Sea (Minutes): Investing for Long-term Profit Growth
The following is organized by Dolphin Research$Sea(SE.US) FY25Q3 Earnings Call Minutes. For earnings interpretation, please refer to "SEA: The Unchanged Answer Sheet Can't Compete with the Market's 'Changed Heart' "
I. Review of Core Financial Data
Performance Overview: The company's total revenue for the third quarter of 2025 was $6 billion, a year-on-year increase of 38%. All three major business segments performed strongly: the GMV of the e-commerce platform Shopee increased by 28% year-on-year; digital financial services revenue grew by 61% year-on-year, with loan balances increasing by 70% year-on-year to $7.9 billion; digital entertainment business booking revenue grew by 51% year-on-year.
Adjusted EBITDA reached $874 million, a year-on-year increase of 68%; the group's net profit significantly increased to $375 million.
II. Detailed Information from the Earnings Call
2.1 Key Information from Senior Management Statements
Strategic Focus and Outlook: The group continues to drive high-speed growth in the three major business segments of e-commerce, digital finance, and digital entertainment. E-commerce and digital finance have low but rising penetration rates in target markets, laying the foundation for maximizing long-term profitability. Senior management is pleased with the continued achievement of profitable growth and is determined to continue on this path.
1. E-commerce Segment:
Logistics Capability: Enhancing delivery efficiency through customized ground strategies, such as launching same-day delivery and flash sale services in Indonesia (order volume in Greater Jakarta area increased by over 35% year-on-year), introducing economical delivery solutions in rural areas (order volume increased by over 45% year-on-year), and expanding the self-pickup network in Taiwan (handling over 70% of delivery tasks, reducing costs by more than 30%). Logistics capability is the cornerstone of Shopee's strong growth, and future focus will be on enhancing fulfillment capabilities to optimize end-to-end logistics.
User Engagement: The subscription-based shopping VIP membership program has grown significantly in Indonesia, Thailand, and Vietnam, with core membership exceeding 3.5 million, an increase of over 75% from the previous quarter; Indonesian VIP member spending increased by about 40%, with purchase frequency three times that of non-members. The content ecosystem deepens, with cooperation with YouTube driving over 30% quarter-on-quarter order growth in Southeast Asia and expanding to Brazil; collaboration with Meta introduces new tools to enhance product promotion and checkout experience.
AI Application: Enhancing the shopping experience through intelligent search, recommendations, and personalized content, with purchase conversion rates increasing by 10% year-on-year; providing sellers with AI tools to generate images, videos, etc., to boost buyer engagement; monthly active buyers increased by 15% year-on-year, with purchase frequency up by 12% year-on-year.
The Brazilian market performed outstandingly: GMV growth exceeded the market average, with ShopeeMall's GMV more than doubling year-on-year; delivery speed improved, with average delivery time shortened by about 2 days.
Guidance: Based on year-to-date performance, Shopee's full-year GMV growth is expected to exceed 25%.
2. Digital Financial Segment
Growth is driven by user base expansion and product synergy across multiple markets, with SPayLater growing by over 300% year-on-year and more than 40% quarter-on-quarter; adding over 5 million first-time borrowing users, with active users reaching 34 million, a year-on-year increase of nearly 45%. Personal cash loans grew strongly in Indonesia, Thailand, Malaysia, and Brazil, with the Brazilian market growing nearly 50% quarter-on-quarter.
Risk control remains robust, with the non-performing loan rate stable at 1.1%; priority is given to ensuring credit quality, with new user loan disbursements accounting for less than 10% of total lending.
Expanding Application Scenarios: SPayLater has become a trusted payment method online and offline, with GMV penetration exceeding 30% in mature markets; the standalone Shopee Pay app has been launched in Indonesia, Thailand, Vietnam, and Malaysia, covering payment, credit, insurance, and other services, with over 20% of monthly active transaction users using the standalone app.
Outlook: SPayLater accounts for less than 10% of the total loan portfolio, with significant growth potential; efforts will continue to push services beyond the e-commerce scenario, laying the foundation for overseas growth.
3. Digital Entertainment Business Progress and Outlook:
Garena achieved its best quarterly performance since 2021, driven by high-impact marketing activities such as "Squid Game" and "Naruto Shippuden." The "Squid Game" event had high participation, with the "Red Light, Green Light" challenge played over 300 million times; the "Naruto" event enhanced user immersion by recreating animation details, with the second chapter surpassing the first in user activity and revenue.
Core Strategy: Led by an internal fan team to ensure authenticity in IP cooperation; adopting a balanced approach of globalization and localization, hosting offline events in 8 markets, attracting tens of thousands of players.
Expanding Publishing Footprint: Collaborating with EA to launch "EA Sports FC Mobile," becoming the top downloaded mobile game in some markets.
Guidance: Garena is expected to achieve a booking growth of over 30% year-on-year in 2025; creative reserves, rigorous execution, and player connection will continue to drive growth.
2.2 Q&A Session
Q: Regarding the guidance for e-commerce business growth exceeding 25% in 2025, what are the driving factors and competitive landscape considerations? What does this mean for profit trends? How should we view the trend for 2026?
A: The growth guidance is based on the market momentum and competitive landscape observed so far this quarter. Regarding profit, although there may be quarterly fluctuations due to seasonality, investment cycles, or specific market initiatives, profit is expected to continue improving annually. We believe we can achieve the previously shared EBITDA margin of 2% to 3% and achieve year-on-year improvement.
Q: Despite the increase in commission rates, the e-commerce profit margin fell to 0.6% this quarter. Where are the main areas of investment (such as fulfillment capabilities mentioned)? What other investments are there? Are these investments more fixed or variable costs? What is the expected duration and scale of the investment cycle?
A: Investments are mainly focused on logistics capabilities, fulfillment capabilities, and deepening buyer engagement (such as the Shopee VIP program). These initiatives have shown good results, with buyer frequency increasing by 12% year-on-year and monthly active buyers up by 15% year-on-year. Most investments are not fixed costs, as we adopt a relatively asset-light model, with capital expenditures mainly for warehouse or sorting facility improvements. Buyer engagement and membership programs require some initial investment but are expected to become profitable projects over time.
Q: What is the strategy and framework for entering new markets, and what are the reasons behind closing some cross-border businesses in Latin America and re-entering Argentina? What milestones will be monitored before turning Argentina into a localized business? Is this part of the 2026 priorities?
A: We take a highly selective approach to any new geographic expansion. Many initiatives are in the early test market stage. We are exploring Argentina mainly to expand the capabilities built in Brazil, leveraging existing cross-border infrastructure and operational experience.
The goal is to capture operational synergies in adjacent regions, opening new channels for sellers with minimal additional investment. We will take the time to understand the market, and currently, we will not make significant investments. For Chile and Colombia, we have decided to gradually phase out their cross-border businesses to ensure resources are focused on key business priorities that align with the region's long-term strategy.
Latin America remains important to us, and we will continue to explore opportunities to serve consumers and businesses in the region. Brazil is the largest market in Latin America, where we already have a significant presence, while the markets of Argentina, Colombia, and Chile are relatively smaller and further from Brazil.
Q: Regarding market share, please comment on the market share changes in the ASEAN region in the third quarter? How do you view the Taiwan market, and will there be increased marketing spending and investment in Taiwan next year?
A: In the third quarter, our growth exceeded previous expectations. Across Southeast Asia, we believe market share is increasing, with growth outpacing the market level in the region. For the Taiwan market, cross-border business has always accounted for a small proportion due to the complexity of the buyer experience, so we are not too concerned about the impact of overseas cross-border players on the business.
In recent quarters, we have seen very good growth in Taiwan, achieving double-digit growth, outpacing the overall market in Taiwan. We are confident because we are the largest e-commerce platform locally, with the most diverse product range, the most competitive pricing, and the best delivery infrastructure, with transportation and fulfillment costs far lower than any other market participant. We can defend market share and achieve faster growth in Taiwan on a better foundation than in previous years.
Q: How is the overall competitive landscape in Southeast Asia? Are there any countries where competition is intensifying or peers growing faster than Shopee? Will live e-commerce peers shift to a shelf model, and what potential threat does this pose to Shopee?
A: The competitive landscape is relatively stable, with no significant differences observed in specific markets, and the intensity of competition and competitor behavior trends are generally consistent across the Southeast Asian market. Regarding live e-commerce peers shifting to a shelf model, this is not a new phenomenon, and their platform nature is different from ours. The proportion of shelf e-commerce is relatively stable, and even if more traffic shifts, it may affect overall app behavior and user retention, but it will not have a substantial impact on the competitive landscape.
Q: Is this investment cycle similar to two years ago, where there was significant upfront investment, and GMV and market share growth were only realized later? Especially in terms of fulfillment capability building.
A: This investment cycle is very different from two years ago. Current investments are aimed at continuously enhancing competitiveness, such as strengthening logistics and fulfillment networks, which is consistent with the direction we share each quarter. These investments are not entirely new capabilities but extensions that have been built for some time and are now being scaled appropriately. The investments are not capital-intensive, and as the business grows, they will help reduce the cost of serving the entire ecosystem, shorten delivery times, and drive growth. For example, the VIP program, although it requires early investment, increases consumption once users join, bringing returns. This is a continuous competitive investment that will simultaneously promote growth.
Q: What is the current proportion of orders fulfilled by SPX logistics in Asia and Brazil? What changes have occurred over the past year? What is the impact of logistics investment on service costs and future outlook?
A: More than half of the orders are delivered through SPX, and this proportion has continued to increase over the past year as the network expands. The cost per order has continuously improved year-on-year, which helps growth by reducing the cost for buyers to receive goods. Moreover, we have improved SPX's delivery speed. In Brazil, the average delivery time has been shortened by 2 days year-on-year; in Asia, by launching express delivery and enhancing regular channels, delivery times have also achieved significant year-on-year and quarter-on-quarter reductions. These have all contributed to our growth.
Q: After a successful 2025, what is the outlook for "Free Fire" in 2026? Are there any new IP collaborations or new game release plans?
A: We are excited about the current momentum, having achieved very high growth in 2024 after overcoming post-pandemic challenges and achieving a turnaround for two years, and this strong momentum has continued into 2025, with growth accelerating compared to last year.
We remain optimistic about 2026, believing that the user base will continue to grow, and content supply and user experience will become more immersive. We have successfully unlocked the important capability of collaborating with global IPs to provide unique experiences to a large user base and will continue to selectively seek more IP collaborations.
AI is expected to boost future growth in creativity, production, and user experience. We are currently formulating detailed plans for next year and expect to be better prepared to share specific outlooks for 2026 with the market next quarter.
We always have new games in the pipeline, with dedicated teams developing them, and several games are in the pipeline or in the testing phase in some markets. However, given the scale of "Free Fire" in terms of users and revenue, any early-stage new games are not expected to have a significant financial impact. We will continue to invest and explore opportunities in different categories and markets through new game development, preparing for future growth, and synchronizing with shareholders and investors at the appropriate time.
Q: What is the unit economic benefit of the VIP membership program? What is the expected final membership penetration rate in the region? Is the quarterly decline in e-commerce gross margin related to this? What is the time frame for the membership program to break even?
A: The VIP program is still in the early promotion stage, having been launched for only a few months, but user registration growth is very good, with quarterly membership growth reaching 75%. In terms of GMV penetration rate, we are in the early stages and believe we can reach high penetration levels similar to other regions worldwide.
The core economic benefit we focus on is ensuring that members, as core paying users, can obtain better benefits while creating value with partners. Early on, some investment is indeed needed to attract users. We closely monitor retention rates, and retention rates in early markets have nearly doubled from the previous quarter, which is a significant breakthrough. We are ensuring retention through various means, including synergy with the digital financial business SPayLater.
Q: Regarding AI, some investors are concerned about potential large-scale capital expenditures. What are the company's specific plans for AI?
A: We are excited about AI, a new technology representing a fundamental technological revolution that will unleash tremendous value for people worldwide. However, we will not do what large tech companies do, will not attempt breakthroughs in foundational large language models, nor will we build data centers. We respect this and are happy to collaborate with major tech companies.
We will focus more on the application layer, dedicated to turning these technologies into everyday value for consumers and small businesses in Indonesia, Vietnam, Brazil, and other places, which is our expertise. We adopt a bottom-up market approach, focusing on seeing immediate returns and results.
We have already seen key applications in Shopee, such as improving ad conversion, making product discovery more convenient (beyond traditional search), helping sellers improve product listing quality, increasing retention and conversion rates, and customer service capabilities (currently, most customer service is handled by AI chatbots, with high satisfaction). We believe that as AI capabilities continue to advance, more applications can be integrated into daily business, positively impacting people's lives.
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