Earnings Call Transcript - SE Q1 2026

Operator, Operator

Good morning, and good evening to all, and welcome to the Sea Limited First Quarter 2026 Results Conference Call. Operator instructions: if you require assistance, please press star then zero. 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 Rebecca Lee to begin the conference. Please go ahead.

Rebecca Lee, Investor Relations

Hello, everyone, and welcome to Sea's 2026 First Quarter Earnings Conference Call. I am Rebecca 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 to complement our GAAP disclosures. 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 Sea's Chairman and Chief Executive Officer, Forrest Li; President, Chris Feng; and Chief Financial Officer, Tony Hou. 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&A session in which we welcome any questions you have. With that, let me turn the call over to Forrest.

Forrest Li, Chairman and Chief Executive Officer

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 $7 billion of revenue, representing 47% year-on-year growth. Adjusted EBITDA exceeded $1 billion for the first time. As we have shared before, 2026 is a year where we are leaning into growth investments to deepen our competitive moat while maintaining financial discipline. Our strong revenue growth reflects the effectiveness of these investments and we are already seeing unit economics start to improve for some of these initiatives. We believe this is the right approach to maximize long-term value, given the significant runway for growth still ahead of us in our markets. With that, let me take you through each business' performance. Starting with Shopee. Shopee delivered another record quarter, achieving new highs in GMV, gross order volumes and revenue. GMV grew 30% year-on-year in the first quarter. At the same time, we maintained financial discipline, generating an adjusted EBITDA of over $220 million. Our monetization strengthened further in the first quarter. Ad revenue grew 80% and ad take rate increased by more than 90 basis points year-on-year among paying sellers, and their average ad spend increased by around 35% year-on-year, reflecting the strong value we 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 these priorities drove user acquisition and engagement in the first quarter. Average monthly active buyers increased 16% year-on-year and buyer purchase frequency grew around 12% year-on-year. We continue to deepen our structural moat across logistics, Shopee VIP and content. First, logistics continues to be one of our most important differentiators. SPX Express remains one of the largest e-commerce logistics solution providers in our markets. We have developed strong capabilities to dynamically optimize per-order cost and meet user preferences. In the first quarter, we continued to scale delivery options serving different consumer demand 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 for these faster services compared to last year. For example, our instant delivery service can deliver orders in as little as two hours in urban areas. Order volumes for this service rose to over 35% in the first quarter with cost per order reducing by around 20% year-on-year. This service has enabled us to expand 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 7,000 offline stores available on our instant services. This has shifted more offline purchasing behavior online and into the Shopee ecosystem. Buyers using instant delivery are 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 orders grew by around 25% sequentially. Fulfillment allows for faster and more reliable delivery while enabling sellers to operate 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 extensive 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 3,100 locations at the end of the fourth quarter, nearly 50% 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 these efforts, average buyer rating time improved 12% year-on-year in the first quarter. We recorded double-digit GMV growth year-on-year in the first quarter in Taiwan, keeping e-commerce momentum and strengthening our market leadership there. Second, our Shopee 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 markets surpassed 10 million, up more than 40% from the previous quarter, with strong program retention averaging above 80%. Across all markets, Shopee VIP members have consistently demonstrated double-digit spending uplift after subscribing, by as much as 30% to 40% in some markets. Shopee VIP members now contribute around 20% of GMV across Asia. During this success, we rolled out our Shopee 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 50% year-on-year. These orders accounted for more than 25% of total physical goods orders 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 doing well with over 4.5 million affiliates across our markets, up nearly 30% quarter-on-quarter. In Indonesia, 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 increasing 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 capability. We improved 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. These efforts allowed us to onboard more merchants, especially to shopping malls, supporting stronger spending among buyers. In the first quarter, GMV from shopping mall sellers more than doubled year-on-year and now contributes around 15% of GMV. We remain confident in Brazil's long-term growth potential and our ability to further strengthen our competitive position in this market. On to AI. We have taken a 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 algorithms have led to better product discovery. Our AI-generated content tools are helping sellers create more compelling product listings. These efforts supported a 14% improvement in purchase conversion rate year-on-year in the first quarter. 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 80% of customer queries are now handled by our AI chatbot. AI usage helped reduce customer service cost per contact by around 30% year-on-year while maintaining high satisfaction rates. Looking ahead, we are exploring agentic 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 adviser providing diagnostics 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 strong 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 unit 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 25% 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 $9.9 billion at the end of March, an increase of more than 70% year-on-year while maintaining stable asset quality. We continue to expand the credit business on 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 profiles 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 tenure 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 off-Shopee expansion. More users are transitioning from on-Shopee SPayLater to off-Shopee SPayLater and personal cash loans. Following strong momentum in Malaysia, we are also seeing good traction in some other markets. Off-Shopee SPayLater loans in Thailand and Indonesia exceeded 20% of the SPayLater portfolio at the end of the quarter. Notably, we are seeing strong growth in higher-value categories such as electronics and two-wheeler financing in Indonesia, where installment credit plays a meaningful role in enabling such purchases. Taken together, these efforts resulted in strong growth in both user numbers and the loan outstanding per user. In the first quarter, we added 4.9 million first-time borrowers — our active credit users crossed 38 million at the end of the quarter, an increase of more than 35% year-on-year. Average loan outstanding per user grew to around $250 at the end of the quarter, 25% higher year-on-year. Brazil has become our growth market to cross $1 billion in loan book size, growing over 250% year-on-year. The strong growth momentum was supported by a localized product we introduced last year combining SPayLater and cash loan limits 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. SPayLater penetration on Shopee is around 10% of GMV in Brazil, well below our more mature markets indicating substantial headroom for growth. We also obtained the SPayLater 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 90-day NPL ratio remained stable at 1.1% at the end of the quarter. This reflects the strength of our underwriting capabilities and the disciplined way we expand across users and markets. Our deep understanding of our markets and the borrowers allows us to respond quickly to macro changes. Our loans typically have short tenure, and we can adapt our product design, credit limits and tenures in real time. These attributes enable us to adjust our risk appetite and optimize our asset quality as we see fit. In summary, Money continues to grow healthily; expansion into more user segments, off-Shopee 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 contributor. Next, turning to Garena. Garena had a stellar start to 2026, delivering its best quarter since 2021. Bookings were up 20% and adjusted EBITDA grew 25% year-on-year. This performance was driven by the continued strength of Free Fire alongside a record contribution from Arena of Valor. In January, Free Fire launched a major collaboration with the popular anime Jujutsu Kaisen. As with our previous collaborations, we invested significant efforts in bringing core elements of the anime into gameplay. We transformed parts of the map into settings from the anime and introduced a cursed energy resource that players could collect to activate special character abilities. For instance, Gojo's Unlimited Void, one of the highest-level techniques from the anime, allowed players to draw their opponent into a separate domain for one-on-one play. This collaboration resonated strongly due to attention to detail and authentic visual effects. This collaboration generated over 700 million official content views, making this one of our most successful IP partnerships to date. Taken together with the highly successful Naruto Shippuden collaboration last year, we have demonstrated our ability to consistently execute high-impact partnerships with global IP owners. We are also evolving how we see our content globally. One of Free Fire's long-standing strengths is our ability to hyper-localize the game for players. This year, we have challenged ourselves to both localize and globalize some of these content pieces, making them highly resonant 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 markets that celebrate Ramadan. This year, we built it into a global event under a 'Lost Treasury' theme. Players in markets celebrating Ramadan recognized this positive event catering to their traditions while players from other markets saw the campaign as something new and interesting to play. During matches, players could find treasure on the map triggering team-based missions guiding them through hidden treasure locations. This highly interactive campaign resonated strongly across markets; global social media impressions exceeded 120 billion, up around 70% compared to last year's Ramadan campaigns. The strong response we got to this campaign shows our growing capability to take culturally rooted events from local markets and expand them into globally resonant content. Global live campaigns led us to fully resource, elevate content quality and deliver more frequent and distinctive experiences for our players. Beyond Free Fire, Arena of Valor delivered record-high quarterly bookings in the first quarter in its tenth year of operations. The sustained success of both games demonstrates our unique ability to operate games well across geographies 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. We've established scale, reach across verticals, data and 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, handing to Tony to discuss our financials.

Hou Tianyu (Tony Hou), Chief Financial Officer

Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 47% year-on-year to $7.1 billion in the first quarter of 2026. This was primarily driven by growth in Shopee and Money. Our total adjusted EBITDA was up by 9% year-on-year to $1.0 billion in the first quarter of 2026. On Shopee, gross orders increased 29% year-on-year to 4.0 billion in the first quarter of 2026, and GMV increased by 30% year-on-year to $37.3 billion in the first quarter of 2026. Our first quarter GAAP revenue was $5.1 billion, which includes GAAP marketplace revenue of $4.5 billion, up 44% year-on-year, and GAAP product revenue of $0.6 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues, was $3.8 billion, up 61% year-on-year. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.7 billion. Shopee adjusted EBITDA was $223 million in the first quarter of 2026 compared to an adjusted EBITDA of $464 million 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 amortization. Money GAAP revenue was up by 58% year-on-year to $1.2 billion in the first quarter of 2026. Adjusted EBITDA was up by 14% year-on-year to $275 million in the first quarter of 2026. As of the end of March, our consumer and SME loans principal outstanding reached $9.9 billion, up 71% year-on-year. This consists of $8.8 billion of on-book and $1.1 billion of off-book loan principal outstanding. Nonperforming loans past due by more than 90 days as a percentage of total consumer and SME loans was 1.1% at the end of the quarter. Garena bookings grew 20% year-on-year to $931 million. GAAP revenue was up by 41% year-on-year to $697 million. The growth was primarily due to the increase in our active user base and deeper paying user penetration. Garena adjusted EBITDA was up by 25% year-on-year to $574 million. Returning to our consolidated numbers, we recognized net nonoperating income of $62 million in the first quarter of 2026 compared to net nonoperating income of $89 million in the first quarter of 2025. We had a net income tax expense of $214 million in the first quarter of 2026 compared to net income tax expense of $136 million in the first quarter of 2025. As a result, net income was up by 7% year-on-year to $438 million.

Rebecca Lee, Investor Relations

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

Operator, Operator

Operator instructions: To ask a question, press star then one. Your first question comes from the line of Alicia Yap of Citigroup. Please go ahead.

Alicia Yap, Analyst, Citigroup

Congratulations on the strong results. I have two questions. First, on e-commerce: looking at your 30% GMV growth and 29% order growth, that seems to suggest a decent increase in ASP. Could management share what drove this in the past quarter? How much of the strength in GMV is attributable to deeper penetration in higher-end users and higher ASP products in Brazil — obviously following your strategic expansion in warehouse fulfillment — and how much is attributable to the higher stickiness of your VIP members across the Southeast Asia region and Taiwan? And then following up on that: despite delivering 30% GMV growth, management still maintained full year GMV growth guidance of 25%. Is that because of a higher base in the second half of 2025, or is management being conservative in light of macro uncertainty? Any color would be helpful. Second, very quick one on gaming: very strong booking growth. Do you expect this strong rebound of Arena of Valor could set the tone for continued strength and rebound for the rest of this year, or is it more a one-off due to seasonality and promotions?

Hou Tianyu (Tony Hou), Chief Financial Officer

On the growth for Shopee, we see a combination of growth from both Brazil and Southeast Asia. Overall, Brazil does grow slightly faster than Southeast Asia, but I think it's not only driven by Brazil. As you already pointed out, we have more fulfillment businesses in Brazil and more sellers running on Shopee in Brazil, which contributes to attraction of a higher-end user segment. The Shopee VIP has also driven a lot of growth in Asia as Forrest mentioned in the opening. For the GMV guidance, Q1 included Ramadan and Chinese New Year, so we see very good seasonality that contributed positive growth. We also see that many of the initiatives we implemented from last year, including VIP, instant delivery and AI-enabled better discovery that we rolled out to the platform, all contributed to better growth than we expected in Q1. As for the full year guidance, we will observe how the market evolves. It's a bit early to forecast the full year at this stage; we will communicate with the market as we see better indications from the growth trend in the coming quarters.

Forrest Li, Chairman and Chief Executive Officer

Regarding Arena of Valor, we are very encouraged by its performance this quarter. It delivered record-high bookings in Q1 in its tenth year 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 of Valor. That said, Q1 is indeed a seasonally stronger quarter for gaming, benefiting from Lunar New Year, which is a key engagement period. So we are mindful of that and we're watching the sequential trend. As you know, gaming performance can also vary from quarter to quarter depending on the timing of content releases, collaborations and seasonal events, but the underlying health of the franchises in terms of user engagement and paying user penetration gives us confidence. We remain confident in delivering strong year-on-year bookings growth for Garena for the full year, and Arena of Valor reaching new highs in its tenth year gives us even stronger conviction that we can do the same with Free Fire over the long run.

Operator, Operator

Your next question comes from the line of Divya Kothiyal of Morgan Stanley. Please go ahead.

Divya Kothiyal, Analyst, Morgan Stanley

My first question is on Brazil. Growth in Brazil has been very strong for Shopee. How should we think about the margin cadence there for this year, especially since we are seeing the market leader dial up their own investments in the market? Brazil was profitable this quarter, but I 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? How different are returns versus ASEAN? Second, on e-commerce take rates: we're seeing take rates rise consistently this quarter, especially in ASEAN. How much of these increases are being reinvested back into the seller base or consumer incentives? Are ASEAN e-commerce margins actually improving? Given rising cost inflation, there has been some pushback by sellers in markets like Thailand about these hikes. Broadly, are these increases being well accepted by sellers, or are we reaching a cap on commissions?

Hou Tianyu (Tony Hou), Chief Financial Officer

In terms of Brazil growth, as you rightly pointed out, we see very strong growth in Brazil. In Q1 we grew well ahead of the market, which enabled us to gain market share and, in turn, gave 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 and I don't foresee a change at this point. We will continue to grow healthily in Brazil, with profitable margins as we see right now. That said, we do commit to investing in Brazil, especially in areas we mentioned like the fulfillment network that we are building. We are further expanding our same-day deliveries in Brazil and launching the VIP program there as well. I think all those will be rolled out in Brazil over time to drive further growth. On the loan side in Brazil, we are doing very well. We have more than $1 billion outstanding in Brazil already, which is very high year-over-year growth. The key driver is localization: we didn't simply take Asia products into Brazil; we localized products. For example, we built a single flexible limit the user can draw across SPayLater and personal cash loans based on need. We also integrated localized data sources, not only from shopping data but from the open banking network in Brazil, which improved our risk profile. That's part of the reason we see better risk outcomes in Brazil, which enables us to expand user pools while maintaining profitability. Overall, we are in the very early days of market penetration for lending businesses. Compared to peers in the market, there's huge room ahead of us in Brazil. On e-commerce take rates, the simpler way to look at this is that as take rates increase, we are also investing into the market to drive growth. A big part of that investment goes to fulfillment, VIP programs, and user acquisition. Generally, we see healthy margins quarter-over-quarter in our ASEAN markets. On seller commission reactions, the most important thing for us is to look at how seller commission impacts pricing. We compare our pricing to peers online and to offline pricing. Pricing competitiveness is key for us and we still see strong price competitiveness on our platform. Going forward we'll monitor dynamics and decide the best way to manage commission levels. It is also important that we help sellers be more profitable on our platform. Profitability depends on the commission rate, the cost of running a business on our platform, and the volume we drive for them. For platforms with slightly higher commissions, we spend effort on reducing sellers' cost of operations — for example, offering AI-powered chatbots for customer service, AI agents in the seller center to help manage operations, and driving incremental volumes. As we continue to grow the market, sellers have a bigger pie to draw from, which contributes to a healthy ecosystem.

Operator, Operator

Your next question comes from the line of Navin Killa of UBS. Please go ahead.

Navin Killa, Analyst, UBS

Congrats on the strong results. I had a couple of questions. If I look at e-commerce absolute EBITDA in Q1 this year compared to Q1 last year, there's a moderate decline. Can you help us understand where this decline is coming from geographically — is it split between Brazil, Taiwan and Southeast Asia? Also, as things hopefully improve over the next couple of years, how will the magnitude of EBITDA growth be distributed among regions? Second, on fintech, margins have been inching down. Is there a steady-state number we should be looking at and what is the timeframe to get there?

Hou Tianyu (Tony Hou), Chief Financial Officer

On the e-commerce side, you're right that there was a slightly lower EBITDA year-on-year. One way to look at this is that if you compare to Q4 2025, we did see a slight increase in EBITDA from Q4 last year to Q1 this year. There are many reasons for the dynamics. Last year, Ramadan fell into Q1 for the first time in many years, which changed seasonal patterns and required adjustments. We also launched a number of initiatives to drive growth that started in the latter part of last year and continued into Q1 this year. For near term 2026, as we shared in our guidance, we expect solid growth of around 25% in GMV with adjusted EBITDA for the full year at least not lower than last year in absolute dollars. We will see how this evolves over the quarters. In the medium to long term, we still maintain our judgment that a 2% to 3% EBITDA margin for Shopee is a target to achieve. For fintech margins, one metric we watch closely is absolute return as we grow loan outstanding. We want additional loans to contribute positively to absolute EBITDA. We do recognize that the EBITDA-to-outstanding-asset ratio might decline modestly over time, largely driven by product and country mix as we expand. Early markets like Indonesia tend to have higher ROA compared to markets that come into the portfolio later. The business is still early and there is a large expansion opportunity, especially in new markets like Thailand, Malaysia and Brazil. It's too early to provide a steady-state number today because steady state will depend on country and product mix over time.

Operator, Operator

Your next question comes from the line of Jiong Shao of Barclays. Please go ahead.

Jiong Shao, Analyst, Barclays

I have two questions. First, could you talk about the potential impact from higher fuel prices? The conflict in the Middle East started in March; you probably did not see too much of an impact in Q1. But if oil prices stay at the current level for longer, how will that affect your cost? Would you be able to pass on some of the cost to sellers or consumers? Second, about your fulfillment build-out: you talked about adding three fulfillment centers in Q1 in Brazil. Could you talk about near-term and long-term targets? One of your peers in Brazil is adding over a dozen fulfillment centers this year. If you can share your thoughts on pace, timing, whether you will add centers this year and then pause to absorb capacity, and any timetable for getting returns on these investments, that would be helpful.

Hou Tianyu (Tony Hou), Chief Financial Officer

We look at oil price impact very closely. There are a few degrees of impact. First, absolute oil price increases our operational costs, particularly last-mile delivery, which is the largest part of delivery cost. The good thing is we leverage subsidies in some countries which help absorb cost increases. We also work closely with our partners — line-haul partners, airline partners — to manage costs together. Overall, absolute costs do increase, but we believe we can manage this within the guidance we're giving. In terms of timing, Q2 will likely show more impact than Q1. Second-order impacts could include moderation in consumer spending if households face higher fuel costs. We are seeing only moderate effects so far. Importantly, our platform tends to be highly price-competitive and offers essential goods where consumers seek savings. When consumers look for savings, they often migrate to our platform. That dynamic helps mitigate some second-order demand impacts. On fulfillment in Brazil, especially for Brazil, we expect to increase the percentage of business handled through fulfillment as we build out. Since we started relatively recently, we are still in the early stage. We typically do not overbuild capacity; our fulfillment center utilization is relatively high because we plan capacity according to predictable volumes. It's unlikely we'll do a large build this year and then pause next year. It's a more continuous process while we build out. Ultimately, we'd like our fulfillment operations to be larger in absolute volumes than competitors, but it will take a few years to get there. In terms of capital, individual fulfillment centers typically do not require very high CapEx because we often do not own the building; the CapEx is to equip the centers. Returns on those equipment investments can be relatively fast. Another part of the investment is moving sellers to use fulfillment and educating buyers to understand the benefits. Those are ongoing investments to drive adoption.

Operator, Operator

Your next question comes from the line of Ranjan Sharma of JPMorgan. Please go ahead.

Ranjan Sharma, Analyst, JPMorgan

Congratulations on the results. Three quick questions. First, how do you see the economics of the VIP program — will you consider optimizing the value offer to consumers or the subscription price charged to customers? Second, given the momentum on Free Fire and Arena of Valor and the content coming in the coming periods, how should we think about the growth of gross bookings this year? Last question: can you help us understand how you evaluate the intrinsic value of shares? We know you have a $1 billion buyback, but you've only executed about $170 million or so despite the stock price easing to $78 at some point. How are you thinking about the buyback going forward?

Hou Tianyu (Tony Hou), Chief Financial Officer

On the VIP program, there are two parts of the offering. One is the product offering, like shopping benefits in some markets such as free shipping or discounts. Part of that comes from our partners. A key thing we're working on is expanding our partner pool so we can offer more benefits to users. We have several partner announcements coming as we complete system integrations. Those partnerships will help our unit economics over time. For pricing, we are considering different tiering options depending on market reaction and segments. At this point, we are still investing in the VIP program given strong retention and uplift we see from VIP users. Over time, Shopee VIP can be an even more profitable cohort compared to non-VIP users due to higher engagement and partner benefits. Regarding buybacks, we have actively bought back shares since last November and continue to do so. We remain very confident about our three vertical businesses and the strong growth potential of our markets, and that underlies our share repurchase decisions.

Forrest Li, Chairman and Chief Executive Officer

For gross bookings for Garena for the rest of the year, at this moment we remain very confident. We think 2026 will be a strong growth year for Garena, and we are maintaining our guidance. In terms of buybacks, as Tony mentioned, we've been executing buybacks actively and will continue to do so. Our confidence in the three verticals and long-term growth prospects underpin our buyback program.

Operator, Operator

My apologies, next question comes from the line of Ellie Jiang of Macquarie. Please go ahead.

Ellie Jiang, Analyst, Macquarie

I have two questions. First, a follow-up on Shopee VIP: could you provide more detail on current progress of VIP membership penetration across core operating markets? It has clearly helped user frequency and basket size. Going forward what will be the key KPIs — percentage penetration of MAUs, GMV contribution, retention — that you'll be monitoring over the next several quarters to assess the program? Second, on Money: could management shed light on business breakdown, including country mix and on-Shopee versus off-Shopee percentages? The 71% year-over-year increase in consumer and SME loan principal outstanding was very impressive, and given the strong loan quality, what are the key triggers to continue such strong growth momentum for the loan book and revenue in the coming years?

Hou Tianyu (Tony Hou), Chief Financial Officer

For Shopee VIP, a few key metrics we look at include GMV penetration, retention of VIP subscribers, and the unit economics per VIP member. Another important metric is the number of partners in the VIP program since partner benefits significantly enhance the offering. We started Shopee VIP in early markets and we see very good progress; as we roll out to more countries we bring learnings from early markets to later ones. For Money, as I shared earlier, we started in early countries like Indonesia but newer countries like Thailand, Malaysia and Brazil are growing faster because they are later in the rollout. The country mix will dynamically adjust as we roll out products. We do not disclose precise country mix but on-Shopee used to be the majority when we started; now on-Shopee is less than half of the business. Off-Shopee already represents about 20% of the portfolio, which is a significant milestone. This shows we can drive lending beyond the Shopee ecosystem. In fact, we see higher growth in off-Shopee use cases compared to on-Shopee. The key drivers of future lending growth are threefold: one, deeper credit adoption within our existing user base through more product rollouts, better credit assessment with accumulated data and deeper integration with shopping and non-shopping scenarios; two, expansion of use cases beyond current ones by partnering with more merchants, online and offline, and providing card or debit solutions leveraging our credit limits; and three, expansion into new user segments — moving up the credit spectrum toward more prime customers as our risk models and data improve. Together, these factors should drive continued strong growth across our markets.

Operator, Operator

This concludes our Q&A session. I would now like to turn the conference back over to Ms. Rebecca Lee for any closing remarks.

Rebecca Lee, Investor Relations

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

Operator, Operator

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