Revenue Results

• Actual Revenue: $5.26 billion
• Expected Revenue: $5.00 billion
• Beat/Miss: Beat by +$264.29 million
• YoY Revenue Growth: +38.20%

SEA Announcement Details

• Quarter: Q2 2025
• Date: 8/12/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 12, 2025
• Conference Call Time: 7:30AM ET

SEA (NYSE:SE) Limited is a Singapore-based technology company that operates leading platform businesses in digital entertainment, e-commerce and digital financial services. Founded in 2009 by Chairman and Chief Executive Officer Forrest Li, Sea has grown into one of Southeast Asia’s most prominent internet companies. The company is headquartered in Singapore and maintains regional offices across Southeast Asia, Taiwan and Latin America.

Under its digital entertainment segment, Sea operates Garena, a platform for online game publishing and digital content distribution. Garena manages a portfolio of popular gaming titles, including the global mobile game Free Fire, and provides community engagement and live streaming services for gamers. This segment has helped Sea build a strong user base and brand recognition in its core markets.

Sea’s e-commerce business, Shopee, is a mobile-first marketplace that offers a wide range of consumer products and services. Shopee connects buyers and sellers with integrated logistics and payment support, and has expanded rapidly across Southeast Asia, Taiwan and Brazil. The platform emphasizes user-friendly features such as in-app games, social interactions and promotional campaigns to drive engagement and transaction volume.

Through its digital financial services arm, SeaMoney, the company provides digital payments, e-wallet services, micro-lending and insurance products to both consumers and merchants. SeaMoney aims to improve financial inclusion in markets where traditional banking services are less accessible, leveraging partnerships with local financial institutions and regulators. This diversification into fintech complements Sea’s broader strategy of building a comprehensive digital ecosystem.

SEA Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Shopee achieved 25% year-on-year GMV growth in H1 2025 and expects similar momentum to continue into Q3.
• Positive Sentiment: Ad tech enhancements drove a 20% increase in sellers using Shopee Ads, a 40% rise in average quarterly ad spend per seller, plus an 8% uplift in purchase conversion rates and a 70 bps improvement in ad take rate.
• Positive Sentiment: Logistic innovations and loyalty programs boosted service quality, with instant delivery pilots in SEA, a 50% quarterly GMV jump from VIP memberships in Indonesia, and over 20% of physical goods orders from livestreams and short videos.
• Positive Sentiment: Digital Financial Services saw its loan book soar 90% year-on-year to $6.9 billion, revenue and adjusted EBITDA jumped over 50% each, and the 90-day NPL ratio remained healthy at 1%.
• Positive Sentiment: Garena bookings increased 23% and adjusted EBITDA rose 22%, driven by Free Fire’s 100 million+ daily active users and the success of new map Solora and high-impact IP collaborations, prompting a raise in full-year bookings guidance to over 30% growth.

Presentation

[Operator]

Good morning and good evening to all, and welcome to the Sea Limited Second Quarter twenty twenty five Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. And finally, I would like to advise all participants that this call is being recorded. Thank you.

[Operator]

I'd now like to welcome Mr. KC Ong to begin the conference. Please go ahead.

[Khang Chuen Ong, Investor Relations at Sea Limited]

Hello, everyone, and welcome to twenty twenty five second quarter earnings conference call. I am KC from Sea's Investor Relations team. On this call, we may make forward looking statements, which are inherently subject to risks and uncertainties and may not be realized in the future for various reasons as stated in our press release. Also, this call includes the discussion of certain non GAAP financial measures such as adjusted EBITDA. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures.

[Khang Chuen Ong, Investor Relations at Sea Limited]

For a discussion of the use of non GAAP financial measures and reconciliation with the closest GAAP measures, please refer to the section on non GAAP financial measures in our press release. I have with me, T's Chairman and Chief Executive Officer, Boris Lee President, Chris Feng and Chief Financial Officer, Tony Ho. Our management will share strategy and business updates, operating highlights, and financial performance for the 2025. This will be followed by a Q and A session in which we welcome any questions you have. With that, let me turn the call over to Boris.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Hello, everyone, and thank you for joining today's call. The momentum from our strong start to 2025 has continued into the second quarter. All three of our businesses have delivered robust healthy growth, giving us greater confidence of delivering another great year. Shopee's GMV grew 25% year on year in the first half and we expect this growth momentum to carry into Q3. Money's loan book continues to expand rapidly while maintaining a healthy NPL ratio.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

And for Garena, we now expect full year bookings to grow more than 30% year on year. Given the high potential of our market and the stage of our business now, we will continue to prioritize growth. We still see huge opportunities in our market to serve many more users and better many more lives with technology, Expanding both our addressable market and capturing more market share will pave the way for us to maximize our long term profitability. At the same time, our company has reached a stage where we can pursue growth opportunities while improving profitability. By being disciplined and cost efficient, we have turned all three businesses EBITDA positive since the second half of last year and we are accumulating cash each quarter as we scale.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

We remain committed to growing profitably with a strong balance sheet that enables us to capture future opportunities. With that, let me take you through each business' performance. Starting with ecommerce, Shopee has shown stellar growth performance throughout the first half of this year. After a record high q one, we have delivered another record breaking Q2 with quarter on quarter growth in gross order volume, GMV and revenue. This was driven by a sustained increase in our active buyers and their purchase frequency, reinforcing our leadership across all our markets.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

We also delivered year on year profitability improvements across Asia and Brazil, enabled by our expanding scale and improving cost efficiency. Our monetization improved in the second quarter, largely driven by strong growth in advertising revenue. We have deliberately worked to both drive seller adoption and encourage existing ad paying sellers to use our latest ad tech solution. Since early last year, our dedicated ad tech team has worked hard to improve algorithms, enhance traffic allocation efficiency, and deploy AI technologies to better serve our ad paying sellers. And we have seen very encouraging results.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

During the second quarter, the number of sellers using our ad product rose by around 20% and ad paying sellers average quarterly ad spend grew by more than 40% year on year. Our tech enhancements have allowed us to more effectively optimize Shopee's GMV and advertising revenue at the same time. We saw an 8% uplift in Shopee purchase conversion rates and improved our ad take rate by almost 70 basis points this quarter year on year. Our operational priorities have proven to be a winning formula and they remain consistent, enhancing price competitiveness, improving service quality and strengthening our content ecosystem. In the second quarter, we reinforced our price competitive competitive value proposition with the launch of the campaign slogan cheaper, faster at Shopee.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

It resonated well with buyers. We saw a more than 10% year on year uplift in overall purchase frequency during the quarter, and the buyers continued to rank us as the most price competitive e commerce platform in Qualtrics survey across Asia and Brazil. Our service quality, our logistics capabilities continue to be an important differentiator for us. In the second quarter, we reduced the logistics cost per order and improved delivery speed across Asia and Brazil year on year in both urban and rural areas. We continue to roll out new initiatives to address specific customer needs such as instant delivery options in dense urban areas.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

This led some buyers receive their orders within as little as four hours of order placement, our fastest shipping channel yet. We piloted it in Indonesia and it proved so successful that we have now loaded out to Vietnam and Thailand as well. Another example is intelligent demand forecasting, where we pre ship commonly ordered products to warehouses closer to where we know buyer demand will likely come from, reducing buyer waiting time when actual orders are placed. Our logistics innovations not only delight our customers by improving the service quality they receive, but they also make us more cost efficient, letting us pass savings on to buyers. We have also been doing more to enhance buyer loyalty and stickiness.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Our shopping VIP membership program, a paid subscription service giving buyers exclusive benefits has shown very good momentum in Indonesia. Total GMV from VIP members there grew nearly 50% quarter on quarter and VIP members bought a monthly average of around 30% more after subscribing. VIP members have also shown a roughly 20% higher retention rate compared to non member. Building on this success, we have expanded the program to Thailand and Vietnam. At the June, total VIP subscribers in this market reached 2,000,000.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

We plan to roll out the program to more market over the rest of the year. Our content ecosystem continues to be a powerful engine of buyer engagement and conversion. Our AI tools empower Shopee sellers to produce high quality video content, helping them improve user conversion and make more money without having to invest in their own studio setup. In Southeast Asia, orders from live streaming and short form videos accounted for more than 20% of our total physical goods order volume in the second quarter. Our collaboration with YouTube has also continued its strong momentum.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

As of June, more than 7,000,000 YouTube videos featured Shopee product links across our Southeast Asian market, an increase of more than 50% quarter on quarter. Moving to Brazil, Shopee has continued to deliver exceptional growth while maintaining its positive adjusted EBITDA. Average monthly active buyers rose by over 30% year on year in the second quarter, much faster than the industry average growth rate. Our strong growth in Brazil is a build on solid fundamentals, especially logistics improvements and product category expansion. We have brought logistics cost per order down by 15% while also reducing our average delivery time by more than two days year on year.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

In the greater Sao Paulo region, about one in four Shopee puzzles were delivered the next day and 40% within two days, up from single digit percentages in the same period last year. We added over 100 well known brands to our platform, especially in higher value product categories. This contributed to steady and healthy increases in buyer's average basket sizes in the second quarter. This combination of improving delivery service, while expanding our product selection has allowed us to both serve our existing users more effectively and expand into more user segments, such as urban and more affluent buyers. We will continue to push on this front and keep our strong momentum going in Brazil.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

This quarter, we celebrated Shopee's five year anniversary in Brazil, and I'm very proud of what our team has achieved in this relatively short time. We have become the market leader by other volume. We continue to grow fast, and we are operating profitably. I'm especially happy with the role we have played in promoting digital entrepreneurship to over 8,000,000 Brazilians. 30% of our active sellers that Shopee as their first experience selling online, and more than half of our active sellers say they rely on Shopee as their primary source of income.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

In summary, Shopee has delivered an exceptional performance in the first half of the year with 25% GMV growth year on year and we are confident that this growth momentum will carry into Q3. We remain committed to delivering strong profitable growth while reinforcing our market leadership across Asia and Brazil. Next, moving to digital financial services. Money had another very strong quarter. Both revenue and adjusted EBITDA continued to grow more than 50% year on year and our loan portfolio remained healthy thanks to our prudent risk management.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

In the second quarter, our loan book grew over 90% year on year to reach $6,900,000,000 driven by both our expanding user base and our wider range of products addressing more user needs. We added over four million first time borrowers during the quarter and our newer cohorts are scaling well with positive unit economics. At the end of the quarter, active users for our consumer and SME loan product exceeded 30,000,000 for the first time, representing more than 45% year on year growth. Our loan portfolio remains healthy with the ninety day NPL ratio staying stable at 1%. We have delivered this strong and healthy growth across multiple markets, reducing our reliance on any single market and improving our ability to weather local economic cycles.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

I'm happy to report that Malaysia's loan book surpassed $1,000,000,000 at the June. It is our third market to reach this significant milestone after Indonesia and Thailand. Brazil also delivered robust growth in the second quarter, driven by strong adoption of at pay later and the personal cash loan products. We have achieved such high growth while managing risk very well, thanks to three unique advantages that money has. First, deep and seamless integration with our Shopee ecosystem.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Second, a very large base of users who are growing their credit track record with us over the years. Third, our increasing use of AI to improve our credit models. Together, these advantages uniquely enhance our underwriting capabilities in each market, enabling us to very effectively push for growth across our three credit product lines. OnShopee as pay later, offShopee as pay later and the cash loan product. OnShopee SPay Later continues to deliver solid growth across our market with GMV penetration now in the mid teens on a market blended basis.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

We promoted as pay later one month interest free option at Shopee checkout, mimicking the benefits of credit card usage. We use the tier based pricing to offer lower interest rates to prime user segment who have access to more credit options and are more price sensitive. We also introduced a feature that allows users to request a higher credit limit by voluntarily submitting proof of income. Such initiatives contributed to our record high monthly numbers for first time as pay later borrowers in June. In addition, these measures have enabled us to capture more prime users with stronger repayment capacity and higher lifetime value.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

We see further runway to scale this product by deepening its penetration on Shopee in all our markets. Off Shopee ad pay later is also growing healthily. In Malaysia, we recognize the significant user demand for greater payment flexibility. So we integrated as pay later with Malaysia's national QR network, do it now, enabling seamless and flexible offline usage on many everyday purchases. Our off Shopee as pay later portfolio grew over 40% quarter on quarter and accounted for more than 20% of our as pay later portfolio in Malaysia at the June.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Building on this success, we have just launched a similar user experience with the Thailand national prompt pay QR network as well. We have also gained good traction with personal cash loans, addressing the strong demand we have seen in our market for credit success in people's daily lives. We have scaled this product category both quickly and profitably by cross selling personal cash loans to as pay later users with good repayment trend. As a result, personal cash loans outstanding has almost doubled year on year as of the June, and a lot of headroom remains for this product in our market. In summary, Money has delivered excellent growth throughout the first half of the year, diversified its loan portfolio across markets and the product and maintained high asset quality through prudent risk management.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

It is exciting that our credit business is still in the early stages in many of our markets, reinforcing our strong conviction in money's long term growth and earnings potential. Finally, moving to digital entertainment. After a flying start to the year, Garena continued its strong growth momentum into the second quarter. Bookings were up 23% and adjusted EBITDA was up 22 year on year. Multiple key titles delivered double digit growth in the second quarter including Free Fire, Arena of Valor, EA Sports FC online and Call of Duty Mobile.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Free Fire continues to be at the core of Garena's strong performance, sustaining its massive global user base of more than 100,000,000 average daily active users. Free Fire continues to grow well even after eight years, bringing joy to more users in more markets because we always put what gamers want at the heart of our work. A great example is the high profile launch of our new map, Solora, in celebration of Free Fire's eighth anniversary during the second quarter. Solora blends enjoyable Noctaria with exciting innovation. Our veteran gamers were thrilled by the return of an iconic train from Free Fire's earliest map that used to be a central part of their game experience.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

And the gamers both old and new were very excited by the new full map slide real feature, allowing them to more rapidly across entire terrain, completely changing their gameplay strategy and pushing them to come up with new techniques to win. Since it's a launch on May 15 at the Free Fire World Series, response from players has been exceptional. It has already become our best performing new map. We also capitalize on excitement around this new map by introducing a new camera mode that lets players capture photos and videos of their gameplay more easily, boosting social sharing and engagement. Within a month of releasing this feature, average daily share of in game footage grew by nearly four times, dramatically expanding Free Fire's visibility.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Putting on this excitement, we extended our anniversary celebrations into July with the two high impact IP collaborations, Netflix Squid Game and the Naruto Shippurton Chapter two. Initial response from gamers has been extremely positive. In summary, Garena has delivered a very strong performance in the first half of this year. We believe Free Fire has established itself as an evergreen franchise, both sustaining its user engagement and growing its appeal in more markets globally. We're also committed to trying out new genres and a new market, and testing the boundaries of future game experiences by embracing AI.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Giving all of this, we are raising our full year guidance for Garena and expect bookings to grow more than 30% in 2025 on year. In closing, we are very happy with the strong set of results we delivered both in Q2 and in the 2025 overall. All three of our businesses have extended their track record of excellent execution, robust growth and improving profitability. This gives us greater confidence about the second half of the year and we look forward to delivering a strong 2025 and beyond. Thank you as always for your support. With that, I invite Tony to discuss our financials.

[Tony Hou, Group CFO at Sea Limited]

Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 38% year on year to 5,300,000,000.0 in the 2025. This was primarily driven by GMV growth of our e commerce business and the growth of our digital financial services business. Our total adjusted EBITDA was $829,000,000 in the 2025 compared to an adjusted EBITDA of $448,000,000 in the 2024. On e commerce, Shopee's gross orders grew 29% year on year to $3,300,000,000 in the 2025 and GMV increased by 28% year on year to $29,800,000,000 in the 2025.

[Tony Hou, Group CFO at Sea Limited]

Our second quarter GAAP revenue of $3,800,000,000 included GAAP Marketplace revenue of $3,300,000,000 up 34% year on year and GAAP product revenue of $500,000,000 Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction based fees and advertising revenues, was $2,600,000,000 up 46% year on year. Value added services revenue, mainly consisting of revenues related to logistic services, was $700,000,000 up 3% year on year. E commerce adjusted EBITDA was $228,000,000 in the 2025 compared to an adjusted EBITDA loss of $9,000,000 in the 2024. Digital Financial Services GAAP revenue was up by 70% year on year to $883,000,000 Adjusted EBITDA was up by 55% year on year to $255,000,000 As of the June, our consumer and SME loans principal outstanding reached $6,900,000,000 up over 90% year on year. This consists of $5,900,000,000 on book and $900,000,000 off book loans principal outstanding.

[Tony Hou, Group CFO at Sea Limited]

Non performing loans past due by more than ninety days as a percentage of total consumer and SME loans was 1% at the end of the quarter. Digital entertainment bookings grew 23% year on year to $661,000,000 GAAP revenue was up 28% year on year to five fifty nine million dollars The growth was primarily due to the increase in our active user base as well as the deepened paying user penetration. Digital Entertainment adjusted EBITDA was $368,000,000 up 22% year on year. Returning to our consolidated numbers. We recognized a net non operating income of $83,000,000 in the 2025 compared to a net non operating income of $56,000,000 in the 2024.

[Tony Hou, Group CFO at Sea Limited]

We had a net income tax expense of $144,000,000 in the 2025 compared to net income tax expense of $61,000,000 in the 2024. As a result, net income was $440,000,000 in the 2025 as compared to a net income of $80,000,000 in the 2024.

[Khang Chuen Ong, Investor Relations at Sea Limited]

Thank you, Boris and Tony. We are now ready to open the call to questions. Operator?

[Operator]

You. Your first question comes from the line of Peng Vith of Goldman Sachs. Your line is now open.

[Usjima Pang Vittayaamnuaykoon, Executive Director at Goldman Sachs]

Hi, good evening management and congratulations for another solid quarters. Two questions from me both on e commerce. Number one, on the GMV performance. First half of the year has already been very impressive at 25% year on year, and you also expect momentum to carry into third quarter. With this, are you also looking to raise your full year guidance that you gave in the beginning of the year on the back of this strong performance?

[Usjima Pang Vittayaamnuaykoon, Executive Director at Goldman Sachs]

That's question number one. Question number two, can you share with us on the latest competitive landscape? Have you observed any changes in momentum, in particular in Brazil? Have you seen any changes since your competitor reduced its free shipping threshold?

[Tony Hou, Group CFO at Sea Limited]

Yes. I think on the first question regarding the growth momentum, as we shared in the opening, we do see the Q3 momentum will continue. I think what we are saying is that in Q3 likely to be around similar growth rate as we observed in the first half of the year as well. Obviously, if you take into consideration the full year growth will be better than what we shared before. I think that's one.

[Tony Hou, Group CFO at Sea Limited]

Second one regarding the competitive environment. For Brazil, as you shared, we do see certain actions from the competitors in the past few months. On our side, our Brazil business has been growing very well even in the last months after the competitor did the adjustment. We didn't see any observed impact to our growth as far as we can see for now. I think the key thing, if you look at Brazil for us, is number one, to make sure that we operate in a best cost structure, especially on the logistic side.

[Tony Hou, Group CFO at Sea Limited]

Even with the improved speed of delivery as far as sharing the opening that we are two days faster than last year, We still see the cost coming down and our cost, we believe that much lower than where our competitor is. And even compared with, you know, their slow shipping, our cost structure is still very competitive and our speed is a lot faster than the slow shipping. So we believe that we are in a pretty good position on that. That's that's number one. Number two is around the price competitiveness.

[Tony Hou, Group CFO at Sea Limited]

And I think this is probably available. You can do your own benchmark that our pricing is still very competitive in the market if you across all price categories even with the adjustments from the the other side. I think number three is if you look at our brand seller side, we're expanding our seller base to a better to a higher ticket items, especially in the past few quarters. We believe that trend will continue as well and will be not impacted much by the competitor movement. And just going all, we believe that in Brazil, we are still well positioned.

[Tony Hou, Group CFO at Sea Limited]

Our growth trend will continue especially with our core segment group. Giving the strong focus that we have on the fundamental cost structure, our price competitiveness and also the growth of our seller side.

[Operator]

Thank you. Your next question comes from the line of Piyush Chaudhary of HSBC. Your line is now open.

[Piyush Choudhary, Director, Telecoms Analyst - South East Asia at HSBC]

Yes. Hi. Thanks for the call and congratulations for a great set of numbers. I have two questions, both on e commerce actually. Shopee VIP membership program in Indonesia has seen great progress.

[Piyush Choudhary, Director, Telecoms Analyst - South East Asia at HSBC]

So could you share like what's the potential for the user base in midterm as you are expanding across markets? And how should we think about the cost implication of this program on logistics and other benefits which you offer? Also, if you can talk about your new initiative on instant delivery, which countries you're targeting and cost implication of this? Second question is on the Shopee EBITDA margin. With the push on VIP membership and instant delivery, should we expect margins to remain around similar levels in second half? And what's the outlook for 2026? Thank you.

[Tony Hou, Group CFO at Sea Limited]

On the VIP program, we do see very good traction in Indonesia as the first country we started. The what we see a very good pickup from the VIP program, especially giving that we're able to over time making sure the user can renew with a credit card or pay later products, which, you know, is the biggest problem for any of this program in this market before. We are still in the very early stage of rolling this out. As you can see that it's only few months since we started this program and the first two, three months was really pilot process. So I think too early to tell, but we see very good potential there to be a meaningful program in our market comparable to the other program you're seeing at the ecommerce or retailers in the region or outside the region.

[Tony Hou, Group CFO at Sea Limited]

And as it's a new program, we do foresee some investment in the early time to grow the acceptance, especially getting user to sign up to it, especially renewing the program to get into the habit. But but we don't see this as a fundamental impact or too visible impact to our cost structure in the in the medium term or long terms. For the instant delivery instant delivery instant delivery by itself is essentially to expand our product offerings to the user base, especially on the high end user base. Actually, those user typically are better possibilities compared to the low end user base. So we don't foresee any negative EBITDA impact from these services.

[Tony Hou, Group CFO at Sea Limited]

Rather on the other side, we do believe this will give us a better possibilities in our businesses as we grow it. But but obviously, the the the delivery cost for instance, of course, the actual cost is slightly higher, but, you know, typically for those segment, people have a better acceptance for how much they're willing to pay for this faster services. Regarding the EBITDA margin, there is slightly fluctuation on EBITDA margin as you can see from q four last year to q one this year to to q two this year. I think there is a lot of validity involved in this. Q one is exceptional quarter, and which is the first year first year in our business history that Ramadan for for Indonesia and Malaysia especially falls into q one and the holiday falls into q two.

[Tony Hou, Group CFO at Sea Limited]

So that has a big seasonal impact for the businesses impact EBITDA meaningfully. So going forward, we we do expect a long term trend of EBITDA margin will continue to improve. Although, again, there might be seasonal fluctuation quarter to quarter, but the general trend will stay.

[Operator]

Your next question comes from the line of Alicia Yap of Citigroup. Your line is now open.

[Alicia Yap, Equity Research Analyst at Citigroup]

Thank you. Good evening, management. Thanks for taking my questions. Congrats on the solid results. I have a follow-up on the competitive landscape in Brazil.

[Alicia Yap, Equity Research Analyst at Citigroup]

I understand we talk about, you know, the MAUI impact is limited. But, you know, how should we think about, the newcomer, for example, the Tmall and also TikTok in Brazil, if you can comment on that? And then just curious, what is the current percentage contribution from the higher ticket items currently in Brazil? And then second question is on the gaming. Given the increased booking guidance for this year, just wondering is it mainly because of the outperformance of the Free Fire or you actually will expect a higher contribution from the new games? Thank you.

[Tony Hou, Group CFO at Sea Limited]

I think for Brazil, cross border for Brazil has been relatively a a smaller percentage due to the tech structure. So Tmall has remained to be a relatively smaller players in the market so far. We will observe how this evolves over time. For TikTok, it just started. And again, the amount of orders the the the size of orders still relatively small in the market.

[Tony Hou, Group CFO at Sea Limited]

We will continue to observe at at we're being quite familiar with their businesses. And but there is quite different market compared to Asia. I I think, you know, it's something we will observe, but that that structure wise, we don't see any fundamental change to the market structure that will impact our view on the market or change our trajectory of the growth in the market so far. But again, just to reiterate, if you look at ecommerce businesses, the fundamental business that we're focusing on is make sure our cost is right. We can serve our customer well through our logistics and making sure our pricing is right for the market.

[Tony Hou, Group CFO at Sea Limited]

Then that will be a long term mode that we can build for the market. For the second question, I mean, depends on how you on the high ticket item, it depends on how you define what is high ticket item. I think if you look at our more segment of Brazil, which is probably a one of the pop approximation you can look at, I think the range of things. If you even compare to Asia market, there is a meaningful room we can grow from there. And and in the long term, I do believe that the penetration of more businesses in Brazil should be higher than Asia giving the the GDUFA capital and income gaps versus our Asian market.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Hi. Alicia, on your question for Karina, the the recent guidance in in terms of the bookings and considering the the the scale and and the and the size of a free fire. So the the the the the the main driver will be still free fire for this revised revised app guidance. And we we feel very excited. I think as a as a shared in the in in my in my remark, and we we see a very, very strong momentum of a growth across all the metrics for Free Fire.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

And in in q two, we we launched a new map. This is the the the the first new map actually we have launched since, like, in the past three years. It has been a tremendous effort behind it, and there's a, like, a a very sizable developer team across across the different countries, and and this is a two year of their half the result of their two year of hard work. So it's very, very well received and by the by the gamers, both the new gamers and the and and the go old gamers. So we we do focus on the both the new game reporting experience and at the same time, the the retention engagement with our veteran veteran gamers.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

And the confidence also come from the the like, in in some collaboration IP collaboration we mentioned in q three, specifically Netflix quick game and and the Naruto chapter two. So we have a very, very exciting and promising results, like, from this IP collaborations in q one as we shared last quarter. And this is kind of like the the the another new episode of those IP collaboration. We learned a lot, and we we we have done great, but we also see things we can even do better. So we we we fine tune our collaborations, and so far, we're seeing great results.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

So from the from the from the IP collaborations. So I I think that is the that give us the confidence of the full year outlook of Graina.

[Alicia Yap, Equity Research Analyst at Citigroup]

Thank you.

[Operator]

Your next question comes from the line of Divya Kathyal of Morgan Stanley. Your line is now open.

[Divya Kothiyal, Executive Director at Morgan Stanley]

Thank you very much. My first question is on e commerce. Could you talk about the upside to take rates from here on beyond advertising? Could you also maybe discuss what the seller response has been to the rising commissions in ASEAN? And how does that impact the overall competitive landscape?

[Divya Kothiyal, Executive Director at Morgan Stanley]

And my second question is on FinTech, specifically for Brazil, because you've mentioned that, that has also started growing quite robustly in this quarter. Could you talk about your strategy of ramping up FinTech in Brazil? Where is the BNPL penetration now? And how fast do you expect it to grow? And if you can maybe point out some differences between the way it should ramp up in Brazil versus how you've been able to grow the business in ASEAN? Thanks.

[Tony Hou, Group CFO at Sea Limited]

On the take rate side, obviously, as we shared in the opening that we see that still a strong potential on the ad side through technology improvement and also a better product that we will out to the sellers. I think beyond the commissions, as you rightly point out, we do get some adjustments in the past quarter on the take rate on the seller side. Overall, we have been seeing relatively calm response from the ecosystem. I think the key thing that you will be looking at is how is the pricing structure will change in the ecosystem in response to the take rate change, which is a good parameter to ensure the health of ecosystem webbing thing relatively expected response on the pricing side. And also, we didn't see any particular seller drop out of system, etcetera.

[Tony Hou, Group CFO at Sea Limited]

So I I think from all the indicator that I think we have been getting a a reasonable response, a common response from the ecosystem. And at the same time, we're able to invest some of the take rate back to the ecosystem, which is very well received by both the merchants on the seller side and on the buyer side. And on the competitive side of this, as you probably can observe that relatively healthy competitive ecosystem will will observe that some of the competitor also increase their take rate. In fact, some of them copy exactly the same thing as as we did as well in certain market. So so so so we are less kind of worried from that front.

[Tony Hou, Group CFO at Sea Limited]

On the second question regarding the Brazil digital finance part of the services, we do see Brazil as a a very important market for us on the June finance side. The the the we have seen a very good growth on the loan books in the second quarter. Our active user for loans grow two times year to year. Our outstanding in Brazil also grow more than two times year to year. One of the key thing with it, I think we shared in the last earning call is we combined the the personal cash loan and escalator limit to one limit, which is different from how we operate in Asia.

[Tony Hou, Group CFO at Sea Limited]

The the we also in integrate more external data to our risk assessment system compared to Asia. And this is because in Brazil, there are more external data available compared to Asia in the market. And we also have that integration between our money for offering and the Shopee for offering. All this enable us to grow our loan book quite meaningfully and reduce our risk in in the market. On top of that, just to share a little bit on the Brazil as well that we do acquire SE license, which and we also get initial approval for SEFI license, which will enable us to have better funding sources in future.

[Tony Hou, Group CFO at Sea Limited]

In fact, we have formed partnership with some external lenders already to support the lending funds in in Brazil market. Yeah. So so in general, I think we are very optimistic about the the potential upside on the digital financial services in Brazil. And I think we are still in a very early stage compared to Asia in term of the growth trajectories. The penetration of escalator on Shopee site, it's still we're still around the single digit to double digit range.

[Tony Hou, Group CFO at Sea Limited]

If you compare to Asia, we still have a very large room to to to grow, and our personal loans are still very early stage. We have many other products in the top line to be rolled out to the market.

[Operator]

Thank you very much. Next question from the line of John Choi of Dialogue Capital Markets. Your line is now open.

[John Hyungwook Choi, Executive Director at Daiwa Capital Markets]

Thanks for taking my question. I have my first question is about advertising take rate. Mean, this quarter, obviously, 70 bps meaningful improvement. But can you kind of share like how much more upside that you see? I know that you've been implementing quite a bit of ad tech, and you guys all shared some metrics about ad products rose, number of sellers that are using this, you know, this quarter by 20% and etcetera.

[John Hyungwook Choi, Executive Director at Daiwa Capital Markets]

In terms of the users or the advertisers, how much more conversion do you think you could expect? That's my first question. Second question is, on, you know, Brazil right now. I think you mentioned, I think, you know, the delivery has improved substantially to, like, 20 per 20%, 40%, as you mentioned. Like, what kind of, like, investments do we have to do furthermore in order for to further improve?

[John Hyungwook Choi, Executive Director at Daiwa Capital Markets]

Would that we'll be able to improve our profitability I mean, the EBITDA margin along the way, or is it gonna be, you know, kind of a prudent approach on trying to balance investment and also profitability in the Brazil market? Thank you.

[Tony Hou, Group CFO at Sea Limited]

On the ad side, the the the there are two main driver for the ad take rate. One is we have a better traffic allocation algorithms between the ad and organics. The the we had a we're able to mix the ad ad slot and the organic slot in a more efficient way, which will improve how much we can essentially improve the conversion rate of the app placement, which will improve the return of investment from the seller. So we can essentially cater for more seller demand on that. So I think that's number one.

[Tony Hou, Group CFO at Sea Limited]

Number two is whether better seller facing products, we roll out GMB Max, which helps the seller to ultimately allocate the ad spend more efficiently and maximize the ROI. And we also simplify a lot more ad setup UIs to more and more sellers. I think all this helps to to achieve essentially the better take rate. As you can see that we increase we increase both how many sellers involved in the ads product. We have 20% increase in the active ad sellers.

[Tony Hou, Group CFO at Sea Limited]

We also have 40% rise in the ads revenue per sellers. So we are improving on both sides in term of the seller and the number of sellers and revenue per seller. Going forward, we do see still a meaningful improvement on the ad tech rate improvement because number one is our product are still going out to more and more sellers. So that is just simply, you know, there are more sellers joining the new products. I think number two is we do see a a very good potential on using, especially, AI technology in print our algorithms on how to improve our conversion factor.

[Tony Hou, Group CFO at Sea Limited]

The the the they they are few experience we're running which yield pretty good result so far. And some of them will be brought out in the later part of the year, which will hopefully giving us a meaningful improvement on the take rate. I think the improvement at at take rate, I think it will be ongoing for a period of time. I think it will not finish this quarter. I think in the next few quarter, you you you will see the number as we go.

[Tony Hou, Group CFO at Sea Limited]

On the on the second question on Brazil, regarding the investment in Brazil, in general, our logistics service has been relatively less CapEx heavy. So we we don't buy land. We we we don't buy our own trucks even in Brazil. So the majority of the investment in terms of CapEx is number one, our sorting machines, our automatic sorting machines in our sorting center. Number two is the just setting up the delivery hub across the countries.

[Tony Hou, Group CFO at Sea Limited]

So it will not give us a big, I I guess, a probability burden in general. And in fact, as we expanding more and more SPX coverage and improving the efficiency more and more, this will help us on the EBITDA in Brazil. Actually, this trend is being ongoing for a period of time if you track our path. We have been profitable in Brazil since a few quarters ago, and we we we are still profitable in Brazil even we grow in such high speed for the market.

[Operator]

Next question comes from the line of Zhong Shao of Barclays. Your line is now open.

[Jiong Shao, Equity Research Analyst at Barclays Capital]

Thank you very much for taking my questions and congrats first on the very strong results. I have two follow ups. One is just on the ads. Think Chris just talked about some of the elements for ads. I was wondering what's the current take rate now for the ads?

[Jiong Shao, Equity Research Analyst at Barclays Capital]

And I recall a few quarters ago, you talked about longer or medium to long term target of 4% to 5%. I just want to check-in to see if that remains the case. Second question is about AI. I think both Forrest and Chris talked about using AI to improve the ad tech and among other things for your internal operations. Could you expand a bit on your thoughts outside of using AI improving your internal efficiency?

[Jiong Shao, Equity Research Analyst at Barclays Capital]

The reason I'm asking is that one of your e commerce peers in Asia recently, for example, started to expand their cloud services to external customers. Since along those lines, think about what are some potential other businesses that can go beyond your core businesses by using AI? Thank you so much.

[Tony Hou, Group CFO at Sea Limited]

For the active rate, our current active rate is still well below the peers we have seen in the regions. We have probably around 2% as we are. And and as you already point out, I think they are quite sizable room we can grow over time. For the on the AI side, I I think as we shared in in few occasions, we we use AI at this point time for two main purposes. One is to improve our current businesses across all different dimensions.

[Tony Hou, Group CFO at Sea Limited]

For example, we talked about the ad improvement just now. We also use AI a lot of our general recommendations and and this improve our conversion require a lot by understanding user intention better, by understanding the buyer the buyer's query better. We also spent a lot of effort on the AIGC initiatives that we can generate a lot more attractive pictures for their product descriptions. We also also generate many of the video products to help the conversion of our sellers. On the customer interaction side, our customer service chatbot is 80% managed by by AI agent.

[Tony Hou, Group CFO at Sea Limited]

We also helping the seller to interact with the buyers through the CS chat by agent as well. Not only reducing the cost for the sellers, but also improve the upselling potential for the sellers while talking to the buyers. We have many initiatives like that to across our businesses just to make our business better. That's the the first type of category. The second type is to improve our internal operations.

[Tony Hou, Group CFO at Sea Limited]

For example, obviously, product development side, but also many of our daily operations like for example, if you look at the way we run our marketing campaigns, a lot of mind camping are very ultimate right now through AI tools. Many of the the the the process to process the payment AI enabled to the agent, etcetera. I think the the the the obviously, we are actively looking at what are the potential we can potential business we can expand from the AI evolutions. At this point in time, there's no particular concrete business yet.

[Operator]

Next question comes from the line of Thomas Chong of Jefferies.

[Thomas Chong, Managing Director at Jefferies]

Congratulation on a very strong set of results. My question is about the gaming business. Can management comment about other than the success of Free Fire, how are other games performed like Delta Force? And on the other hand, how is AI actually benefit the gaming business in driving the time spent, the monetization, etcetera? Thank you.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

Sure. Thanks, Thomas. Yeah. For like, we I mean, as a for our philosophy, we always want to, like, not only continually make Free Fire more engaging attractive games, but we also focus on, a new game. Like, we we we do see a lot of opportunities in the different genre and the and the and the different market.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

But, like, I I think it's a it's a but I would say, like, I think that this moment, even we see some promising result, and I think it's a, like, the game, like a like a delta force or, like, a free cities that's still at a early stage. I think it's, like, we we still kind of, like, a fine tune stage, like, rather than saying, this is will be another fantastic big hit for us. And so we'll keep keep our, like, investors updated when when we continually see, like think it's a still fine tuning the the product, although for some of them, we see some initial attraction. And we are very, very excited about the AI perspective in the in the game industry. And personally, I believe game industry will be among the first batch of industries, largely benefited by by by the AI advancements and the technologies.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

And so far, like, we have seen a lot of kind of upside on the actually, the development and the production side. And and and say, for example, like, for to develop any new content, new map, we need to generate our a lot of original art. And now a lot of, like, a very, very basic art can be generated by AI. So it's a the the quality is very, very decent. I said in terms of the efficiency, the the the the volumes are generated and the the varieties are generated is I mean, you can imagine it's much, much better than than what human can do.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

So this is largely improve our productivity, and and it's it's really, really, really, really exciting. And like, on the as you mentioned from the gamers, like, engagement perspective, like so there is a very, very clear opportunity we we we have seen in the use cases, like, we we we do believe, like, say, for example, Free Fire is a is a very, very social game. It's a it's a design for for team play. So it's like there is a much, much more fun if you play with other players, and and there is a much more combination of the strategy, the technique you can use, then you play as a solo gamer. But we observe the Free Fire.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

We do have a very, very sizable gamers, like, only play solo game solo games. I mean, they enjoyed, but I think they they they haven't really fully experienced the the amazing part of the game. And maybe because of they are shy, they don't know how to reach out to other players. So if we think, like, the the the AI enabled bot, it's a kind of like that they're it's a it's a it's a it's a AI game agent, like, as their teammate, as a peers for them to play the game together, kind of a play a a a brother's role, a sister's role, and a a coach role in the game and give them a little bit flavor of how this interaction will kind of feel and taste in the in in the gameplay and as a encouragement for them to reach out to play to play as a as a as a as a team rather than individuals. I think that largely help on the on the on the on the retention.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

And furthermore, I think we are we are very actively experiencing and trying to figure out and how to kind of leverage the generative AI to let gamers and to generate the content rather than okay. So now all the today's game experience are preset and and how the experience will look like. And I think with the AI tools, actually, this experience can be much more immersive and much more interactive and much more individualized. I think it's a well, it's still early stage because, like, we we can see some success, but we want to make sure the experiences can be applied in the large scale and in a very, very consistent quality. I think that's the things we have been working on.

[Forrest Li, Founder, Chairman & Group CEO at Sea Limited]

And but we'll sure. I think, like, this this will happen sooner or later. Yeah.

[Operator]

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Casey Ong for any closing remarks.

[Khang Chuen Ong, Investor Relations at Sea Limited]

Thank you all for joining today's call. We look forward to speaking to all of you again next quarter.

[Operator]

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

Participants

Analysts

• Khang Chuen Ong, Investor Relations at Sea Limited
• Forrest Li, Founder, Chairman & Group CEO at Sea Limited
• Tony Hou, Group CFO at Sea Limited
• Usjima Pang Vittayaamnuaykoon, Executive Director at Goldman Sachs
• Piyush Choudhary, Director, Telecoms Analyst - South East Asia at HSBC
• Alicia Yap, Equity Research Analyst at Citigroup
• Divya Kothiyal, Executive Director at Morgan Stanley
• John Hyungwook Choi, Executive Director at Daiwa Capital Markets
• Jiong Shao, Equity Research Analyst at Barclays Capital
• Thomas Chong, Managing Director at Jefferies