Earnings Call Transcript - SE Q2 2022

Operator, Operator

Good morning and good evening. Welcome to the Sea Limited Second Quarter 2022 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'd now like to turn the conference over to Ms. Min Ju Song. Please go ahead.

Min Ju Song, Group Chief Corporate Officer

Thank you, Jason, and hello, everyone, and welcome to Sea's 2022 second quarter earnings conference call. I'm 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 and net loss excluding share-based compensation and impairment of goodwill. 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 your 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 second quarter of 2022. 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, CEO

Hello, everyone, and thank you all for joining us today. I'm going to start with an update on our plans to further focus on efficiency and strengthening our ecosystem for long-term profitability and competitiveness. I will also share a few highlights across our businesses as we made steady progress towards these objectives. During the pandemic lockdown, we rapidly scaled our businesses to respond to the fast rising market demand for online consumption and services. As a result, we significantly expanded our businesses and the total addressable market and strengthened our market leadership, while improving growth efficiency. We achieved these results by focusing on doing the right thing at the right time in setting our redirection and being agile and adaptable in our execution. Now we are in an environment of increased macro uncertainty, with rising inflation, rising interest rates, local currency depreciation against the U.S. dollar, and ongoing reopening trends. In this environment, being agile and adaptable is even more crucial to the long-term success of our business. We believe the right thing to do at this unprecedented time is to focus even more on self-sufficiency, long-term profitability, and the defensibility in our business operations. Our results for the second quarter demonstrate the early success of this effort. Because of our strong execution in the quarter, Shopee's unique economics improved significantly, driven by efficiency gains across our markets. In particular, adjusted EBITDA loss per order before allocation of HQ costs in our Asian market combined was less than $0.01. And we are on track to achieving positive adjusted EBITDA before HQ cost allocation in this region. At the same time, Shopee continued to grow at healthy rates, despite the tough year-over-year comparison, with GAAP revenue up 51% year-on-year, or 56% year-on-year adjusting for currency fluctuations. For Garena, quarterly active users were stable quarter-on-quarter. This positive outcome was a result of our efforts around user retention to serve our large games community through more engaging experiences. We will continue to focus on user engagement around our existing franchises, especially Free Fire. Indeed, we are encouraged by Free Fire retaining its top-ranking position as the highest grossing mobile game in Southeast Asia and Latin America during the quarter based on data.ai. Synergies between Shopee and SeaMoney also expanded, as we continue to cross-sell more financial products and services to our underserved user base across more markets. Close to 40% of Shopee’s quarterly active buyers in Southeast Asia used the SeaMoney products or services during the quarter. SeaMoney’s revenue has enjoyed strong growth and its adjusted EBITDA loss has continued to narrow during the quarter. With the solid performance across our businesses, group GAAP revenue was $2.9 billion, up 29% year-on-year, in the second quarter. Gross profit grew 17% from last year to reach $1.1 billion for the quarter. Let’s now discuss each business segment beginning with e-commerce. Shopee continues to appeal to more buyers and sellers across our markets, as evidenced by continued leadership in active user and engagement metrics, as well as record operational and financial metrics. In the second quarter, Shopee’s GAAP revenue grew 51% year-on-year to reach $1.7 billion, driven by GAAP marketplace revenue, growing close to 62% over the same period. Gross orders were $2 billion, up 42% from last year, and GMV grew 27% year-on-year to reach $19 billion. The currency fluctuations negatively impacted both GAAP revenue and GMV year-on-year growth rates by more than 4 percentage points. We also drove further improvements in monetization during the quarter, as we delivered more value to our sellers. Across the board, sellers are investing more with us to pursue growth on our platform. These efforts continue to translate into positive financial results. For the period, GAAP marketplace revenue as a percentage of total GMV increased both year-on-year and quarter-on-quarter to reach 7.7%. The increase was mainly driven by increases from high-margin revenue streams, like transaction-based fees and advertising, which underscores the success of our platform in driving greater economics for our sellers. As a result, there was strong fall-through to the bottom line with the better monetization contributing directly towards better profitability. In the second quarter, gross profit for Shopee grew by close to 85% year-on-year and gross margins continued to improve sequentially from the last quarter. Shopee's overall adjusted EBITDA loss also improved sequentially by 13% quarter-on-quarter. Moreover, in Southeast Asia and Taiwan, adjusted EBITDA loss per order before allocation of HQ costs for the quarter was less than $0.01, which shows that we are well on track towards achieving positive adjusted EBITDA before HQ cost allocation in our Asian market combined. In Brazil, Shopee is also driving greater efficiencies while growing revenue rapidly. The adjusted EBITDA loss per order before allocation of HQ cost there was $1.42, improving quarter-on-quarter. At the same time, GAAP revenue in the market grew more than 270% year-on-year. We are also optimizing spend around our HQ costs. During the quarter, total HQ costs for Shopee increased by $28 million quarter-on-quarter driven by an increase in research and development staff, and server hosting costs, as we expanded our technological capabilities and service offerings. This represents a deceleration in cost increases compared to the last quarter. While we will continue to invest to enhance our products, we have been able to strengthen our team significantly in the past period and plan to be prudent in further expanding the team. Meanwhile, Shopee continued to achieve top ranking globally and in our region. In the second quarter, Shopee ranked first in the shopping category globally by total time spent in the app, and second by average monthly active users on Google Play, according to data.ai. We also remained at the top ranked app in the shopping category by average monthly active users and total time spent in the app in each of Southeast Asia, Indonesia, and Taiwan. In Brazil, we further strengthened our leading position with Shopee ranking first by average monthly active users in the second quarter, while continuing to rank first by total time spent in the app for the shopping category during the quarter. Besides engaging consumers, we are also working closely to support our sellers. We continue to empower our merchants through education and training in addition to providing them better tools and services. This remains a key area of focus for us. Across the Shopee seller platform, resources including our Shopee University and master classes have been especially helpful to the local entrepreneurs and MSMEs. We are also growing our brand partners on Shopee mall in closer collaboration to enable greater engagement with their customers. Staying close to and collaborating with our sellers has enabled Shopee to grow and thrive together with them. For example, in Brazil, we estimate that Shopee has become the main source of income for over 300,000 local entrepreneurs and has brought 430,000 new digital entrepreneurs to e-commerce. This has been partly driven by our investments behind training our Brazilian sellers, with more than 60,000 sellers attending classes at the Shopee Education Center. Now I would like to discuss our decision to suspend the full-year revenue guidance for Shopee driven by the highly volatile and unpredictable macro environment. As shared earlier, while we think the right thing to do during the pandemic lockdown was to prioritize growth with improving efficiency, we think the right thing to do in this time of continuing heightened macro volatility is to prioritize efficiency and self-sufficiency. As we have always maintained, we think about managing our businesses more like marathons rather than sprints. Adjusting our pace to match the moment is therefore highly important. Our ability to navigate changing times will help us win this long race ultimately. Given our strategic shifts, coupled with the various macro factors that are hard to predict as mentioned before, we believe it is prudent to maximize our focus on efficiency across our business rather than over-committing, which we believe would be ill-advised at this time of uncertainty. As such, we are suspending the full-year guidance for Shopee, which we last provided in May. Even though we have stopped providing guidance, our focus for the rest of the year remains very clear, which is to continue to improve efficiency by both deepening monetization and optimizing our cost structure. We will be more tightly managing our operating expenses such as marketing costs and logistics costs, while also gradually increasing monetization across various income streams with a focus on the high-margin ones. More importantly, I want to emphasize that the current macro volatility does not affect our highly positive long-term outlook for our region. Current macro uncertainties do not change the fact that our markets remain some of the areas with the highest long-term growth potential in the world, with positive demographic features and deepening digitalization. The current macro uncertainties also do not change our demonstrated track record in capturing some of the largest opportunities across the consumer internet industry in our markets. We believe our strong market leadership position will continue to allow us to disproportionately benefit from the long-term industry growth. And our strategic decisions and operational focuses today are all directed at best positioning us to capture these long-term opportunities. Turning to digital entertainment. In the second quarter, Garena’s GAAP revenue was $900 million and bookings were $717 million. Free Fire remained the most downloaded mobile game globally during the second quarter based on data.ai. It was also the highest grossing mobile game in Southeast Asia and Latin America during the quarter, maintaining this leading position for 12 consecutive quarters. It is encouraging to see that Free Fire continued to perform well within the mobile game industry. Moreover, Free Fire shows some early signs of active user stabilization with quarterly active users reaching 619 million compared to 615 million in the fourth quarter. We continue to focus on investing in user engagement around the Free Fire franchise and platform, ensuring a consistent cycle of fresh and new content for our communities. As an example, we celebrated Ramadan with our local communities in the second quarter. During Ramadan, we worked with local celebrities, introduced more game items, and hosted several community gatherings. These highly localized efforts allowed us to better engage our local users and enjoy strong monetization during the Ramadan season. New content being introduced in the form of game modes has also helped to diversify the experiences that our gamers can enjoy on the Free Fire platform. Alongside the battle royale mode, we are increasingly seeing solid long-lasting retention and engagement around other game modes like Clash Squad, which is a 4v4 game mode, and Lone Wolf, which is a 1v1 or 2v2 game mode. Besides being highly engaging and social experiences, these game modes are also shorter and more fast-paced which are preferred by some gamers, especially as time available for entertainment is more fragmented with reopening. While short-term gaming industry trends remain relatively uncertain due to reopening trends, as well as the potential impact from macro volatility, we are highly confident in the long-term structural tailwinds of the segment. We expect this to be even more apparent across our markets where we are well-positioned and the growth runway for digital entertainment is substantial. We also expect this to support the long-term sustained lifespan of our existing franchises and platforms. Lastly, our digital financial services business. In the second quarter, the synergies between both Shopee and SeaMoney continued to expand, driving revenue and value across the ecosystem. SeaMoney’s GAAP revenue for the quarter was $279 million, an increase of 214% year-on-year. Quarterly active users across our SeaMoney products and services reached close to 53 million, growing 53% from last year. Our mobile wallet total payment volume also grew healthily at 36% year-on-year to reach $5.7 billion during the quarter. With the stronger adoption of our growing portfolio of financial products and services across our Shopee and SeaMoney ecosystem, we are driving greater efficiency across platforms. As such, SeaMoney’s adjusted EBITDA losses continued to improve quarter-on-quarter. A significant population in our markets is still underserved around digital financial products and services. And we are well-positioned with our strong ecosystem to serve the largest segment of our markets through the direct relationships and insights we have accrued. At the same time, we are working closely with our partners and other local stakeholders to build a healthy and sustainable environment for the long term. In closing, as we navigate an increasingly uncertain market environment, the need for us to be more thoughtful, prudent, and disciplined has only grown. While we have ample resources to achieve self-sufficiency, as a business, we are nevertheless rapidly prioritizing profitability and cash flow management. In this current volatile environment, we believe our focus on these areas will be key in setting the business up for long-term sustained success. We are also confident that our ability to execute to achieve our objectives during this period will be further supported by our scale, leadership positions, and proven business models. We have articulated clear commitments and are well on track to achieving them. We also continue to be highly optimistic about the long-term potential of the opportunities and markets we are addressing. 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 29% year-on-year to $2.9 billion. This was mainly driven by the growth in our e-commerce and digital financial services businesses, as we continue to leverage the synergies across our platforms. On e-commerce, our second quarter GAAP revenue of $1.7 billion included GAAP marketplace revenue of $1.5 billion, up 62% year-on-year, and GAAP product revenue of $0.3 billion, up 14% year-on-year. E-commerce adjusted EBITDA loss was $648 million. Adjusted EBITDA loss per order was $0.33, compared to $0.41 for the second quarter of 2021, as we further improved our growth efficiency and unit economics. Digital entertainment bookings were $0.7 billion and GAAP revenue was $0.9 billion for the second quarter of 2022. Adjusted EBITDA was $334 million. The slowdown compared to the second quarter of 2021 was mainly due to moderation of user base and user trends post-COVID. Digital financial services GAAP revenue was $279 million, an increase of 214% year-on-year from $89 million in the second quarter of 2021. The growth was primarily due to the growing adoption of our financial products and services. Adjusted EBITDA loss was $112 million compared to $155 million for the second quarter of 2021 as we further improved on our growth efficiency. In the second quarter of 2022, we recorded an impairment of goodwill of $177 million. The goodwill impairment was primarily due to the change in carrying amount of goodwill associated with our prior acquisitions, mainly driven by the lower valuations amid the market uncertainties. We recognized a net non-operating loss of $33 million in the second quarter of 2022 compared to a net non-operating loss of $25 million in the second quarter of 2021. The non-operating loss in the second quarter of 2022 was primarily due to investment losses recognized amid lower valuations in the broader market. We had a net income tax expense of $65 million in the second quarter of 2022, which was primarily due to corporate income tax and withholding tax recognized in our digital entertainment business. As a result, net loss excluding share-based compensation and impairment of goodwill was $570 million in the second quarter of 2022 as compared to $321 million for the same period in 2021. Net cash used in investing activities in the second quarter of 2022 was primarily attributable to an increase in loans receivable and purchase of property and equipment to support the growth of our businesses. At the end of the second quarter of 2022, we had $7.8 billion of cash, cash equivalents, and short-term investments on our balance sheet.

Min Ju Song, Group Chief Corporate Officer

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

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Pang Vitt from Goldman Sachs. Please go ahead.

Pang Vitt, Analyst

Thank you for the opportunity. I have two questions. First, regarding e-commerce, could you provide clarification on the suspension of guidance? What are the current observations that led to this decision? Is the outlook truly that uncertain? We understand the macro environment has become challenging, but up until mid-August, can you share how Shopee has been performing this quarter? My second question pertains to Shopee's breakeven point. Is there any update on your breakeven targets for Shopee in ASEAN and Taiwan? While breakeven seems achievable for ASEAN and Taiwan, headquarter costs have risen on a quarter-on-quarter basis. Can you explain what is causing this increase in headquarter costs and when we might expect improvement?

Yanjun Wang, Group Chief Corporate Officer

Thank you, Pang. Regarding the guidance, we want to clarify that this decision from management is proactive, aimed at adjusting our strategies, and we’re committed to being transparent with the market. In our Q2 results, we've observed that Shopee's losses are narrowing, both on a unit economic basis and at the total group level, considering all costs. Simultaneously, we achieved over 40% growth in orders. It's essential to note that given the macro uncertainties, our goal is to ensure optimal success in the long run for the consumer Internet segment. We believe it's crucial to pace ourselves and manage the business prudently according to the macro environment. Our ability to execute nimbly and adapt has contributed greatly to our success during the COVID period, and now we must shift our focus in a new direction while communicating this proactively to the market. This does not imply we believe the market is immediately deteriorating or facing significant negativity; rather, it's about ensuring the efficiency and overall health of the ecosystem while tightening our operations, a practice we initiated earlier this year and wish to continue. Our long-term outlook on the market remains positive, and we believe there are substantial growth opportunities in the consumer Internet segments where we hold leadership. We aim to position ourselves effectively to capture these opportunities. Currently, we maintain strong market leadership across various segments, and our historical results indicate that our market position relative to peers has strengthened. We have the necessary resources to manage our strategic shift effectively for the long term. As for the breakeven target for the Asia market after HQ costs, we still anticipate achieving this by next year without any changes to our expectations. We will continue to manage costs and work towards our targets over time. Pre-HQ costs, we were close to our targets as order losses were less than $0.01 in Asia. While HQ costs have continued to rise quarter-on-quarter, the pace of increase has slowed down, primarily due to R&D and service costs. The growth in R&D and service will align with our overall business growth. As we manage our growth, we are also focused on efficiency in our operations, and we expect to see continued positive progress.

Operator, Operator

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

Alicia Yap, Analyst

Hi, good evening, management. Thanks for taking my questions. I wanted to follow up on the e-commerce guidance suspension. So can management – I think because in the past few years, management have proven very diligent on providing good insight into your forecast. So I wonder if these challenges mainly on consumer is that the frequency of the spending or the ASP where the consumer become more cautious on spending on the big ticket items that affect some of this uncertainty in the forecast, or is it because of the spending willingness from the smaller merchants that you are seeing that create the difficulty on forecasting your revenue? So on – this is the first question on e-commerce. Very quickly on gaming. Just wondering without new games launched, what should we expect in terms of the Free Fire franchise to trend going forward? Would that be more stable, or would that be also potentially growing the paying ratio with the existing user base that can actually support the growth booking going forward? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you, Alicia. We want to clarify that the reason we are suspending our guidance is primarily due to our focus on managing the business effectively. At this stage, our goal is to prioritize efficiency improvements and ensure the long-term health and profitability of our platform rather than aiming for top-line growth as a target. We believe growth will naturally continue, even if it isn’t our primary focus right now. The current market conditions present challenges, including inflation, the reopening process, and difficult comparisons to last year's extraordinary growth, especially since Shopee achieved 10 quarters of triple-digit growth after going public, which is likely a historic achievement for any company. Our operations are in emerging markets with underdeveloped infrastructure, making it complex to grow in various markets. We have established a strong track record of executing growth, which has positioned us as a leader despite the challenges encountered across the industry. That said, we recognize that now is the time to adjust our direction, and we want to clearly communicate this change to the market and our stakeholders. Regarding Free Fire trends, our Q2 results in digital entertainment were largely influenced by Free Fire. We noticed some stabilization in active users compared to the previous quarter. However, we aren't making predictions about user trends or bookings, as these are difficult to forecast in the gaming sector. Inflation, the post-COVID reopening, and last year’s impressive Free Fire performance create tough comparisons which affect user engagement and consumption. It’s important to note that this impact is more industry-wide rather than specific to Free Fire, which has maintained its leading position in global downloads and growth in key markets like Southeast Asia and LATAM. Other games in our portfolio, such as Arena of Valor, have shown stable or even improved performance in some quarters. This suggests that despite challenges, we may not necessarily face a continuous downward trend, as our performance will also depend on our efforts in managing these games. We have focused on enhancing esports activities, introducing new content, and creating more engaging packages for users in the past quarter. The trends we’re witnessing are influenced by a challenging environment, but we continue to make considerable efforts. We view our games as crucial long-term franchises, and we believe that online virtual consumption will become increasingly significant for younger generations, guiding our long-term strategy.

Operator, Operator

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

Piyush Choudhary, Analyst

Yeah. Hi. Good evening to the management. Thanks a lot for the opportunity. Two questions. Firstly, can you talk a little bit about the outlook for the e-commerce industry GMV growth in your core markets in 2022 and 2023? Which markets are proving more resilient and which are showing signs of early weakness? Secondly, could you give us a breakup of gross orders and grab revenue in Brazil? And what is the likely cost savings with your recent initiatives taken? Is it already reflected in 2Q or yet to come? Thank you.

Yanjun Wang, Group Chief Corporate Officer

I believe that the growth of GMV in the industry is subject to ongoing research, and while it is likely to be slower, it greatly depends on how various industry players, including us and our competitors, handle this growth. In certain markets, such as Malaysia and Singapore, we've seen remarkable growth in the past years, but there's a noticeable slowdown now due to tougher comparisons and the transition from strict lockdowns. This tough comparison will persist this year. However, we observe that countries like Indonesia, the Philippines, and Vietnam are still experiencing relatively quicker growth. This is also influenced by the economic conditions people are facing, including monetary policies, interest rates, and government measures to manage inflation, such as price caps, coupons, and how they distribute subsidies. All of these factors can impact overall consumption growth and direct spending towards discretionary items versus necessities, as well as physical consumption compared to services, and online versus offline shopping. Overall, while the big picture indicates a slower growth compared to last year, the extent of that slowdown is uncertain. We hope to maintain some level of resilience, but from a management standpoint, we believe it is more prudent to remain cautious and prepare for potential negative developments rather than relying on positive market trends. Regarding Brazil, we have reported strong growth, and importantly, we are also working to improve our unit economics there. Everything is progressing well in Brazil. At the Group level, when we discuss our projections for the future, particularly for achieving EBITDA positivity after HQ cost allocations in the Asia market, we are considering any initiatives that are currently apparent, though we cannot predict the future with certainty.

Operator, Operator

The next question comes from Thomas Chong from Jefferies. Please go ahead.

Thomas Chong, Analyst

Hi, good evening. Thanks, management for taking my questions. I would like to ask about the digital entertainment side. In particular, how we should think about the new games in the pipeline. We understand that we have a different energy development. I just want to see how the progress is going? And should we expect any renewable titles to be released in the second half or 2023? And on that front, how we should think about the EBITDA margin for the digital entertainment business in coming quarters? Do we expect to invest in driving the retention and engagement of Free Fire users would continue in 2022 or 2023? Thank you.

Yanjun Wang, Group Chief Corporate Officer

In terms of the game pipeline, we have several projects underway including our self-developed titles, published titles, and invested titles that we might publish later this year. We will make announcements when they are officially launched. Our long-term goal is to diversify our portfolio, focusing on various genres and a mix of esports and casual games to reach a broader market, so our strategy remains consistent. From a financial standpoint, we don't anticipate anything with a significant immediate impact on Free Fire in the near future, as it remains the largest mobile title globally. Initially, our focus for any new game will be on user engagement, building momentum, and expanding the user base before we turn our attention to monetization. In fact, it took Free Fire a considerable amount of time, more than a year, to fully ramp up monetization and reach its potential. Regarding EBITDA margins for digital entertainment in the upcoming quarters, we expect our margin to stay high at over 45%. However, there may be fluctuations quarter-to-quarter due to factors like eSports events and new game launches. For instance, our second quarter included the World Series competition for Free Fire, which can affect margins, and any new game launches will require sales and marketing investments to build momentum according to their release timing. Overall, despite potential fluctuations, we remain confident that our EBITDA margins will continue to be on the higher end compared to industry standards.

Operator, Operator

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

Jiong Shao, Analyst

Thank you very much for taking my questions. I have two questions. I'd like to ask one at a time, if that's okay? As a company focuses on monetization, efficiency cost control, any comments on your take rate expectation? I think in the past you talked about increasing take rate about roughly 200 basis points this year. Should that still be our expectation or your expectation? Any comments would be super, super helpful. That's my first question. Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thank you, Jiong. I don’t remember us providing any guidance on the take rate. Overall, I believe we expect the take rate to improve as we continue to enhance monetization through better services for our sellers and consumers and by expanding the ecosystem as a whole.

Jiong Shao, Analyst

Okay. So my apologies, I think maybe what I remember, was I think you might have talked about, the increase in take rate this year is going to be similar to the increase in take rate last year which was roughly 170, 200 basis points, if I'm not mistaken. But maybe another way to just follow-up on this is, is there any change in your expectation for your take rate? Since now you sort of suspended the revenue guide? Is there any change in your expectation of the monetization, specifically regarding to the take rate?

Yanjun Wang, Group Chief Corporate Officer

I think, Jiong, there can be many factors affecting the take rate. We won't be providing any specific guidance on the take rate. But suffice to say that, there will be gradual increase overtime. We don't set a specific target take rate for any particular year. And when the take rate rises, it can also be based on different income streams in terms of transaction-based fees and these are more like the take rate that we set. But on the other hand, there are also take rates that the sellers adopt because, for example, we offer opt-in programs for sellers who joined these programs, paid a higher take rate in getting more services and offerings in return. And this will also increase our take rate. But it is not something that is directly set by us, but it's more based on the seller adoption. There's also advertisement. Again, that is something based on adoption. Then there's also VAS and VAS take rates in a way also depends on how we manage logistics and there are also accounting-related changes that might affect the take rate. So there are many different factors that affect it. But I think overall we continue to focus on the unit economic improvement and overall platform ecosystem growth of our platform.

Operator, Operator

Our next question comes from Ranjan Sharma from JPMorgan, Singapore. Please go ahead.

Ranjan Sharma, Analyst

Hi. Good evening and thank you for the presentation. Two questions from my side. Firstly, on the gaming guidance, I guess there’s no changes if you can confirm that? Secondly, on your ad revenues, if you can please give more color on how fast they're growing? And if I look at it from a percentage of GMV perspective where are we? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Thanks, Ranjan. In terms of game guidance, no change to it. And in terms of ad revenue, we don't break that down, but there is also a gradual upward trend on that front. And that also part of the reason that combined with rising transaction-based fees that we see continual increase in our high-margin revenue and improvement on our margins overall for Shopee.

Operator, Operator

The next question comes from John Choi from Daiwa. Please, go ahead.

John Choi, Analyst

Thank you for taking my question. My question is on your strategy to shift more on efficiency improvement. Management kind of elaborate what are the few intangible examples that you could give us, how you're going to really try to improve the efficiency on the margins. Is it going to be more by aggressive cutting or less spending in some of the strict areas? And a quick follow-up is on the Brazil strategy. I know that we are growing very nicely here. How are you going to balance the growth opportunities and investments versus your new fit strategy going forward? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Yes. Thanks, John. In terms of the efficiency rate, I think it’s not as simple as we just cut. It is important to want to focus on the overall efficiency of the ecosystem. For example, as we all know, logistics is a big part of the ecosystem cost. And whether it's borne by the sellers, by the buyers, or by the platform like us, it is one of the biggest cost components. And there are many ways to continue to improve it. For example, we work even more closely with our 3PL partners and other agents and service providers to better route the delivery and better plan and delivery and also increase the density of delivery. There are many ways to improve the overall ecosystem efficiency. And on the payment front, for example, we continue to improve adoption of our e-wallet and also increased other online payment adoption over time, and that can also lower the payment cost and reduce the transaction friction. So there are many things that we focus on the ecosystem side that we want to make sure they can be more efficient. And also, in terms of the other cost management that we continue to review various cost components to see if there can be savings made during this process. And I think it's actually a very good exercise. Now, as we shared, we see this business as running a marathon. And during this time, I think it's good to tighten our shoelace, get water, develop, and also then that prepare us to run faster down the road. And in terms of growth in Brazil, in terms of balancing growth and efficiency, I think the big picture is still doing the right thing at the right time at the right place. And for Brazil we look at what is potentially natural or reasonable growth rates for us and what is efficient for us. So, we've always emphasized efficiency in any growth region and increasingly given the macro trends we will probably further focus on that and emphasize on that. And again, as I said, we're going to see growth rates as more output during this period of time and more focus on efficiency and that can allow us to eventually build a stronger and more profitable platform there long term.

Operator, Operator

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

Varun Ahuja, Analyst

Thank you for the opportunity. I have three questions. First, regarding e-commerce, I'd like clarification on the change in strategy you mentioned. Is the suspension of guidance applicable to this year or next year? Do you anticipate returning to providing guidance for the segment? Additionally, will you alter the internal metrics you track, such as revenue growth or EBITDA, when you do provide guidance? Any insights on this would be appreciated. Second, on the fintech front, could you update us on how the digital bank initiatives are progressing in different countries? Looking at the balance sheet, you have around $2 billion in loan receivables. How many more loans are being provided in collaboration with the digital banks? Any information you can share would be helpful. Lastly, could you provide more detail on the goodwill impairment? Which segment of this investment does it pertain to—e-commerce, logistics, or gaming? How much of that investment is still reflected on the balance sheet? Thank you.

Yanjun Wang, Group Chief Corporate Officer

Yeah. Thank you, Varun. In terms of the guidance suspension, we are expanding the guidance for this year. No decision has been made with anything regarding future guidance. And in terms of the digital bank initiatives, we continue to, as I shared before, we continue to focus on quality as opposed to growth for our bank initiatives. And it's going to be a very long-term effort and also the bank is we're very much aware trust and reliability and integrity-driven business, and it's very important to build a robust system for it. So we're not focused on driving growth on that front. And the same with our credit business, where we continue to build our models and provide needed services to our consumers in various markets and collaborating with third-party financial institutions in doing so. Again, we're not driving growth in that area. We're looking more for how to build a robust model that can withstand cycles and can be a long-term sustainable business model for us. In terms of the goodwill impairment, these are related to various past investments, not any specific segment focus. But as you know, given the macro environment and the movements in the market of – in company valuations and stock prices, we also think it's prudent for us to proactively manage and review our portfolio that we hold on the book to assess the goodwill impairments needed. So far I think we – if you look at our balance sheet, there's still around like $400 million. And of course, we – at this stage, we don't currently expect all of this needs to be written off. But on the other hand, we will continue to assess over the period.

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. Thank you.

Operator, Operator

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