On Tuesday, Sea (NYSE:SE) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Sea Ltd reported a strong start to 2026 with revenue surpassing $7 billion, reflecting a 47% year-on-year growth, and adjusted EBITDA exceeding $1 billion for the first time.

Shopee achieved record highs in GMV, gross order volume, and revenue, with GMV growing 30% year-on-year. The company is focusing on enhancing logistics, fulfillment, and its Shopee VIP membership program to drive further growth.

Sea Ltd's financial services segment, Money, saw robust growth with a loan book reaching $9.9 billion and continued expansion in Brazil. The company is focusing on credit growth and risk management.

Garena reported its best quarter since 2021, driven by Free Fire and Arena of Valor. The gaming segment achieved 20% growth in bookings year-on-year.

Management is confident about future growth prospects, targeting a 25% year-on-year increase in Shopee's annual GMV with stable or improved EBITDA figures, while continuing to invest in AI and logistics capabilities.

Full Transcript

OPERATOR

good morning and good evening to all and welcome to the Sea Ltd first quarter 2026 results conference call. all lines have been placed on mute to prevent any background noise. after the speaker's remarks, there will be a question and answer session. if you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. if you would like to withdraw your question, press star one again. for operator assistance throughout the call, please press star zero. and finally, I would like to advise all participants that this call is being recorded. thank you. I'd like to now turn and welcome the call over to miss rebecca lee to begin the conference. please go ahead

rebecca

hello everyone and welcome to Sea Ltd's 2026 first quarter earnings conference call i am rebecca from Sea Ltd'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 complement to our GAAP disclosure 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 steve chairman and chief executive officer boris lee president chris fung and chief financial officer tony ho our management will share strategy and business updates operating highlights and financial performance for the first quarter of 2026 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 forrest

forrest

hello everyone and thank you for joining today's call we have had a strong start to the year in the first quarter we generated over seven billion dollars of revenue representing forty seven percent year on year growth adjusted EBITDA exceeded one billion dollars for the first time as we have shared before 2026 is a year where we are leaning into growth investment to deepen our competitive mode while maintaining financial discipline our strong revenue growth reflects the effectiveness of this investment and we're already seeing unique economic start to improve for some of these initiatives we believe this is the right approach to maximize long term value giving the significant runway for growth still ahead of us in our market with that let me take you through each business's performance starting with shopee shopee delivered another record setting quarter achieving new highs in GMV gross order volume and revenue GMV grew thirty percent year on year in the first quarter at the same time we maintained financial discipline generating an adjusted EBITDA of over two hundred twenty million dollars our monetization strengthened further in the first quarter ad revenue grew eighty percent and ad take-rate increased by more than ninety basis points year on year high paying sellers and their average ad spend also increased by around thirty five percent year on year reflecting the strong value sellers see in our ad offerings our results validate the operational priorities we have laid out for shopee improving price competitiveness service quality and our content ecosystem our strong execution across this product priorities drove user acquisition and engagement in the first quarter average monthly active buyers increased sixteen percent year on year and the buyer purchase frequency grew around twelve percent year on year we continue to deepen our structural modes across logistics shopee vip and content first logistics continues to be one of our most important depreciators ftx express remains one of the largest e commerce logistics solution providers in our market we have developed strong capabilities to dynamically optimize for speed cost and user preference in the first quarter we continued to scale delivery options serving different consumer demands while maintaining cost leadership we have seen strong adoption of our instant and same day delivery services with greater economics of scale we are seeing lower delivery costs per order for these faster services compared to last year for example in indonesia our instant delivery service can deliver orders in as little as two hours in urban areas order volumes for this service to over thirty five percent in the first quarter with cost per order reducing by around twenty percent year on year building this service has enabled us to extend our product assortment into higher frequency categories we expanded partnerships with major convenience stores and pharmacy chains such as indomaret at the end of march we had around seven thousand offline stores available on our instant services this has shifted more offline purchasing behavior online and into the shopee ecosystem buyers using instant delivery enjoying greater convenience and we are seeing such buyers spending more with better retention on shopee beyond delivery we are increasing our focus on fulfillment as a natural extension of our logistics capability we are making good progress in the first quarter fulfillment order volumes grew by around twenty five percent sequentially fulfillment allows for faster and more reliable delivery while enabling sellers to operate and scale more efficiently on our platform we already see this happening with our fulfillment orders consistently delivering faster than the platform average in asia over one third of parcels fulfilled by us were delivered within the next day in march much higher than the platform average the combination of fulfillment with our intensive delivery network allows us to drive significant improvements in both service quality and cost efficiency for example in taiwan our collection point network expanded to over three thousand one hundred locations at the end of the fourth quarter nearly fifty percent more locations compared to just a year ago we leveraged our growing fulfillment capability to scale initiatives such as shipping directly to lockers without additional packaging improving speed while reducing costs with this effort average buyer waiting time improved twelve percent in the first quarter year on year we recorded double digit GMV growth year on year in the first quarter in taiwan deepening e commerce penetration and strengthening our market leadership there second our shopping vip program this subscription based membership program continues to gain strong traction and drive user engagement by the end of march total subscribers across our asian market past ten million up more than forty percent from the previous quarter with strong program retention averaging above eighty percent across all markets our shopee vip members have consistently demonstrated double digit spending uplift after subscribing by as much as thirty to forty percent in some markets shopee vip members now contribute around twenty percent of GMV across asia building on this success we have rolled out our shopping vip program in brazil in april third our content ecosystem continues to grow healthily in the first quarter orders from live streaming and short form video grew more than fifty percent year on year these orders accounted for more than twenty five percent of total physical goods order in southeast asia to further strengthen our content ecosystem we continue to deepen our content partnerships orders driven by youtube more than doubled year on year our collaboration with meta is building well with over four point five million affiliates across our market up nearly thirty percent quarter on quarter in the niche we have extended our meta collaboration to enable seamless product promotion and checkout not just on facebook but also on instagram i would also like to highlight our strong performance in brazil and the growing role ai is playing in our business brazil was our fastest growing market in the first quarter while continuing to be profitable we continue to outpace the market on GMV growth driven by increases in active buyers purchase frequency and average basket size this strong performance was supported by solid fundamentals including wide product assortment at competitive prices and our structural logistics cost advantage we also made steady progress strengthening our presence in the upmarket segment enabled by our strong logistics capabilities we continued to improve delivery time by more than one day in the first quarter compared to last year we opened three new fulfillment centers bringing our total to five this effort allowed us to onboard more merchants especially to shopeemore supporting stronger spending among buyers in the first quarter gme from shopeemoor sellers more than doubled year on year and now contributes around fifteen percent of gme we remain confident in brazil's long term growth potential and in our ability to further strengthen our competitive position in this market on to ai we have taken a practical resource oriented approach embedding ai into our operations to drive better outcomes for our users and greater efficiency across our platform it is already making a meaningful impact ai powered enhancements to our search and recommendation algorithm have led to better product discovery our ai generated content tools are helping sellers create more compelling product listings these efforts supported a fourteen percent improvement in purchase conversion rate year on year in the first quarter an ai driven personalization and targeting helped contribute to the strong year on year ad revenue growth we saw this quarter on the cost side around eighty percent of customer queries are now handled by our ai chatbots ai usage helped reduce customer service cost per contact by around thirty percent year on year while maintaining high satisfaction rates looking ahead we are exploring authentic ai experiences for buyers we are testing an ai shopping assistant that leverages purchase history and preferences to deliver personalized recommendations and optimize savings for sellers we are building an ai agent that acts as a virtual business advisor providing diagnostic and actionable insights on shop performance both are in early stages with plans to roll them out more widely over time in summary shopee has had a great start to 2026 delivering strong growth while maintaining financial discipline we are being deliberate about where we invest in delivery fulfillment our shopee vip membership program and user acquisition we are already seeing some improvement in unique economics and we expect this to continue over time looking ahead we are confident in the strength of our shopee ecosystem and our ability to execute our strategy we are on track to deliver our 2026 guidance to grow shopee's annual GMV by around twenty five percent year on year with full year adjusted EBITDA no lower than 2025 in absolute dollar terms next moving to money money also had a strong start to the year with robust year on year growth across both revenue and adjusted EBITDA credit continues to be the primary driver of our growth our loan book reached nine point nine billion dollars at the end of march an increase of more than seventy percent year on year while maintaining stable asset quality we continue to expand the credit business along three fronts first by deepening existing user relationships offering them more credit as we get to know them and their repayment behavior better second by acquiring new users especially in segments with better risk scores and greater affluence these users tend to have better repayment behavior and higher borrowing capacity our campaigns to attract such new users with competitive pricing higher limits and longer tenures are showing early signs of success and third by expanding our credit use cases beyond shopee an important runway for future growth we are making good headway with offshore expansion more users are progressing from on shopee estate later to offshore es pay later and personal cash flow following strong momentum in malaysia we are also seeing good traction in some other markets offshore psa later loans in thailand and indonesia exceeded twenty percent of the sa later portfolio at the end of the quarter notably we are seeing strong growth in higher value categories such as electronics and two wheelers in indonesia where installment credit plays a meaningful role in enabling such purchases taken together this effort resulted in strong growth in both user numbers and the loan outstanding per user in the first quarter we added four point nine million first time borrowers our active credit users crossed thirty eight million at the end of the quarter an increase of more than thirty five percent year on year an average loan outstanding per user grew to around two hundred fifty thousand percent higher year on year brazil has become our fourth market to cross one billion dollars in loan book size growing over two hundred and fifty percent year on year the strong growth momentum was supported by a localized product we introduced last year a combined estimate later and a cash loan limit that aligns well with how brazilian consumers utilize credit this led to strong user growth with higher repeat usage where average loan outstanding per user more than doubled compared to last year aspay later penetration on shopee is around ten percent of GMV in brazil well below our more mature market indicating substantial headroom for growth we also obtained the sdfi license in brazil during the quarter allowing us to broaden the scope of financial services we can offer we are still in the early stages of scaling this business in brazil with a strong foundation in place to support future growth risk management remains our top priority our ninety day npl ratio remains stable at one point one percent at the end of the quarter this reflects the strength of our underwriting capabilities and the disciplined way in which across users and markets our deep understanding of our market and borrowers allows us to respond quickly to macro changes our loans typically have short tenures and we can adapt our product success credit limits and tenures in real time these attributes enable us to adjust our risk appetite and optimize our asset quality as we yield in summary money continues to grow healthily expansion into more user segments offshore key use cases and early markets like brazil are giving us a much larger addressable opportunity across our portfolio we remain confident that money will be a significant long term profit contributor for sea next turning to garena garena had a stellar start to 2026 delivering its best quarter since 2021 bookings were up twenty percent and adjusted EBITDA grew twenty five percent year on year this performance was driven by the continued strength of free fire alongside the record contribution from arena valor in january free fire launched a major collaboration with the popular anime jujutsu kaisen as with our previous collaboration we invested significant effort in bringing core elements of the anime into gameplay we transformed parts of the map into settings from the jujitsu high school and introduced a cursed energy resource that the players could collect to activate special character abilities for instance gojo's unlimited void one of the highest level techniques from the anime allow the players to draw their opponent into a separate domain for a one on one fight players resonate strongly with the campaign's attention to detail and authentic visual effects this collaboration generated over seven hundred million official content views making this one of our most successful ip partnerships to date taken together with the highly successful naruto chieftain collaboration last year we have demonstrated our ability to consistently execute high impact partnerships with global ip owners we are also evolving how we scale our content globally one of freepart's long standing strengths is our ability to hyperlocalize the game for players this year we have challenged ourselves to both localize and globalize some of these content making it highly resonate for target markets and also enjoyable for everyone else a good example from the first quarter is our ramadan campaign in past years this campaign was only launched in ramadan observant market this year we scaled it into a global event under a lost treasure theme players from markets celebrating ramadan recognized this as a festive event catering to them while players from other markets saw it as a desert themed campaign that was new interesting and fun to play during matches players could find treasure maps triggering team based missions guiding them to hidden treasure locations this highly interactive campaign resonated strongly across markets globalizing campaigns let us pool resources elevate content quality and deliver more frequent beyond free fire arena valor delivers record high quarterly bookings in the first quarter in its tenth year of operation the sustained success of both games demonstrates our unique ability to operate games well across general in multiple markets and over long periods of time garena has started 2026 with great momentum we will remain focused on delivering fresh experiences and building the long term value of our game portfolio in conclusion we have started 2026 well with each business expanding its addressable opportunity while strengthening its competitive position meanwhile across our ecosystem we see the ai era creating significant opportunities for a company like ours with established scale rich cross vertical data and the deep local expertise we are investing deliberately to capture the growth runway ahead and we are confident of continuing to deliver robust top line growth while improving our adjusted EBITDA year on year with that i invite tony to discuss our financials thank you boris and thanks to everyone for joining the call for ce overall total gaap revenue increased forty seven percent year on year to seven point one billion dollars in the first quarter of 2026 this was primarily driven by growth in shopee and money our total adjusted EBITDA was up by nine percent year on year to one billion dollars in the first quarter of 2026 on shopee gross orders increased twenty nine percent year on year to four billion in the first quarter of 2026 and gme increased by thirty percent year on year to thirty seven point three billion dollars in the first quarter of 2026 our first quarter gaap revenue of five point one billion dollars included gaap marketplace revenue of four point five billion dollars up forty four percent year on year and gaap product revenue of zero point six seven dollars within gaap marketplace revenue core marketplace revenue mainly consisting of transaction based fees and advertising revenues was three point eight billion dollars up sixty one percent year on year value added services revenue mainly consisting of revenues related to logistics services was zero point seven billion dollars topping adjusted EBITDA was two hundred twenty three million dollars in the first quarter of 2026 compared to an adjusted EBITDA of two hundred sixty four million dollars in the first quarter of 2025 this year on year change primarily reflects our increased investments in delivery fulfillment our shopee vip membership program and user acquisition partially offset by higher monetization money gaap revenue was up by fifty eight percent year on year to one point two billion dollars in the first quarter of 2026 adjusted EBITDA was up by fourteen percent year on year to two hundred seventy five million dollars in the first quarter of 2026 as of the end of march our consumer and sme loans principal outstanding reached nine point nine billion dollars up seventy one percent year on year this consists of eight point eight billion dollars on book and one point one billion dollars off book loan principal outstanding non performing loans past due by more than ninety days as a percentage of total consumer and sme loans was one point one percent at the end of the quarter garena bookings grew twenty percent year on year to nine hundred thirty one million dollars gaap revenue was up by forty one percent year on year to six hundred ninety seven million dollars the growth was primarily due to the increase in our active user base and deeper paying user penetration garena adjusted EBITDA was up by twenty five percent year on year to five hundred seventy four million dollars returning to our consolidated numbers we recognized a net non operating income of sixty two million dollars in the first quarter of 2026 compared to a net non operating income of eighty nine million dollars in the first quarter of 2025 we had a net income tax expense of two hundred fourteen million dollars in the first quarter of 2026 compared to net income tax expense of one hundred thirty six million dollars in the first quarter of 2025 as a result net income was up by seven percent year on year to four hundred thirty eight million dollars

rebecca

thank you Forrest and tony we are now ready to open the call to questions operator

OPERATOR

we will now begin the question and answer session if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question simply press star one again in the interest of time we will take a maximum of two questions at a time from each caller if you wish to ask more questions please request to join the question queue again after your first questions have been answered at this time we will pause momentarily to assemble our roster your first question comes from the line of alicia yap of citigroup your line is open

alicia yap

hi good evening management thanks for taking my questions congratulations on the strong results i have two questions first of all on e commerce so looking at your thirty percent gmv growth twenty nine percent order growth seems to be suggesting it's a decent increase in the ASP so could management share what you have observed during this past quarter so how much of the strength of the GMV is attributed to your deeper penetration in the higher end user and higher ASP product in brazil obviously follow your strategic expansion in your warehouse fulfillment and how much of that could be contributor to the highest stickiness of your VIP members across the southeast asia regions and also taiwan and then following up on that is that despite delivering the thirty percent gnv growth management still maintained a full year GMV growth of twenty five percent so is that because of the higher base of the second half of twenty twenty five or is it management being conservative in light of the macro uncertainty so any colors management could share elabor rate would be helpful and then second very quick one is on your gaming very strong booking growth so do you expect this strong rebound of arena of rallo could set a tone for the continuous strength and rebound of the game for the rest of this year or is it just more a one off due to the seasonality and promotion thank you

forrest

on the growth for shopee we see a combination of growth from both brazil and south asia overall brazil does grow slightly faster than south asia but you know i think it's probably not only driven by the brazil side i think as you already pointed out we try to have more fulfillment businesses in brazil we also have more more sellers joining us in brazil which contribute to high end user segment attractiveness the shopee VIP has been driven quite a lot of growth in asia as well as forres mentioned in the opening for the gmv guidance q one has ramadan and also both and also chinese new year falls into the quarter we see very good seasonality attribute to part of the growth we also see that many of the initiatives we implement from last year including the VIP including the instant deliveries including the ai enabled better discoveries that we roll out to our platform all this contribute to a kind of better growth than we expected in q one as of the future guidance i think we will observe how the market evolves it's a bit early to sort of forecast the full year at this stage we will communicate with the market as we see better indications from the growth trend in the market

boris

regarding Arena we are very encouraged by Arena valor's performance this quarter it delivered record high bookings in q one in its ten years of operation which really speaks to the enduring appeal of the game and our team's ability to keep the experience fresh and engaging for players this is not a one off we have been making deliberate investments in content updates and community engagement that are driving real results with the content packed year to celebrate the game's tenth anniversary we expect 2026 to be a record year for Arena valor that said q one is indeed a seasonally stronger quarter for gaming benefits from a lunar new year which is a key engagement period so we are mindful of that when looking at the sequential trend as you know gaming performance can also vary from quarter to quarter depending on the timing of content release epic collaborations and the seasonal events but the underlying health of the franchise in terms of user engagement and the paying user penetration give us confidence we remain confident that in delivering strong year on year bookings growth for gArena for the full year and Arena berners reaching new heights in its tenth year give us even stronger conviction that we can do the same with Free Fire over the long run

OPERATOR

your next question comes from line of divya kothial of morgan stanley your line is open

divya kothial

thank you very much my first question is on brazil so the growth in brazil has been clearly very strong for shopee but how should we think about the margin cadence there for this year especially since we are seeing the market leader has dialed up their own investments in the market brazil has been profitable this quarter but would love to hear your thoughts on how you're thinking about brazil profitability when you give the full year guidance for e commerce EBITDA targets also are there any early learnings from the loan book ramp up in brazil and how different are the returns versus asean so that's my first question on brazil my second question is on e commerce take rates we're seeing e commerce take rates have risen very consistently this quarter especially in asean would like to hear your perspective on how much of these increases are being reinvested back into seller rebates or consumer incentives and and are you seeing asean e commerce margins actually improve also given the rise in cost inflation there has been some pushback by sellers in markets like thailand about these hikes but are you broadly seeing these increases being well accepted by sellers or are we kind of reaching a cap on commissions per se thank you

forrest

in terms of brazil growth we see as you point out we see very strong growth in brazil if you look at q one we grow well ahead of the market growth in the market which enable us to gain better market shares which in turn give us better scale to drive down our cost to serve in the market we have been profitable in brazil for the last few consecutive quarters i don't foresee any change towards that at this point in time we will still continue to grow healthily in brazil likely with the profitable margins as we see right now but again while saying that we do commit to invest into brazil especially for the few areas we mentioned like the fulfillment network that we are building we are further expanding our same day deliveries in brazil we're also launching the we also have the VIP program in brazil as well i think all those will be rolled out in brazil over time to drive further growth in terms of the loan book in brazil we've been doing very well in brazil on the loan side we actually have more than one billion outstanding in brazil already which is kind of very high growth year to year if you look at last year q one i think the key driver for us is to localize the product we didn't take the asia products to take to brazil we localize the product for example we have a single flexible limit the user can draw on across the expirator and the personal cash loans based on what they need we also spend up effort on localizing the data sources not only from the shopee data but we also draw data from the open banking networks in brazil which give us pretty good impact in terms of the risk profiles i think that's part of reason that we see better risk in brazil which enable us to expand more user pools while maintaining the profit profile in the market overall we are seeing the very early days of the market penetration in brazil for the lending businesses if you compare our sizes versus some of our peers in the market for financial services there's a huge room ahead of us in terms of growing the businesses in brazil in terms of the e commerce take rate i think the simpler way to look at this was we just increase part of the take rate we also have our EBITDA margin relatively similar to purpose quarters so a big part of that will be reinvested into the market to drive the growth again the area we invest in the few areas mentioned the fulfillment networks we're building the VIP programs etcetera but generally we see that in most of the markets we see good margins quarter over quarter for our asean market on the seller commission reactions from the market the most important thing for us is to look at how the seller commissions impact the pricing we look at the impact of commission increase on pricing compared to the peers in the online market and we also compare with the pricing compared with the offline market pricing is one of the most important things for us as we mentioned over time we still see a very price competitiveness in our platforms we i think going forward i think we will still kind of look at the dynamics and decide what's the best way to manage the commission part but again i think the most important thing is we are able to deliver profit to the sellers the profit is depending on number one is how much commission we're taking number two is how much cost they're running our platform number three what's the volume we're driving for them our platforms with slightly higher commissions we spend a lot of effort on reducing the cost of running businesses our platform for example we offer AI-powered chatbot for the sellers so they can customer do customer service with their buyers automatically without sort of hiring more customer service agents for example we help them diagnosis their businesses a lot easier with our AI-powered agents in our seller centers et cetera and at the same time as we always share that with still fast growth in our market you know seller has a bigger pie to pie to draw from so all this contribute to sort of a healthy ecosystem when we look at the seller commission plan

OPERATOR

your next question comes from the line of navin killa of ubs your line is open

navin killa

hi thank you for the opportunity and congrats on the strong results i had a couple of questions so if i look at your e commerce i guess absolute EBITDA in q one this year compared to q one last year you know there's obviously a moderate decline i just wanted to understand if you could help us kind of you know get a better sense of where this decline is coming from geographically if you split between let's say brazil taiwan and southeast asia and also as things hopefully improve over the next couple of years how will the state of that be in terms of the magnitude of growth in EBITDA kind from each of the regions and secondly on fintech again the margins have obviously been inching down is there a steady state number that we should be looking at and a time frame over which you can you can get there

forrest

first of all let's start with the e commerce side i think you are absolutely right on that slightly lower EBITDA year to year i think the other way to look at this was that if you look at last quarter in q two in q four twenty twenty five we do see a slight increase on the EBITDA from q four last year to q one this year i think there are many reasons driving the dynamics here last year was the first year that ROAmadan falls into q one which is you know different seasonality that we had for many many years i think there was some adjustments that we have to learn from how does this analytically impact the businesses i think we have better expense this year compared to last year i think part of the reason also because we launched a bunch of initiatives to further drive the growth this year as we shared across the course and some of that started from later part of last year which kind of continue from q one continue to q one this year for this near term in twenty twenty six i think we share with our guidance we expect pretty good growth on twenty five percent with the bottom line EBITDA at least not worse than last year i think we'll see how this evolve over the quarter in terms of the medium to long term we still maintain our judgment that we believe that two to three percent EBITDA margin is something we target to achieve in terms of the fintech the fintech margin one thing we look at very closely is our absolute returns when we grow our loan outstanding we would like to make sure that additional loan will bring a positive EBITDA in absolute terms we do recognize that the if you compare with the outstanding as a ROAtio it might fluctuate that eventually might go down a bit over time if you look at over the quarters i think largely driven by the mix of different countries and different products early in the market for example like indonesia philippines does have a higher ROA compared to the market that coming a bit later to the portfolio if you look at let's say thailand or malaysia vietnam et ceteROA so this drives if you look at the ROAtios slightly lower roa as time goes i think at this point in time the business is really early we see a huge potential in front of us especially if you look at some of the new market growth even you look at thailand malaysia or the bROAzil we talked about there is a big potential ahead of us and if you just now we talk about bROAzil if you compare our outstanding compared to the peers outstanding that there's huge room for that we also try to develop the non shopping ecosystems for example the i think forrest mentioned the cell phone stores the two wheel source i think all this dynamic i think a bit too early to guide a steady state number at this stage it's pretty much impacted by the country and product mix

OPERATOR

your next question comes from the line of yong xiao of barclays your line is open

yong xiao

thank you very much for taking my questions i have two as well if i may i'm going to just ask one at a time firstly would you be able to just talk about the potential impact from a higher fuel prices i know the conflict in middle east started in march you probably did not see too much of an impact in q one but if the oil prices stay at current level for for longer how would that affect your cost would you be able to pass on some of the costs to either the sellers or consumers any comments would be helpful then i have a second question

forrest

yeah it's clearly something we look at very closely in terms of the oil price impact to our businesses i think there are a few degree of impact when we look at this the first degree of impact is just absolute oil price it does impact our operation cost i think the good thing is that we leverage quite a lot of the subsidies from the government in our countries where it help us to absorb the cost increase in many countries especially the last mile delivery which is the largest part of our delivery cost we also work closely with our partners like for example our line haul partners our airline partners to match the cost together so all in all if you look at actual cost it does have impact in our cost but we believe we can manage it within the guidance that we're giving out and also in terms of timing you're absolutely right that the q two will probably see more impact than q one in terms of cost i think that's the first degree of impact i think second degree of impact is potentially this might impact the spending powers in some of the countries if they have to spend more money on them the gas stations i think generally we have seen moderate impact in our platform i think the most important reason for that is our platform is actually the cheapest platform you can find the products that people essentially needed so when people are looking for a savings actually we look at us more our platform is also more essential product platform rather than something that people buy a luxury product from for or discretionary spending less spending our platform compared to let's say offline spending et cetera so all this help us to show the impact from the second degree impact that we

yong xiao

okay great very helpful thank you for that my second question is about your fulfillment build out you talked about adding three fulfillment centers i think in q one in brazil could you talk about some of your perhaps like near term targets and long term targets for example as you know one of your peers in brazil is adding i think over a dozen scs this year in brazil so if you can share with some of your thoughts both near term and long term and on top of that the pace of the investment and is that you adding let's say some fulfillment centers this year and then next year take a pause to absorb some of the capacity then perhaps add more after that so just help us understand the pace when you build out your fulfillment infrastructure from relatively a low base from timing wise compared to low base compared to our competitors obviously and any sort of a timetable for getting returns of this investment thank you so much

forrest

so on the fulfillment businesses i think especially for brazil i think that you referred to we do have our expectations on growing more percent of businesses from fulfillment as we build out since we started lastly not too long time ago we are still in the early stage of building up the fulfillment businesses i think typically we actually don't overbuild too much so our capacity utilization in our fulfillment center is relatively high and i think the core reason for that is we're able to project predict how much of the volume for fulfillment well ahead of the time then we build our fulfillment center according to the timetables so it's probably unlikely that we're going to do a lot this year and we stop next year then we'll be while waiting for fulfillment center to be fulfilled then we build again i think it's more going to be a continuous process while we are building the fulfillment center and ultimately we would like to have our fulfillment center at the overall size bigger than our close competitors in the market in terms of absolute volumes but i think it will take a few years to get there giving you know we just stop it later in terms of the retail investment if you look at individual fulfillment centers typically the infrastructure the capex is actually not that high as we don't own the fulfillment center itself we typically rent a fulfillment center the the capex essentially is to make sure the fulfillment center is well equipped so if you look at that particular part of investment the return of investment is pretty fast it's not that long ahead of the time the other part of investment we're doing for the fulfillment businesses is more move the seller to be part of the and advocate the buyer to understand the fulfillment businesses that we have so that's part of the ongoing investment we use to drive business growth

OPERATOR

your next question comes from the line of ranjan sharma of jp morgan your line is open

ranjan sharma

hi good evening and thank you for the presentation and congratulations on the results three quick questions from my side firstly how do you see the economics of the VIP program will you consider optimizing the value offered to consumers or the subscription price charged to the customer the second question is given the momentum on free fire and arena valor and the content coming in the coming periods how should we think about the growth of the gross bookings this year last question is can you help us understand how you evaluate the intrinsic value of sea we know you have a billion dollar buyback but you have only executed one hundred seventy billion dollars or so despite the stock price reaching dollar seventy eight at some point so it will help to understand like how you're thinking about the buyback going forward thank you on the

forrest

vip program i think there are two part of the offering that we are providing to the market product offering is the shopee offering for example in some markets if you join the vip you can get a free shipping et cetera part of that is with our partner offer to our users one of the key things we are working on is expand our partner pools so we can strongly offer the benefits to our user for example the ChatGPT program that we offer to our users which is very well accepted and like there are quite few other partners we are going to announce actually not too far away while working on the system integration et cetera so all this work all these partners offerings will help us in terms of the unit economic over time and also for the pricing we clearly look at the pricing there's a potential to have a different tiering as well for the pricing depends on how the market reactions and how the user normally look at for different segment of users and also depend on who we have partnered with et cetera but at this point in time we were still going to invest a bit more on the vip program giving that the retention we see on the user base and also the uplift of the activities from the vip users but eventually we do see vip program can be even more profitable program compared to the non vip program giving the signals of the users giving the ability for us to bring the benefit to our partners

OPERATOR

your next question comes from the line of elijiang of macquarie your

boris

line is open sorry jl p four thanks yeah there is a yeah so for the growth bookings for Garena for the rest of the year at this moment we remain very very confident and we think this year we have a very strong growth and we remain the guidance we gave during the last time earning call and in terms of your question of the buyback considerations as we shared in our earning release and we have actively bought back our shares since last like since last november and we're going to continually doing so and as we shared we remain very confident about our three vertical businesses and also the strong growth potential of our market so that's the key underlying considerations when we buy back our shares

OPERATOR

my apologies elijiang your line is now open

elijiang

great thank you so much management for taking my questions i've got two one is a follow up on the prior question on shopee vip just wanted to have a better understanding of the current progress of the vip members because clearly you guys have been making pretty good progress on penetrating into many of the core operating markets and seems like it has reflected positively on both user frequency as well as for the ticket size so going forward what would be the key kpi's would it be you know that the percentage of penetrations in several key markets be it over you know certain percentage of their total ms or would it be certain gmbh thresholds that you you guys will be monitoring just wanted to get an understanding of kind of that investment kind of reflection sort of in the next several quarters so that's first part of the question the second would be on money so can management shed some lights on the actual breakdown of the business including for example the country mix also on shopee and off shopping percentage point ultimately the latest quarter of seventy one percent year over year increase in consumer and sme loan principal outstanding was very impressive especially given that you guys can control that the loan quality at very high level but can you talk about kind of the key factors in the upcoming years you know what will be the key figures to continue continuously contribute to such strong growth momentum for the loan booker as well as for the revenue thank you

forrest

so i think there are key there are a few key numbers we look at for example the penetration of our GMVs the retention of our users and also the unit economics for this part of the program i think there are a few things essentially quite important for us to look at i think the other key thing we look at is how many partners that we have in the vip program as i shared just now it's important for us to make sure that we bring benefit to our users not only from shopee but also from our partner as well we started shopee vip in indonesia first i think we see very good progress there as i think as we roll out to more countries we see you know essentially we learn more from the early countries and roll out similar learnings to other countries for the money businesses as i shared earlier we started first in the early countries like indonesia et cetera but the newer countries like thailand malaysia or brazil have kind of essentially because they are less countries they grow faster compared to the other countries in a way so the share between the countries will dynamically adjust because of the timing of the rollout of our products i don't think we give a precise country mix to the market in terms of the unsopy and off soapy the on Shopee essentially the s pay later on shopee was the majority when we started with now it's less than half of the business already and even you compare with the estimate on shopee and versus offshore fee the percentage of escalator offshore fee is about twenty percent already as a total spot on shopee and off shopping which is a significant milestone for us this proves that we're not only be able to drive our escalator or in general lendings in the shopee ecosystem but also we successfully drive this in the off shopping ecosystem and in fact we see higher growth in the off shopping ecosystem versus the off Shopee part of the businesses the key factor driving the growth are again the three elements one is within our current user base we still see a possibility to drive more credit adoptions and this will come with more product roll outs to this group of users and better credit assessment as we accumulate more data over time and also deeper integration with shopee and expanding of our non shopee scenarios for this group of users i think essentially even within the same user base we see a huge room for us to deepen the credit penetrations the second one is essentially expanding the new scenarios beyond what we have right now where the user can spend their credit limit on this including for example we partner with more online merchants who can accept aspail partner with more merchants offline so they can accept as payload as well even for our in some of our market where credit card is slightly bigger we roll out a debit card system leveraging on expedited credit limit so they can use our expedited credit through a car network as well so all this will expand the pool addressable market pool for our user base i think the third thing is for us to continue to expand to new user segments i think that's very important for us well i believe forest mentioned in the opening too that as we started more from a subprime market segment when we accumulated more risk data and also better our risk models and we are able to expand to a more prime user segment with slightly different products in various markets this user might have a slightly lower roas but this gives us a bigger outstanding pool for us i think all this will drive the growth of our lending businesses in the coming years across our market

OPERATOR

this concludes our q and a session i would now like to turn the conference back over to miss rebecca lee for any closing remarks

rebecca

thank you all for joining today's call we look forward to speaking to all of you again next quarter

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