Earnings Call Transcript - SE Q1 2023

Operator, Operator

Good day and welcome to the Sea Limited First Quarter 2023 Results Conference Call. All participants will be in listen-only mode. After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Min Ju Song. Please go ahead.

Min Ju Song, Group Chief Corporate Officer

Hello, everyone, and welcome to Sea's 2023 first quarter earnings conference call. I am Min Ju Song from Sea's Group Chief Corporate Officer's office. Before we continue, I would like to remind you that 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 a discussion of certain non-GAAP financial measures, such as adjusted EBITDA. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. 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 Group Chief Executive Officer, Forrest Li; Group Chief Financial Officer, Tony Hou; and Group Chief Corporate Officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights and financial performance for the fourth quarter and full year of 2023. 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 CEO

Hello, everyone, and thank you for joining today's call. On May 8, we celebrated our 14th birthday. It is a chance to remind ourselves of our humble beginnings and the culture of entrepreneurship, creativity, and adaptability that has made Sea what we are today. It also gives us an opportunity to reflect on the year gone by. The last year has been testing for our teams, and I want to take this opportunity to thank all of our employees for their dedication and determination they have shown. I'm proud of how our teams pivoted rapidly in difficult circumstances to achieve our goal of self-sufficiency. We have innovated to do more with fewer resources while never losing sight of our commitment to our users and never letting our service vendors fall. Our results for the quarter are a testament to their commitment and creativity. I also want to take this opportunity to thank our investors and partners for your ongoing support over the last 14 years. The first quarter of 2023 was another strong quarter for us across our businesses. We're focused on maximizing operational efficiency and improving user experiences. We continued to make meaningful progress on both fronts. We deepened our commitment to achieving strong cost leadership for our ecosystem. We believe this will reinforce our structural advantages in driving profitable long-term growth in our markets. As a result, we continued to see significant year-on-year improvement in profitability of both Shopee and SeaMoney. We also achieved positive total cash flow for the quarter. Our cash, cash equivalents, short-term investments, and other treasury investments increased by $258 million from the previous quarter. In addition, we made solid progress in elevating user experiences across our businesses. At Shopee, we're driving improvements in both logistics service level and speed, while enhancing experiences at the key points of the customer journey. As a result, user engagement deepened. At Garena, we're working to optimize various aspects of gameplay and game mechanics based on user feedback, ensuring that players continue to enjoy the highly engaging and social experiences they associate with our games. In the quarter and into April, we started to see some initial signs of recovery in the active user base of Free Fire. At SeaMoney, we are expanding the product offerings and the features within each product so that our users can enjoy a more comprehensive suite of products and services that meet their underserved financial needs. We are pleased with the progress we have made so far to strengthen the fundamentals of our business. As we continue to fine-tune our operations and navigate near-term micro uncertainties, we remain highly confident in the long-term opportunities in our markets and our ability to capture those profitably. Now, let's discuss each business segment in more detail. Beginning with e-commerce, we are very pleased to report that Shopee has delivered another strong quarter. Despite micro volatility, Shopee's business remained resilient and we have made significant progress in deepening our competitive moat by strengthening our cost leadership and uplifting the user experience. In the first quarter of 2023, GAAP revenue was $2.1 billion, up 36% year-on-year driven by deeper monetization. Core marketplace revenue increased by 54% year-over-year to $1.2 billion due to an increase in transaction-based fees and advertising revenue. And adjusted EBITDA was $208 million, improving from a loss of $743 million from last year. The improvement was driven by increased monetization and greater operating cost efficiency. For our Asia markets, we achieved an adjusted EBITDA of $276 million during the quarter, improving substantially from a loss of $408 million in the same period last year. In our other markets, the adjusted EBITDA loss was $58 million, narrowing meaningfully from last year when losses were $335 million. Contribution margin loss per order in Brazil improved by 77% year-over-year to reach $0.34, reflecting better monetization and higher efficiency in our sales and marketing spend. As we see significant opportunities in the market, we plan to continue to invest in capturing more of these opportunities in Brazil. Let me talk through a few specific areas we focused on during the quarter. Firstly, we continue to enhance our logistics cost leadership and the delivery experience by improving the capacity and integration of our in-house logistics arm while continuing to work closely with our third-party logistics partners. We introduced more automation to our delivery services. Thanks to these efforts, we have managed to bring down average delivery time by more than half a day across our markets within the first quarter. We are also expanding the buyer coverage of our logistics services across our markets. In our largest market, Indonesia, which consists of more than 10,000 islands, 95% of our buyer base is now covered by our delivery services. In Brazil, we already have eight distribution and sorting centers. With the most recent expansion in Northeast Brazil, we have also been working to expand our first and last mile hubs in the market. In recent months, we opened 15 new hubs to further strengthen our logistics capabilities. In addition, we are looking carefully at every stage of the customer journey and improving our processes, policies, and services to enhance the user experience. We started to pilot on-the-spot returns in some markets for better services to our buyers. We have also started handling returns on behalf of some sellers, with our teams directly engaging with the buyers instead of putting this burden on the sellers. This improves the experience for our buyers who can deal with our teams and free up our sellers to focus on growing their business. We are deepening our AI capabilities to drive a better user experience and operational efficiency. AI helps us recommend more relevant and personalized offerings to our users. This has driven higher order conversion as users discover products more quickly and easily. We have also adopted large language models to improve our AI-powered chatbots' ability to understand users in different languages and return the most relevant solutions. This has improved resolution rates and helped reduce wait times. On top of that, AI is being leveraged to more comprehensively screen and filter items to comply with our marketplace policies. More recently, we have further stepped up consumer protection efforts to ensure our buyers enjoy a safe, reliable, and hassle-free experience. For example, in Singapore, we launched the 'Shop Safe with Shopee' initiative through the adoption of the Consumer Association of Singapore's standard dispute management framework, among other initiatives. This and other related initiatives are vital in ensuring that we offer all our buyers and the sellers the best possible experience on Shopee. As we enhance these key differentiators, we attract more buyers and sellers, strengthening our overall ecosystem and widening our competitive moat. Indeed, despite the more uncertain microenvironment, we continue to diversify our local seller base and strengthen our relationship with other ecosystem participants, such as influencers. In Brazil, we have reached more than 3 million registered local Brazilian sellers on our platform who now account for around 85% of our Brazil orders. We have also seen strong traction in our Shopee affiliate program as we work to empower influencers and content creators to be part of our ecosystem. This program invites social media influencers to promote our products sold on Shopee across our markets. We have more than 4 million registered influencers participating in our affiliate program today. In our largest market, Indonesia, orders generated by our affiliate partners more than tripled in 2022. Across our markets, we'll continue to see growth in the number of brands joining Shopee Shop more and in the percentage contribution of GMV from our more sellers. As a leader in our market, we have remained focused on creating value for our brand partners through our technological capabilities. Recently, we announced enhancements to shop seller tools that help brands track and understand key trends in buyer behavior, enhance consumer loyalty, and protect their IP rights. All these efforts have further strengthened our relationships with brands. In Thailand, we partnered with the Embassy of Italy and the Italian Commercial Office to bring Made in Italy brands closer to Thai consumers. In Vietnam, we have become the exclusive partner of the Government of Canada in launching a campaign to bring high-quality Canadian food products to the local consumers. Looking ahead, while there may be near-term fluctuations driven by the underlying market environment and our fine-tuning of operations, we continue to focus on building up our long-term structural advantages in our e-commerce ecosystem. We believe this strategy will be key in unlocking future growth opportunities and ensuring that we have a growing and far-reaching positive impact across our local communities. Now let's discuss digital entertainment. As previously shared, Garena continued to focus on improving gameplay and creating a stronger community for our games first and foremost. While there was some weakening in monetization, mainly as a result of a lower paying user ratio, we saw some initial signs of improvement in our quarterly active user base, which increased from 485 million last quarter to 492 million in the first quarter. In April, we also observed positive user trends with Free Fire achieving a new peak in monthly active users over the last eight months. While we are mindful of seasonality impacts, we're pleased to see this as a positive sign for Free Fire, which remains one of the largest mobile games in the world. We will continue to monitor closely for trends going forward. As we strengthen our efforts to enhance gameplay and user engagement, we have received positive responses from our user community on several initiatives we launched to make the game experience smoother. These initiatives include game package size optimization and gameplay reduction, with an emphasis on devices commonly used in our markets. Our users have indicated that these recent changes are highly responsive to their feedback and have shared that they are enjoying a better gameplay experience as a result. At the same time, our pipeline remains healthy, and we will be launching some new titles in the coming months. We have opened pre-registrations for Undawn, an open-world survival game, which we will publish across Southeast Asia in the coming months. We will also be publishing Black Cloud Mobile, an action RPG mobile title based on the popular anime series Black Clover across several markets globally. Pre-registrations are expected to open within the first half of the year following the conclusion of a closed beta test held last year. As with other business segments, we have been very focused on enhancing our operations at Garena with AI. Our current capabilities have allowed us to improve the overall efficiency of our game operations. For example, we are exploring opportunities to leverage AI to localize some of our game content and to further advance our operational capabilities for higher efficiencies. We are confident that these initiatives combined with our strong track record in execution and localization will help drive the long-term success of Garena. Lastly, moving on to our digital financial services business, we're enhancing our operations and risk management capabilities while improving the user experience for SeaMoney. We have also been working to diversify our fintech product offerings, both on and off the Shopee platform and across different markets to enhance user thickness. SeaMoney's GAAP revenue was $413 million in the first quarter of 2023, up 75% year-on-year, and adjusted EBITDA was $99 million during the quarter, a substantial improvement from a loss of $125 million in the first quarter of 2022. This was driven by both strong top line growth and our ongoing effort to optimize costs and improve efficiency, particularly around sales and marketing expenses. On digital wallet, we continued to expand Shopee pay use cases. For instance, it recently became a payment method for Apple Services in our Southeast Asia market. On credit, as of the end of the first quarter of 2023, the total loans receivable on our balance sheet was $2 billion, net of allowance for credit loss of $281 million. Non-performing loans past due by more than 90 days as a percentage of our total gross loans receivable remained stable at around 2%. During the quarter, we continued to diversify the sources of funding for our credit business. In addition to funding through our own bank deposits, we have seen increased volume funded through channeling arrangements or electoral asset-backed facilities with local and regional banks. We are working to further diversify our funding sources to broader financial investors. In addition, we have further integrated many of these products into our broader ecosystem, making the user experience seamless across Shopee and SeaMoney. We remain focused on evaluating opportunities in digital financial services across our market and enriching our product and service offerings. We are confident in SeaMoney's long-term potential and are very carefully managing the business amid the macro uncertainties. We believe we are well positioned to capture significant and underserved opportunities available in our markets. To conclude, our results for the quarter once again demonstrate the fundamental strength and resilience of our business model and our ability to drive efficiency improvements while maintaining our leadership position. We are confident that we can continue to create value for our ecosystem participants as well as deliver long-term growth and sustainable returns to our shareholders. Separately, as we noted in our press release earlier today, David Ma has joined our Board of Directors as of May 15th and will no longer serve as the Chief Investment Officer of Sea Capital. David has played an invaluable role as a member of our leadership team. I would like to express our sincere thanks to him for his contributions in this position. I'm very glad that we'll continue to benefit from his expertise and experience in his new role as a Member of our Board. With that, I will invite Tony to discuss our financials.

Tony Hou, CFO

Thank you, Forrest, and thanks to everyone for joining the call. We have included detailed financial schedules, together with the corresponding management analysis in today's press release, and Forrest has discussed some of our financial highlights, so I will focus my comments on the other relevant metrics. For Sea overall total GAAP revenue increased 5% year-on-year to $3 billion. This was primarily driven by the improved monetization in our e-commerce and digital financial service businesses partially offset by lower GAAP revenue in our digital entertainment business. On e-commerce, our first quarter GAAP revenue of $2.1 billion included GAAP marketplace revenue of $1.8 billion, up 46% year-on-year and GAAP product revenue of $0.2 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues, was $1.2 billion, whereas value-added services revenue, mainly consisting of revenues related to logistic services, was $0.7 billion. E-commerce adjusted EBITDA was $208 million in the first quarter of 2023 compared to an adjusted EBITDA loss of $743 million in the first quarter of 2022. Digital entertainment bookings were $462 million, and GAAP revenue was $540 million. Adjusted EBITDA was $230 million. Digital financial services GAAP revenue was up by 75% year-on-year to $413 million. This was mainly driven by the growth in our credit business. Adjusted EBITDA was $99 million in the first quarter of 2023 compared to an adjusted EBITDA loss of $125 million in the first quarter of 2022. Improvements in the bottom line were driven by both strong top line growth and optimization of sales and marketing spend. We recognized a net non-operating income of $23 million in the first quarter of 2023 compared to a net non-operating loss of $6 million in the quarter of 2022. The higher net non-operating income was mainly due to higher interest income from higher yields. We had a net income tax expense of $62 million in the first quarter of 2023 compared to a net income tax expense of $82 million in the first quarter of 2022. As a result, net income was $87 million in the first quarter of 2023 as compared to a net loss of $580 million in the first quarter of 2022. With that, let me turn the call to Min Ju.

Min Ju Song, Group Chief Corporate Officer

Thank you, Forrest and Tony. We are now ready to open the call for questions. As usual, our Group Chief Corporate Officer, Yanjun Wang will lead this part. Operator?

Operator, Operator

Thank you. Our first question comes from Pang Vitt from Goldman Sachs. Please go ahead.

Pang Vitt, Analyst

Good afternoon everyone, and thank you very much for the opportunity. Four questions from my side. Number one on Shopee. Can you provide more color on the current trend that you see? Are we seeing any further slowdown in GMV momentum in the quarter? And what kind of takeaway trend do we see now? Number two, also related to Shopee. Can you comment on the current strategy for Shopee going into the rest of the year? Should we expect to see Shopee reinvesting to grow more into the later part or will you focus on further expanding on the margins? What type of growth should we expect, and if you plan to reinvest, where will you spend money on? And number three, it will be related to gaming, cross booking fees, further pressure, but we see margins continue to expand nicely. What's the current strategy for the division with the recent peak in monthly active users for Free Fire? Are we already seeing some stabilized trends for the game? When should we expect the top line to bottom out in the year? And lastly, for the US SeaMoney business, why did revenue continue to increase despite seeing your loan book largely flat quarter-on-quarter? Why do we also see the provision for credit loss on SeaMoney increase quarter-on-quarter as well?

Yanjun Wang, Group Chief Corporate Officer

Thank you, Pang for the questions. In terms of the Shopee growth, while we don't disclose GMV quarter-on-quarter, generally overall the trend has been consistent in terms of seasonality trends we are seeing quarter-on-quarter with last year's first quarter. And if we look at more details at the different markets, Indonesia showed relatively strong performance in Asia, and Thailand and Malaysia also showed quarter-on-quarter growth. Of course, we also see continued tough year-on-year comps for the markets and in the rest of the markets in line with overall seasonality trends we observed last year. And Brazil of course remained a growth market for us. As we mentioned earlier, we see significant opportunities there. We have only been in Brazil for four years, so it's a relatively earlier market for us. However, we have achieved very significant scale, being one of the leading e-commerce players, especially on the local-to-local e-commerce marketplace targeting mass market segments in that country. Given our scale and operational efficiency already achieved there, we believe we can breakeven any time, but we may continue to choose to invest in the market to capture the significant long-term opportunities we observe in the market. So that's a quick capture of the overall trends. In terms of the strategies for e-commerce, as we shared before, we think the long-term opportunities for both our Asian markets and our Latin American markets are very significant, given the strong and positive demographic features, digital penetration, and the underdevelopment of infrastructure and long-term offline retail which gives more opportunity for digital penetration to go even further beyond what we might have seen in some of the developed markets. As we continue to invest in the long-term growth of our markets, the investment will focus on both the quality of the user experiences and services. As we shared on the call earlier, we're very focused on bringing larger assortment products in partnership with brands and SMEs in our communities and bringing better search and discovery experience, more personalized shopping experience, and better customer services, enabled by AI and other technologies, better returns, and logistics experience to further bring convenience to our buyers. At the same time, we also focus on the cost of the ecosystem, and we have often mentioned before that we are very much working towards continuing to bring down the cost of the entire ecosystem in terms of logistics, payments, and other infrastructure. This has been a very clear focus for us in terms of the long-term ecosystem construction, and we also believe that this will allow us to capture and strengthen our long-term competitive moat. In the immediate term, in terms of the investment in the market and growth trends, you might see much will depend on the specific market condition market-by-market and period-to-period. We remain very nimble and very focused from a bottom-up perspective, looking at each market condition both macro, user behavior, competitive landscape, and other trends such as seasonality. Our past track record has shown that we can execute growth while managing the bottom line at the same time, so that remains our competitive strength in the long run we believe. In terms of game trends, we are very pleased to see that there are some initial signs of quarterly active user increase for our games. In particular for Free Fire, our largest game, that increase was also broadly across different markets and not specific to any particular single market. This is as we shared on the call, quite in line with our efforts and direction to continue to improve and enhance user experience to retain and re-attract our users to our game. We are pleased to see some initial results from our focus and priority over the past periods. I will continue to observe the trends going forward. Moreover, we also mentioned that our second-largest game, Arena of Valor, also enjoyed a very strong performance in the past quarter. In fact, it reached new highs, both in terms of quarterly active user base and bookings. So all in all, we are very pleased with the results so far, and we'll continue to work towards the set direction of improving user experience. Monetization is not an immediate priority; however, our EBITDA margin remains high compared to industry standards and actually improved quarter-on-quarter. We will remain very disciplined in terms of the bottom line and efficiency of our investment into the segment. We also mentioned some new launches that might come up in the coming months, and we will closely observe trends in those new games. In terms of SeaMoney, as we shared on the call, we have been diversifying the sources of our funding and in collaboration with third-party financial institutions to fund the growth of the loan book. Therefore, you observe a revenue increase that actually exceeded the loan book increase. In terms of provisions increase, I think the provisions follow similar trends quarter-on-quarter. But if you look year-on-year, the products have expanded in terms of the features and tenure and types of loans we offer. So there is a shift in product as well as the loan book expansion. Overall, if you look at our non-performing loans, they have remained stable and low.

Operator, Operator

Our next question comes from Piyush Choudhary from HSBC. Please go ahead.

Piyush Choudhary, Analyst

Good evening and thank you for the call and the chance to ask questions. Congratulations on the impressive results. I have three questions. First, regarding e-commerce, can you provide insights on the growth trends in gross merchandise value across Asia and Brazil? Have you seen any improvement in the second quarter? If not, when do you anticipate growth will pick up? Additionally, how is the competitive landscape shaping up with the presence of TikTok, and what measures are you taking to protect your market share? Second, concerning logistics, could you share your strategy and the percentage of orders fulfilled by Shopee Express and within 24 hours? Do you have a specific target in mind? Lastly, the company is currently generating free cash flow. What will be your priorities for capital allocation regarding growth investments? Are you planning to resume investments in Brazil and Latin America, and what level of confidence do you need to restart such investments? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Yes, thank you, Piyush. Regarding industry trends, given Shopee's size, our trends align with those we observe across the e-commerce sector. It’s difficult to predict immediate outcomes since, on one hand, Southeast Asia's economies have shown relative resilience so far. While inflation is still a factor, it hasn't created major disruptions. Simultaneously, we are witnessing reopening trends. However, there are still global uncertainties, and many of our economies rely on exports, making them vulnerable to risks in the global economy. We need to closely monitor ongoing trends; assessments will vary by market. For instance, Indonesia has performed well and remains strong. Other markets may face challenging year-on-year comparisons, while some are starting to see a rebound due to reopening effects. It’s still early to draw conclusions. Our strategy is to remain adaptable, keeping a close eye on the market. Our operational strength and profitability across regions provide us with greater flexibility to invest as needed from period to period and market to market. When it comes to Shopee logistics, we take a practical approach; we will invest more in our logistics services when we can execute effectively and efficiently. Where the conditions are competitive, we are open to utilizing third-party logistics. This is an ongoing process. We don’t have fixed KPIs; our focus is on the quality of services and cost-effectiveness for our users. As for free cash flow generation and allocation, we will assess investments on a market-by-market basis. No market will be specifically deprioritized; Brazil is a newer market for us compared to our decade-long presence in Southeast Asia. We see significant potential in Brazil and have already opened additional centers, sorting hubs, and last-mile hubs to reach underserved areas. Our investments and cash flow will be managed effectively and prudently, with a strong focus on cost efficiency, as serving consumers remains paramount.

Operator, Operator

Our next question comes from Alicia Yap from Citigroup. Please go ahead.

Alicia Yap, Analyst

Hello, hi. Yes. Good evening. Thanks for taking my questions. So I have a couple of quick ones. One is a follow-up on the quarterly active user growth. Do you think the trend that we saw this quarter will continue into future quarters, and can we get a little bit qualitative comment in terms of the profile of these new users? Is this driven by your effective marketing campaign, or is it more driven by your content update? And then the second question is, I think we still wanted to get more comfort in the sense about the sustainable EBITDA margins and how you would balance between investing strategically to drive your top line growth while also maintaining a certain expense level and margin level. So if you can elaborate on your strategy there, it would be helpful. Thank you.

Yanjun Wang, Group Chief Corporate Officer

Yes. Thank you, Alicia. In terms of the trends for Free Fire, we saw some initial signs, and we continue to observe the trends going forward. We hope to stabilize the active user base as soon as we can; that's the focus of our team. This has not been the immediate focus, but as I shared before, usually, for a large daily active user game, once you get a large user base, revenue follows. In our past track record, we have shown a strong capability in monetizing across different user segments. In terms of the user profile, we haven't seen a significant change; we continue to target the same broad audience in Free Fire. Our strategy focuses on improving engagement, user experience, community building, and responding to user feedback rather than relying solely on marketing. Our EBITDA margin has improved slightly quarter-on-quarter. We're careful about the sustainability of our long-term engagement with users, with efforts directed at making Free Fire a lasting franchise. So, we think there's a good chance of that. In terms of margins for e-commerce, while we're not immediately targeting maximal margin, we can achieve it as a leading player. We'll focus on maximizing long-term profitability and growth opportunities, as there's significant potential in the region.

Operator, Operator

Our next question comes from Jiong Shao from Barclays. Please go ahead.

Jiong Shao, Analyst

Thank you very much for taking my questions. First, I want to make sure I heard you correctly. I think earlier you mentioned that GMV for Q1 this year was consistent with Q1 last year. Did you mean by U.S. dollar terms or by constant currency? Could you also talk about the FX impact on your GMV or revenue for this quarter? And anything you can share about the number of orders for both Asia and Brazil? Finally, any comments about your headquarter costs, either year-over-year or quarter-over-quarter, anything even qualitatively would be great. Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you, Jiong. In terms of GMV, we don't specifically discuss quarter-on-quarter GMV numbers. What I mentioned was that the general trend Q-on-Q observed for this quarter versus last quarter aligns with what we observed in Q1 last year versus Q4 2021. In terms of foreign exchange impact, we disclosed that for our GAAP revenue in e-commerce, on a constant currency basis, the GAAP revenue would be up 41.7% year-on-year, and on a USD basis, 6.3% year-on-year. That gives you a sense of what the FX impact is. Regarding our order number, we don't disclose specific order numbers quarter-on-quarter, but you can assume that our basket size doesn't change dramatically quarter-on-quarter, which generally aligns with GMV trends. In terms of headquarter costs, we continue to see improvement, of course adjusting for any one-time accrual reversal that we had in the previous quarter.

Operator, Operator

Our next question comes from Varun Ahuja from Credit Suisse. Please go ahead.

Varun Ahuja, Analyst

Yes, hi management. Thanks for the opportunity. I've got quick four questions. First, on the gaming side, can you provide an update on the tenant site of first refusal? So it's coming up for September, October. So how should we think about that agreement and its potential impact? Secondly, sticking to Garena, on the margin side, it looks like you’re going to launch some games in the second half. How should we think about margins given you may need to invest in marketing for the game? Should it trend down from the current 50% that we have shown in the quarter? Third, on the e-commerce side, as previously mentioned, you have now turned free cash flow positive at the overall company level. What's your aspiration for the overall Latin America market? I understand you're still operating in some countries on an export basis. How should we think about it? Will you reinvest in those markets you have cut back once you have sizeable cash flow? Lastly, I’m not too sure if you have given that number. What is the total loan book size? I understand two is on your own balance sheet, but overall, what is the loan book size of CSS?

Yanjun Wang, Group Chief Corporate Officer

Yes. Thank you, Varun. In terms of the agreement with Tencent for our game publishing, as we've mentioned before, it's renewable unless either party terminates it. We are not aware of any changing circumstances, and the agreement is publicly filed, so you can refer to the terms there. In terms of the margin for the new game launches, while there will be some initial marketing spend, we will remain highly disciplined and ensure it remains proportionate to the overall game performance, so we do not anticipate a major impact on the margins due to the marketing spend related to the new game launch. Regarding the Latin America plans for Shopee, our focus is still on Brazil, which is the largest market in the region, where we have established significant scale and leadership. For the other Latin American markets that we still retain some presence, we don't have immediate plans to aggressively grow those markets and will let's stay efficient about those markets at this time. I think our loan book size disclosed is the amount on our balance sheet. So, it doesn't reflect the entire loan book size, but you can refer to past disclosures for reference. We don’t anticipate significant increases in loan book size quarter-on-quarter immediately as our approach to the credit business focuses on risk management and building resilient underwriting capabilities.

Operator, Operator

Our next question comes from Venugopal Garre from Bernstein. Please go ahead.

Venugopal Garre, Analyst

Hi, thanks a lot for the opportunity. Just very quick three small questions. On gaming, you mentioned some new games in the second half of the year. Are you referring to self-developed games, or is it more related to publishing for others? That's the first question. The second thing is I am unclear about the e-commerce strategy for growth versus profitability. While I appreciate a lot of comments made in this call, I want to understand if the focus would be more on sustaining market share and defending share, or if the focus would be stimulating the market to deliver growth and deliver market share growth. The third question for me is on fintech. What do we see from here on the contribution from Singapore, Digibank, given that it's still in early stages? But as I understand, a lot of your regulatory capital requirements would kick in over time. Is this a priority in terms of focus?

Yanjun Wang, Group Chief Corporate Officer

Yes. Thank you. The new games we mentioned in the pipeline are third-party published games for us, not self-developed. In terms of the Shopee strategy of growth versus profitability, at this point, longer term, we will continue to invest in long-term growth opportunities in a profitable, sustainable way. We can also expect to expand the profitable TAM for our region by focusing on user experience and our cost to serve. Short-term profitability versus growth alignment—while we have achieved profitability, we're not focused on maximizing it in every market for every period. Our strategy is to closely observe the market trends and allocate resources nimbly to adapt to local market conditions. Our efforts are directed towards strengthening our market leadership for long-term growth. Regarding the digital bank in Singapore, it's still in the early stages, so we don't expect any material contributions, neither to the top line nor the bottom line.

Operator, Operator

In the interest of time, this concludes our question-and-answer session. I would like to turn the conference back over to Min Ju Song for any closing remarks.

Min Ju Song, Group Chief Corporate Officer

Thank you. 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.