Earnings Call Transcript - SE Q3 2020

Operator, Operator

Good morning. Welcome to Sea Limited Third Quarter 2020 Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Minju Song. Please go ahead.

Minju Song, Group Chief Corporate Officer

Thank you, Kate. Good evening and good morning, everyone and welcome to Sea’s 2020 third quarter earnings conference call. I am Minju 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 that may not be realized in the future for various reasons as stated in our press release. Also, this call includes discussion of certain non-GAAP financial measures, such as adjusted EBITDA and net loss, excluding share-based compensation and changes in fair value of the 2017 convertible notes. 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 disclosure. For a discussion of the use of non-GAAP financial measures and reconciliation with the posted GAAP measures, please refer to the section on non-GAAP financial measures in our press release. I have here with 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 quarter. 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 as always for joining today’s call. We are very happy to report another quarter of strong performance across our business. We continued to see robust user growth and deepening of user engagement on each of our platforms during the quarter. We believe the accelerating shift to digitalization in our global market is a sustaining trend. As the market leader in our core segments, we are well positioned to capture the growth opportunities presented by this acceleration. Our strong financial and operational results for the quarter once again underline our ability to execute well and see a disproportionate share of the faster-growing markets. On the group level, our quarterly GAAP revenue grew 99% year-on-year to reach $1.2 billion. Gross profit grew 101% year-on-year to reach $407.6 million. We also recorded very strong bottom line results, with adjusted EBITDA reaching $120.4 million. This further demonstrates the strength and efficiency of our business model. We will continue to drive rapid growth with efficiency as we further extend our market leadership. In line with our strong results, we are raising our guidance for both digital entertainment and e-commerce for the full year of 2020. In digital entertainment, we believe our very strong performance in the third quarter will sustain through the fourth quarter. As a result, we now expect bookings for digital entertainment to exceed $3.1 billion, representing over 75% growth from 2019. This revised guidance represents an increase of more than 59% from the midpoint of the previously disclosed guidance. We also expect GAAP revenue plus sales incentives net-off for e-commerce to exceed $2.3 billion. The revised guidance represents a more than 144% increase from 2019 and a more than 31% increase from the midpoint of the previously disclosed guidance. These revisions reflect both the strong historical performance we have achieved so far this year and our continued positive outlook moving into the fourth quarter. Let me start with digital entertainment. The third quarter was another standout quarter for Garena with strong performance across all our key metrics. Bookings were $944.7 million, up 110% year-on-year. Adjusted EBITDA was $584.5 million, up 120% year-on-year, representing 62% of bookings. The strong performance was driven by robust active and paying user growth. Quarterly active users reached 572.4 million, an increase of 78% year-on-year. Quarterly paying users reached 65.3 million, up 124% year-on-year and representing over 11% of quarterly active users. We are particularly encouraged by the strong active and paying user growth for the quarter. This reflects our ability to continually deliver high-quality content that attracts and engages users. Free Fire sustained its strong performance. According to App Annie, it continues to be the highest grossing mobile game in Latin America and Southeast Asia in the third quarter. A key factor in Free Fire’s continued success is our ability to constantly deliver high-quality content tailored for the tastes and preferences of our huge global user base. In recent months, Free Fire partnered with celebrities such as Bollywood actors and global artists to create playable characters and other in-game content inspired by these celebrities. For example, in September, we released a playable character of a Bollywood star who was the lead actor in the highest grossing Indian film in 2019. We have also worked with a popular global artist to create another song exclusively for Free Fire, which is a play inside the game. Within 2 weeks of being launched, the song was streamed more than 25 million times across various online platforms. We introduced more social and community features into the game. For example, the new training ground feature has been highly popular with our users. This is an area within the game where players can meet and hang out socially. So far, about one in four of our players spends time there every day on average. This and other social features further strengthen the network effect and stickiness of the game. On the same note, our e-sports community continues to strive. Free Fire’s tournaments held during the quarter have accumulated over 150 million online views to date. In August, we hosted a national tournament for Brazil spanning 2 months. This tournament has recorded over 47 million online views to date. We are also extending the reach of our e-sports events beyond our strong online audience. For example, the grand final for Free Fire Indonesia Masters 2020 Fall, was broadcasted on national TV reaching an even broader fan base, online and offline. Our highly local and interactive content and community activities increase the ability of our users with Free Fire. These efforts also ensure that the game stays fresh and relevant for our users over time. This in turn grows our user base and improves engagement. As we move into the fourth quarter and look to 2021, we will continue to focus on providing the global Free Fire community with captivating content and fresh and engaging experiences, both within the game and through our social and community features. We are confident that there is a very long runway ahead for this franchise. Turning to e-commerce, Shopee had another great quarter. Building on our momentum and leadership, we continue to capture more share of our region’s rapidly expanding e-commerce segment. We also continued to deliver more value to our sellers and buyers while deepening monetization and driving efficient growth. Shopee recorded 741.6 million gross orders, up 131% year-on-year, and GMV of $9.3 billion, an increase of 103% year-on-year. GAAP revenue for the third quarter was $618.7 million, up 173% year-on-year. We also continue to drive efficiencies across the business with adjusted EBITDA loss per order decreasing by 48% year-on-year to $0.41 during the quarter. In the third quarter, Shopee continues to rank as the number one shopping category across Southeast Asia and Taiwan by download, average monthly active users and the total time spent in the app on Android based on App Annie. On a global level, Shopee was also the second most downloaded app in the shopping category according to App Annie. In our largest market, Indonesia, Shopee continues to further extend its market leadership. It registered over 310 million orders at a daily average of around 3.4 million orders, an increase of over 124% year-on-year. It was also ranked 1st in Indonesia for average monthly active users, downloads and total time spent in the app on Android in the shopping category in the third quarter, according to App Annie. As e-commerce growth is important across the region, we have been focused on delivering more value for our merchants across the Shopee ecosystem. For example, in addition to the Google partnership announced last quarter, Shopee launched a new strategic partnership with 5 leading global media agencies. This program is designed to equip these agencies with in-depth e-commerce knowledge, tools and skills so they can help more brands and retail merchants scale and succeed on Shopee. Further, we help merchants create better shopping experiences to engage consumers. Shopee Live is one example. Sellers have found this feature helpful in driving user engagement and retention with notable results. Shopee Live recorded over 48 million hours watched in the third quarter. Our momentum has carried forward into a record-breaking 11.11 Big Sale shopping festival. We were heartened to see our SME sellers recording an incredibly successful sales event through the Shopee platform. In particular, the newer sellers who joined the 11.11 Big Sale for the first time sold 10 times more orders than on an average day. We have built powerful bonds of affinity with our users, and today, Shopee is one of the most recognized and best-loved brands across our community. In YouGov’s recently published 2020 Global Best Brands ranking, Shopee was the number eight ranked brand globally and together with Amazon represents the two e-commerce brands in the world’s top 10 ranking. As we continue to solidify and extend our market leadership in e-commerce, we will stay focused on providing the best long-term value for our users and building a healthy and sustainable ecosystem for our region. Moving on to SeaMoney, we saw the same strong growth momentum across Garena and Shopee during the quarter. Our mobile wallet total payment volume for the quarter exceeded $2.1 billion with quarterly paying users surpassing 17.8 million. SeaMoney continues to deepen its integration with Shopee, leveraging Shopee’s rapid growth and extensive reach to scale efficiently and effectively. In October, more than 30% of Shopee’s total gross orders across our market combined were paid using our mobile wallet. We also continued to expand our suite of online and offline third-party use cases and partnerships in the third quarter. This has further increased the usage and the brand awareness of SeaMoney across our community. We see a significant opportunity ahead for SeaMoney and believe that we can capture it in a highly efficient manner by building on our core use cases. Our focus remains on building the business to enable more consumers and the merchants to benefit from the ease and convenience of our digital solutions. In closing, the strong momentum from the first half of the year has carried on into the third quarter and beyond. Our third quarter performance is a testament to our ability to quickly adapt to the rapidly evolving needs and preferences of our community. While we are benefiting from secular tailwinds and the rapid push towards digitalization, we remain very focused on strong execution to capture the growth opportunity. From highly local and deeply engaging content on Garena games to Shopee’s new partnerships, we will continue to listen to and innovate around our users. As we move towards the end of 2020 and into 2021, we are further extending and solidifying our market leadership position across all the key segments of the digital economy in our region. Our conviction in the scale of the opportunities ahead for Sea over the long term is growing even stronger. We remain committed to serving our communities with technology and enabling them to benefit from the growth of the digital economy in the long run. 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 quarterly financial schedules together with the corresponding management analysis in today’s press release. As Forrest has discussed some of our financial highlights, I will focus my comments on the other relevant metrics. For Sea overall, total GAAP revenue grew by 99% year-on-year to $1.2 billion, which was mainly driven by continued monetization efforts in our e-commerce business in the past quarters as well as growth of our digital entertainment business, especially our self-developed game, Free Fire. The 110% year-on-year growth in digital entertainment bookings to $944.7 million and 73% year-on-year growth in GAAP revenue to $569 million, were primarily driven by the increase of our active user base and deepened paying user penetration, and in particular, the continued success of our self-developed game, Free Fire. Digital entertainment adjusted EBITDA was $584.5 million, an increase of 120% year-on-year mainly due to strong top line growth and our self-developed game accounting for an increased share of bookings. Our e-commerce GAAP revenue of $618.7 million included GAAP marketplace revenue of $467.1 million, up 164% year-on-year, and GAAP product revenue of $151.6 million, up 208% year-on-year. The strong results demonstrated the deepening penetration of e-commerce and our ability to capture the accelerated growth opportunities created by the rapid expansion of the digital economy. E-commerce adjusted EBITDA loss was $301.6 million, as we continued our investment to fully capture the market opportunity in the region. We will continue to invest prudently and drive high-quality growth with increasing efficiency. Digital financial services GAAP revenue was $14.4 million, an increase of 766% year-on-year from $1.7 million in the third quarter of 2019. Adjusted EBITDA loss was $149.3 million in the third quarter of 2020 compared to a loss of $33.6 million in the same period of 2019. This was primarily due to our continued efforts to drive mobile wallet growth in our markets and expand the suite of online and offline third-party use cases and partnerships. Returning to our consolidated numbers, we recognized a net non-operating loss of $74.3 million in the third quarter of 2020 compared to a net non-operating income of $9.8 million in the third quarter of 2019. Non-operating loss in the third quarter of 2020 was primarily due to the higher interest expense and foreign exchange loss. We had a net income tax expense of $46.4 million in the third quarter of 2020, which was primarily due to withholding tax and corporate income tax recognized in our digital entertainment business. As a result, net loss, excluding share-based compensation and changes in fair value of the 2017 convertible notes, was $346 million in the third quarter of 2020 as compared to $175.2 million for the same period in 2019.

Yanjun Wang, Group Chief Corporate Officer

Thank you. We are now ready to open the call for questions. Operator?

Operator, Operator

[Operator Instructions] Our first question is from Miang Chuen Koh from Goldman Sachs. Go ahead.

Miang Chuen Koh, Analyst

Thank you with that. Firstly, congratulations on another strong set of numbers. My two questions are, firstly, we see for the gaming side, the pay ratio increased significantly sequentially. So just wondering, is it due to the e-sports events you have launched or the social features you’ve added in the quarter? And along that line, what do you see as the ceiling as well for pay ratio in coming quarters? And the second question is that, can we perhaps discuss a little bit of the fourth quarter gaming trends so far, especially given the new games you’ve launched in the last few months, like Fantasy Town or Fairy Tail? I’m asking this because in terms of the full year gross billing guidance, it appears to suggest perhaps a bit of a decline quarter-to-quarter for gross billings in 4Q. Thank you.

Yanjun Wang, Group Chief Corporate Officer

So in terms of the pay ratio, we see a very healthy pay ratio for this quarter. And we will continue to work on engaging with our users globally and deepening the pay user ratio over time. Although we wouldn’t say that is a singular KPI we are driving, overall, I think for Free Fire, our goal is to make it into a long-term major gaming platform with varied content and also a tight social community. Our focus is still to drive user growth globally in all our markets. At the same time, we want to increase our user engagement, as you refer to, through a lot of community and e-sports events. One thing I also want to highlight that during the third quarter, it also happened to be the third anniversary of Free Fire. Therefore, we had special events and content which were very well received by our community. That also helped with the pay user ratio. So if you look at our fourth quarter, we stated that we expect the overall game booking to exceed $3.1 billion. We actually want to highlight that we meant for the fourth quarter to sustain the strong performance of the third quarter. And the third quarter is an outstanding quarter with more than 110% year-on-year growth. Despite that, we expect the fourth quarter to continue this very strong trend with more than 90% year-on-year growth, even if we just hit the $3.1 billion, but we hope to beat that, although we want to remain conservative on our projections. Therefore, we think on the gaming side, we will continue to see very strong performance into the 4Q and next year as well. In terms of our new games, Fantasy Town is a farming simulation casual game. We also incorporated a lot of local content, for example, Indonesia local landmarks and characters into the game to really cater to our local community's preferences. Fairy Tail is a turn-based RPG game. These are our efforts to expand our genre and diversify our gaming portfolio over time. We’re not particularly focused on monetization per se for these games, but more on understanding our local community base and their preferences and user behavior with respect to different types of games.

Operator, Operator

Our next question is from Thomas Chong from Jefferies. Go ahead.

Thomas Chong, Analyst

Thank you, management for taking my questions. And congratulations on a strong set of results. My question is about the e-commerce competitive landscape. Can management comment on whether we see any intensifying competition in the Indonesia market? And on top of that front, can you also comment about how we should think about the online grocery category in the Southeast Asia market post COVID? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you. On the competitive landscape, I think it continues to improve as far as Shopee is concerned, as we continue to extend our market leadership. Our Q3 order growth was more than 130% year-on-year, which is way ahead of the market growth rate. We believe we are leading the growth rates of other players in our markets. As we said before, e-commerce is something that enjoys a very strong network effect, and the slide will reflect as well. So as we become a strong market leader, we believe we’ll continue to grow. Given the current environment of rapidly deepening digitalization and accelerated adoption of e-commerce, we believe it’s a golden opportunity for us to capture a disproportionate share of the market growth. In any case, we think there’s a very long runway for all players in the market given the relatively low penetration in Southeast Asia for e-commerce at this stage yet. We believe in the longer run, given the demographic and geographic nature of our region, e-commerce penetration should go much deeper, and we hope to work with all players in the market to collectively expand the pie. But at the same time, we also hope to further extend our market leadership. In terms of our online grocery, we continue to see very strong demand for FMCG, including grocery on our platform. We believe that as people, especially new users during this COVID period, come onto the platform, having experienced the convenience of buying things online as well as especially during the social distancing period, this becomes something that once it’s experienced, it is very sticky. We continue to see very strong growth in this category.

Operator, Operator

Our next question is from Piyush Choudhary from HSBC. Go ahead.

Piyush Choudhary, Analyst

Hi, thanks a lot and congratulations for a strong set of results. Two questions, both on e-commerce. Firstly, what drove a quarter-on-quarter improvement in monetization? And could you share what proportion of revenue comes from advertising income? You have launched this program with 5 media agencies. Can you share some initial success of that? And secondly, on GMV growth, can you give us insights on how it is faring across your countries?

Yanjun Wang, Group Chief Corporate Officer

Sure. On the monetization, we are actually seeing a very strong and healthy growth in our revenue from the Shopee e-commerce platform. That is still largely attributable to the increase in the high-margin part of the revenue, i.e., transaction-based fees, including commissions, opt-in programs, handling fees, etcetera, as well as advertising. The increased revenue from value-added services, which mainly consist of cross-border logistics as well as on the first-party product side, contributed to the increase as well. But the key trend is that we continue to expand our high-margin revenue, thanks largely to the increase in demand for advertisement by our sellers as well as opt-in programs where sellers can voluntarily pay a higher commission or fee for joining certain programs that benefit their consumers and thus improve their own sales volume, such as the free shipping program, earning vouchers and promotion programs, and feature seller programs on our platform journey also during the shopping event. So, this, I think, is a very positive trend. We will continue to work with our sellers to improve the adoption of these programs as well as advertisement as our seller communities continue to grow with us.

Operator, Operator

Our next question is from...

Yanjun Wang, Group Chief Corporate Officer

Let me address the other two questions as well. Regarding the media agency partnership, this is another great example where we help our sellers, especially brand sellers on our mall side, to grow the business faster. We have been working with various media agencies to educate them about advertisement on Shopee’s platform, our user behavior, and how to best attract and engage with our users. This has allowed them to help their clients, which tend to see the brand better. This is also in line with the recent trend, whereby we see a lot of brands coming onto our platform. We now have more than 20,000 brands on Shopee platform, and the number continues to increase rapidly, especially during this period where we see the brands increasingly view the digital solution as something that’s integral to their overall offering given the social distancing restrictions. As for GMV growth across different markets, I think that we continue to see very strong growth. The market differences generally were less affected by COVID throughout this period, like Taiwan and Vietnam, as we shared before. Their growth rates continue to be robust and in line with our general trends. In markets that have been affected by the lockdown more, such as Thailand and Singapore, we initially saw very strong increases in our e-commerce demand and especially new user growth. Those users tend to stick with us and therefore, the performance has remained strong. Even though the quarter-on-quarter growth wouldn't be as strong as between Q1 to Q2, the year-on-year growth continued to be very strong. In some markets, we even saw a 5x or 6x difference. In other markets like Indonesia, Philippines, and Malaysia, we continued to see some resurgence of cases, with lockdown restrictions being imposed in different formats. As a result, we still continue to see heightened demand in our platform as well. So it's still too early to talk about the post-COVID situation. Given that the lockdown measures have been lifted in pretty much all the markets, during those periods, we have observed sustained strong growth of our platform. We continue to believe that the deepening of digitalization and adoption of e-commerce during this period is sustainable.

Operator, Operator

Our next question is from John Blackledge from Cowen. Go ahead.

John Blackledge, Analyst

Okay, thanks. A couple of questions. First on digital entertainment, could you discuss Free Fire’s monetization in markets outside of Southeast Asia and Latin America? And then on Shopee, in the past, you’ve called out that Taiwan is EBITDA flattish before corporate expenses, in part given significant market share advantage. In your other markets, if you get to a similar market share position, is there anything structurally that would limit the margin profile? And more broadly, just any color on Shopee’s EBITDA trajectory going forward would be helpful? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you. In terms of monetization outside of Southeast Asia, we previously shared that our revenue contribution from markets outside of Southeast Asia already constitutes the majority of our digital entertainment bookings. We’ll continue to see very strong trends including in the Latin America market, which has a similar population size. But in terms of GDP per capita, probably it’s a bit higher than Southeast Asia. We think there’s very good potential to continue to drive user growth and pay user and steepening engagement with our users and drive monetization over the long run. Again, we look at this as a very long-term game. Therefore, we are not trying to oversell; we are still in growth stages to continue to grow this game in Latin America as well as other markets in the world. In terms of the Shopee platform, Taiwan’s EBITDA margin continues to rise. So, it’s not actually flattish. Therefore, we do believe that there is no doubt that e-commerce, especially a strong market leader, can command a very healthy margin, although we don’t separately disclose it, but it’s not actually flattish. We do not believe that in other markets, there’s anything that we see that would potentially limit the margin that can be achieved in the longer run, as a very strong market leader.

Operator, Operator

Our next question is from Ranjan Sharma from JPMorgan. Go ahead.

Ranjan Sharma, Analyst

Hi, good evening and thank you for the presentation. Two questions from my side. Firstly, on Shopee Brazil, can you share what is the strategy for that market now? It seems to have evolved more than a cross-border business because we do see some local sellers there. So if you can talk about your aspirations for Brazil from an e-commerce perspective. The second question is on Free Fire MAX. We have been seeing a number of open beta tests happening. If you can share what the feedback has been? And then what you’re doing to drive the success of that game in more developed markets? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you. In terms of Shopee Brazil, we shared before that it was initiated and started by our cross-border team, therefore, it’s primarily cross-border driven. As the team continued to grow the business, we also saw adoption by local sellers, which we certainly welcome. Regarding Free Fire MAX, we see it as an integral part of Free Fire, as we try to cater to the broadest range of consumers so that users can choose to play the Free Fire version or Free Fire MAX depending on their own preferences and requirements. We don’t see it as a separate game, but also as part of the Free Fire experience. We are focused on making sure the user experience is highly smooth because people who are playing Free Fire and Free Fire MAX will be on the same map. A lot of the details need to be worked out, and we will continue to focus on improving our user experience, whether it’s through Free Fire or the MAX version.

Operator, Operator

Our next question is from Alicia Yap from Citigroup. Go ahead.

Alicia Yap, Analyst

Hi, thank you. Good evening management. Thanks for taking my questions. Also congrats on the strong results. I have some follow-up questions on e-commerce. In terms of the monetization model, could you help us rank in terms of the percentage of revenue contributions among transaction fee, VAS, and advertising? And also, potentially, you could help us rank by the fastest growth rate, the year-over-year growth rate this quarter. Any meaningful difference between, let’s say, the country in Indonesia versus the overall group level? And then secondly, is there a change of the product mix or seasonality this quarter? Because it seems like the AOV is a little bit lower. What could be the reasons for that and if you can update us on the purchase frequency this quarter? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you. In terms of the percentage of revenue, we don’t specifically predict, but suffice to say that the high-margin revenue from transaction-based fees as well as advertising is the majority of our revenue and also the majority contribution to the revenue growth. The reason we have launched transaction-based fees and advertising together in our market is that certain programs, like many opt-in programs, are driving very important contributions to the revenue growth. This is actually linked to advertisement or featured shop placements on our shopping platform. The reason is that under transaction-based fees, we help our sellers who might not be sophisticated yet to manage their advertisement placement and calculate the ROI on advertisement, etcetera, so we actually facilitate that by offering this program to allow the seller to pay Shopee a higher fee and then they become worry free. We will manage the keywords bidding, the placement, banner, participation in events, etcetera, for them as part of the transaction-based fee. It’s hard to say whether that’s advertisement or transaction-based fee, but the important thing is it’s high-margin revenue that’s contributing a higher percentage and is driving the growth. This is also part of the reason we believe in the longer run that the profitability model of e-commerce is something not to worry about. As for the AOV in e-commerce this quarter, I think we mentioned before that a low to mid double-digit – low-teen to mid-teens range is probably appropriate for our market. Naturally, as you see, countries like Indonesia and Philippines have larger populations and growth over time, overtaking markets like Taiwan or Singapore, which generally have a smaller population, therefore, those markets with lower basket size tend to account for more GMV over time than those with larger basket size but smaller population. During this period, we see strong growth from those markets as we mentioned, Indonesia, Philippines, and Malaysia, where more lockdown measures were imposed on and off throughout the whole period. The year-on-year growth is particularly strong in those markets. However, we will continue to watch the product mix closely. What we see is that during the COVID period, particular categories like home and living and FMCG enjoyed particularly strong growth. Now with lockdowns eased in most of our regions, we continue to see fashion start to recover, and the pace of recovery is accelerating. It remains a top category. So the overall category mix hasn’t really changed much. While home and living continues to thrive alongside FMCG, health and beauty continues to be very strong, we also start to see a robust recovery in fashion.

Operator, Operator

Our next question is from John Choi from Daiwa. Go ahead.

John Choi, Analyst

Good evening and thank you for taking my questions. I have two questions here. So first of all, on your Shopee business, I think clearly, we are seeing a very strong trend on the GMV and also the revenue side. I just want to understand what are the priorities when it comes to investment to further propel the top line growth and eventually narrow down our EBITDA going forward? I want to know the investment priorities and where you think you need to put more work into. And second is on Free Fire. I know that we’ve done very well across the region. Can management highlight some key metrics of free fire? How should we think about the average bookings per user right now? Clearly, it seems like we’re still in an early stage, but how much more upside do we see in terms of ARPU and are we going to launch any new type of monetization methodology within the games?

Yanjun Wang, Group Chief Corporate Officer

In terms of e-commerce, we are very consistent in our approach and communication that we want to continue to grow our e-commerce platform and strengthen our market leadership at the same time, focus on efficiency of growth and deepening monetization at a measured pace for our market. Therefore, our focus has never changed in that regard. Of course, as a business model, eventually, breakeven will come and naturally accounting margin, we believe, can be achieved. It’s a scale business and a business with a strong network effect. Therefore, we believe it’s important to continue to drive growth, especially during a period where we continue to see a rapid adoption of e-commerce and deepening of digitalization in our region. As we emphasize, this is a golden time to drive growth, and we want to ensure the e-commerce penetration can grow further in our region. On digital entertainment bookings, I think we achieved a very healthy and strong number in the third quarter at $1.7 per user, with an active user base of more than 570 million for the quarter. For our game, we believe that given the global market it is accessing and growing, there are also potentials to continue to drive pay user ratios as well as average bookings we can achieve for pay users over time. However, the focus, similar to e-commerce, is to continue to grow the game itself. We are not concerned about monetization of a massive game with substantial user base and high user engagement. This comes naturally. If you look at our performance, especially, we didn’t push that hard; it just comes naturally when the business scales. Scaling is something that we continue to emphasize. However, we are very careful about efficiency and savings, and of course, monitoring the natural market dynamics while staying close to our users, remain our top priority.

Operator, Operator

Our next question is from Mark Goodridge from Morgan Stanley. Go ahead.

Mark Goodridge, Analyst

Hi, guys. Just had a question on the games business, specifically for Latin America. We heard from you guys last year that we’re potentially growing out a third-party publishing business in that marketplace. And we’ve seen the huge success of Free Fire. Would you care to share some of the initiatives that you’ve been doing, specifically this year, some of the games that are potentially coming through into Latin America? And following on that is there an opportunity to replicate that potential third-party publishing business into India as well?

Yanjun Wang, Group Chief Corporate Officer

Thank you. In terms of the third-party publishing side, we continue to work very closely with our developer partners globally to discuss potential opportunities in the global market. The performance of Free Fire in these markets is definitely a very helpful data point for all developer partners to assess our understanding of the market, our operational capabilities, and strong capability to drive growth in those relatively difficult and complex markets, where, I would say, there wouldn’t be another player of our scale that has achieved the kind of track record we’ve built. So that puts us in a unique position globally in driving growth on the mobile game and e-sports side. We will continue to work with our partners and potential partners. However, we do not disclose initiatives or discussions, and keep them confidential until we officially announce them. But that’s something we also continue to focus on.

Operator, Operator

Our next question is from Varun Ahuja from Credit Suisse.

Varun Ahuja, Analyst

Yes, hi, good evening everyone. I have got three questions. First two on the gaming side. If you look at the last two quarters, you have seen very strong quarter-on-quarter growth of more than 30% on the gaming side, primarily driven by Free Fire. If you can provide a little bit more detail? I know it has been coincided with COVID, but which markets have held such strong performance on Free Fire? You have seen rankings improving in the U.S. and is it India where the monetization is happening much better or any other countries which have shown growth? The key thing that’s coming from this is sustainability of this revenue growth. I know you mentioned that you believe the game has still a long way to go. But just to give some data points to draw comfort, it will be helpful. That is number one. Number two is on the new game launches. It’s been a while we’ve seen some new games from you. Any color, anything that will be helpful. Another thing is that League of Legends mobile is being launched, but you guys didn’t get it. Any reasons for that would be helpful. Lastly, on the consolidated EBITDA, if you look at – you’ve come very close to profitability. Is it likely to remain like this going ahead? Is it going to fluctuate quarter-on-quarter depending upon the e-commerce investment that you will have to make? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you. In terms of our global performance of Free Fire and revenue contribution, we talked broadly in three buckets; Southeast Asia and Taiwan, Latin America, and then the rest of the world, which we call the emerging new frontier markets for us. That’s ranked by the time of launching and engagement of the game. We see revenue contribution coming from all three regions with strong growth, which is encouraging. For long-term growth potential and runway, the frontier markets present a sizeable opportunity in terms of capturing the current, very low penetration in the global markets, many of which, including some high-demand markets, we haven’t fully captured or entered yet. There are still significant opportunities for our team to tap in that regard, whereas for Southeast Asia and Taiwan, we will continue to drive user engagement and deepen monetization, which is similarly applicable to Latin America, which is a relatively new market for e-sports games. I believe how deep the penetration can be, including the paid penetration, remains to be seen. We already see strong positive trends that showcase the market has more potential if not equal to that of Southeast Asia. We feel very optimistic about continuing to grow the game there. This was one reason that gives us confidence in the sustainability of Free Fire's revenue growth. If you look at year-on-year growth, Q1 was up 30%; Q2, more than 60%; and Q3, more than 100%. A rapid acceleration. We are pleased to maintain our projection for the fourth quarter, sustaining the strong performance of the third quarter, as we continue to move closer to 3-digit growth figures, which is quite an achievement for our game team. As for EBITDA trajectory, we do not provide guidance on EBITDA. As mentioned before, our focus for each of the businesses is to drive growth, given the low penetration in many of our core markets. I think the opportunity of the digital economy in our region and for our game business, in particular, globally, is substantial. Each of our businesses is confident of achieving profitability. There’s no game business that’s loss-making for a strong market leader in e-commerce, which cannot be profitable to drive a healthy margin. The ultimate business model has been well established. The question is how to scale the business efficiently within the market. We have shown our track record focuses on growth and efficiency simultaneously. If margin improvement comes, it will be organic - it's not something we will force.

Operator, Operator

This concludes our question-and-answer session. I would now like to turn the call back to Minju Song for closing remarks. Go ahead.

Minju Song, Group Chief Corporate Officer

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

Operator, Operator

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