Sea (SE.US) FY25Q3 conference call: VIP membership program launched for several months, quarterly membership growth reached 75%.

Recently, Sea (SE.US) held its FY25Q3 financial report conference call. The VIP membership program is still in its early stages of promotion, having been launched only for a few months, but user registration growth has been very good, with a 75% increase in quarterly members. In terms of GMV penetration rate, the company is in the early stages and believes it can reach a high penetration rate similar to other regions around the world. Early investments are indeed needed to attract users. The company is closely monitoring retention rates, with retention rates in the early market nearly doubling compared to the previous quarter, which is a significant breakthrough. The company is using various methods to ensure retention. In the third quarter, the company's growth exceeded previous expectations. Across the entire Southeast Asia region, the company believes market share is increasing and growing faster than the market level in that region. As for the market in Taiwan, due to the complexity of the cross-border business buyer experience, it has always had a small share, so the company is not too concerned about the impact of overseas cross-border players on the business. Q&A: Q: Regarding the e-commerce business's guidance of exceeding 25% growth in 2025, what are the driving factors and competitive landscape considerations? What does this mean for profit trends? How should we look at trends for 2026? A: The growth guidance is based on the market momentum and competitive landscape observed so far this quarter. As for profits, although there may be quarterly fluctuations due to seasonality, investment cycles, or specific market initiatives, the trend is towards continuous improvement in annual profits. We believe we can achieve the EBITDA profit margin of 2% to 3% that was previously shared and achieve year-over-year improvement. Q: Despite the increase in commission rates, the e-commerce profit margin dropped to 0.6% this quarter. Where are investments mainly focused (such as fulfillment capabilities mentioned)? What are the other investments? Are these investments more fixed or variable costs? How should the investment cycle scale be expected in CKH HOLDINGS? A: Investments are mainly focused on logistics capabilities, fulfillment capabilities, and deepening buyer engagement (such as the Shopee VIP program). These initiatives have shown good results, with a 12% increase in buyer frequency and a 15% year-on-year increase in monthly active buyers. Most investments are not fixed costs, as we adopt a relatively light asset model, with capital expenditures mainly used for warehouse or sorting facility improvements. Buyer engagement and membership programs require some initial input, but over time should become profitable projects. Q: Regarding new market entry strategies and frameworks, what are the reasons for closing part of the cross-border business in Latin America and re-entering Argentina? What milestones will be monitored before turning Argentina into a localized business? Is this part of the priority for 2026? A: We take a highly selective approach to any new geographical expansion. Many initiatives are at an early testing market stage. We are exploring Argentina primarily to expand our capabilities built in Brazil, leveraging existing cross-border infrastructure and operational experience. The goal is to capture operational synergies in adjacent regions, opening up new channels for sellers with minimal additional investment. We will take time to understand the market, avoiding significant investments at this time. For Chile and Colombia, we have decided to gradually stop their cross-border business to ensure resources focus on key business priorities aligned with the region's long-term strategy. Latin America remains important to us, and we will continue to explore opportunities to serve consumers and businesses in the region. Brazil is the largest market in Latin America, where we have a significant presence, while the markets in Argentina, Colombia, and Chile are relatively smaller and farther from Brazil. Q: Regarding market share, please comment on the changes in market share in the ASEAN region in the third quarter? How do you view the market in Chinese Taiwan Province, and will there be an increase in marketing expenses and investments there next year? A: In the third quarter, our growth exceeded previous expectations. Across the entire Southeast Asia region, we believe market share is increasing and growing faster than the market level in that region. As for the market in Chinese Taiwan Province, due to the complexity of the cross-border business buyer experience, it has always had a small share, so we are not too concerned about the impact of overseas cross-border players on the business. In recent quarters, our growth in Chinese Taiwan Province has been very good, achieving double-digit growth, surpassing the overall market in Chinese Taiwan Province. We are confident because we are the largest e-commerce platform locally, with the most extensive range of products, competitive pricing, and the best delivery infrastructure, with transportation and fulfillment costs much lower than any other market participants. We are able to defend market share and achieve faster growth in Chinese Taiwan Province on a better basis than in previous years. Q: How is the overall competitive landscape in Southeast Asia? Are there countries where competition is intensifying or peers growing faster than Shopee? Will competitors in the live e-commerce sector switch to a shelf model, and what potential threats does this pose to Shopee? A: The competitive landscape is relatively stable, with no significant differences observed in specific markets, and the intensity of competition and trends in competitor behavior are generally consistent across the entire Southeast Asia market. As for peers in the live e-commerce sector switching to a shelf model, this is not a new phenomenon, and the nature of their platforms differs from ours. The proportion of shelf e-commerce remains relatively stable, and even if more traffic moves towards it, it may affect overall application behavior and user retention, but it will not have a substantial impact on the competitive landscape. Q: Is this investment cycle similar to two years ago, where there was significant upfront investment, and GMV and market share growth were only reflected afterwards? Especially in terms of fulfillment capability construction. A: This investment cycle is different from two years ago. The current investments aim to continuously enhance competitiveness, such as strengthening logistics and fulfillment networks, which align with the direction we share each quarter. These investments are not for new capabilities but rather extensions of existing ones that have been built over some time and are now being scaled up at the right time. The investments are not capital-intensive, and as the business grows, they will help lower the overall ecosystem service costs, shorten delivery times, and drive growth. For example, the VIP program, while having an initial investment, leads to increased consumption after user enrollment, providing returns. This is a continuous competitive investment that will simultaneously drive growth. Q: What percentage of orders in Asia and Brazil are fulfilled by SPX through Shopee logistics? Has there been any change in this over the past year? What is the impact of logistics investments on service costs and what are the future prospects? A: Over half of orders are delivered through SPX, and this percentage has continued to increase over the past year as the network expands. The cost per order has been continuously improving, which helps with growth as it reduces the cost for buyers to receive goods. Moreover, we have improved the delivery speed of SPX. In Brazil, the average delivery time has been reduced by 2 days; in Asia, through the introduction of express delivery and improvement in regular channels, delivery times have seen significant reductions year-on-year and quarter-on-quarter. These improvements have contributed to our growth. Q: Following the success of Garena in 2025, what are the prospects for Free Fire in 2026? Are there any new IP collaborations or plans for new game releases? A: We are excited about the current momentum, as after facing challenges post-pandemic and achieving a turnaround two years ago, we achieved high growth in 2024, which has continued into 2025, with this year's growth even accelerating compared to last year. We remain optimistic about 2026, believing that the user base will continue to grow, and content supply and user experience will become more immersive. We have successfully unlocked important capabilities to collaborate with global IPs and provide unique experiences to a massive user base, and we will continue selectively seeking more IP collaborations. AI is expected to drive future growth in creativity, production, and user experience. We are currently outlining detailed plans for next year and expect to be better prepared to share specific outlooks for 2026 with the market next quarter. We have new games in the pipeline and dedicated teams working on development, with several games in the pipeline or in partial market testing. However, considering the user and revenue scale of Free Fire, any early new games are not expected to have a significant impact on finances. We will continue investing and use new game development to explore different categories and markets, preparing opportunities for future growth, and synchronizing with shareholders and investors at the right time. Q: How is the unit economic efficiency of the VIP membership program? What is the expected final membership penetration rate in the region? Is the quarterly decline in e-commerce gross margin related to this? What is the timeframe for achieving a balance in the VIP program? A: The VIP program is still in its early stages of promotion, having been launched only a few months ago, but user registration growth has been very good, with a 75% increase in quarterly members. In terms of GMV penetration rate, we are in the early stages and believe we can reach a high penetration rate similar to other regions around the world. The core of the economic benefits we focus on is ensuring that members, as paid core users, receive better benefits while creating value in collaboration with partners. Early investments are indeed needed to attract users. We closely monitor retention rates, with retention rates in the early market nearly doubling compared to the previous quarter, which is a significant breakthrough. We are using various methods (including synergy with the digital finance business SPayLater) to ensure retention. Q: Concerning AI, some investors worry about potential large capital expenditures. What are the company's specific plans for AI? A: We are excited about AI, representing a fundamental technological revolution that will unlock significant value for people worldwide. However, we will not do what large tech companies do, such as trying to make breakthroughs in large language models or building data centers. We have respect for those efforts and are happy to collaborate with major tech companies. We will focus more on the application layer, aiming to translate these technologies into daily value for consumers and small businesses in Indonesia, Vietnam, Brazil, and other regions, which is our expertise. We take a bottom-up market approach, focusing on immediate returns and results. We have seen key applications in Shopee through AI, such as improving ad conversion, making product discovery more convenient (beyond traditional search), helping sellers improve product listing quality, increasing retention and conversion rates, and enhancing customer service capabilities (most customer service is handled by the AI chatbot Siasun Robot & Automation, with high satisfaction rates). We believe that as AI capabilities continue to improve, more applications can be integrated into daily business operations, positively impacting people's lives.