Sea Limited (SE) Q1 2024 Earnings Call Transcript

Sea Limited (SE 2.79%)
Q1 2024 Earnings Call
May 14, 2024, 7:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and good evening to all and welcome to the Sea Limited first quarter 2024 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator instructions] And finally, I would like to advise all participants that this call is being recorded.

Thank you. I’d now like to welcome Mr. MC Koh to begin the conference. Please go ahead.

MC Koh — Investor Relations Director

Hello, everyone, and welcome to Sea’s 2024 first quarter earnings conference call. I am MC, Sea’s investor relations director. On this call, we may make forward-looking statements, which are inherently subject to risks and uncertainties and may not be realized in the future for various reasons, as stated in our press release. Also, this call includes a discussion of certain non-GAAP financial measures such as adjusted EBITDA.

We believe these measures can enhance our investors’ understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For a discussion of the use of non-GAAP financial measures and reconciliation with the closest GAAP measures, please refer to the section on non-GAAP financial measures in our press release. I have with me Sea’s chairman and chief executive officer, Forrest Li; president, Chris Feng; and chief financial officer, Tony Hou. Our management will share strategy and business updates, operating highlights, and financial performance for the first quarter of 2024.

This will be followed by a Q&A session, in which we welcome any questions you have. With that, let me turn the call over to Forrest.

Forrest Li — Chairman and Chief Executive Officer

Hello, everyone, and thank you for joining today’s call. I’m pleased to share that we are kicking off 2024 with a strong quarter. All our three businesses have delivered solid growth with an improved profit profile. The macro environment in the past few years has been challenging.

Many of you have been with us through this journey. Going through this period has made us leaner, fitter, and savvier. While we will always face new challenges, we are now much more confident of our ability to weather headwinds well and adapt quickly to changing environment. With that, let me take you through each business’ performance.

Starting with e-commerce. We are pleased to report that Shopee delivered strong growth this quarter, achieving its highest-ever quarterly orders, GMV, and revenue. In the first quarter, on a year-on-year basis, gross orders was up 57%, GMV was up 36%, and revenue was up 33%. Unit economics has also improved.

Our overall adjusted EBITDA loss narrowed to $22 million and our Asia market achieved a positive adjusted EBITDA of $11 million this quarter. Shopee’s operational priorities for 2024 continue to be enhancing our price competitiveness, strengthening our content ecosystem, and improving service quality for our buyers. We are making good progress on all these fronts. On enhancing our price competitiveness, we continue to help sellers with upstream supply chain access to sell more easily on Shopee.

On strengthening our content ecosystem, Shopee has become the largest livestreaming e-commerce platform in Indonesia based on average daily livestreaming orders in the first quarter. Livestreaming e-commerce unit economics also continued to improve quarter on quarter. On improving service quality for buyers, our integrated logistics capability has become a key differentiating factor of our service quality. We have put a lot of hard work into SPX Express.

And today, it is one of the fastest and the most extensive logistics operators in our market, greatly enhancing our customer experience. In the first quarter, about 70% of SPX Express orders in Asia were delivered within three days of order placement. And because of the scale we have achieved in our market, we have managed to steadily reduce its cost. SPX Express’ cost per order decreased by 15% for Asia and 23% for Brazil year on year in the first quarter.

Having SPX Express in the Shopee ecosystem also allows us to efficiently roll out new features that benefit our buyers such as the On Time Guarantee program that we launched in Southeast Asia. This program provides a guaranteed delivery time for orders, and this certainty is well appreciated by our buyers. Another initiative we implemented is having Shopee directly manage the return and refund process. This has resulted in a 30% year-on-year decrease in resolution time.

In the first quarter, about 45% of cases were resolved within one day. So, taken together, these efforts increase operational efficiency, improve customer experience, and reinforce Shopee’s reputation as a reliable shopping destination. We will continue to push more on these operational priorities in the coming quarter and year. We expect these efforts to further differentiate Shopee from its competition and bring greater value to both our buyers and sellers.

Next, turning to digital financial services. We are pleased to report that SeaMoney has continued its strong growth momentum and profitability into 2024 while maintaining prudent risk management. Our efforts on user acquisition have produced significant growth in both user numbers and the loan book size. In the first quarter, our digital financial services revenue grew 21% and adjusted EBITDA grew 50% year on year.

Consumer and SME loans active users, defined as those with loans outstanding by the end of the quarter, increased 42% year on year to more than 18 million this quarter. As of March 31, 2024, our consumer and SME loans principal outstanding reached $3.3 billion, up 29% year on year and up 5% quarter on quarter. Credit business is currently the primary driver of SeaMoney’s revenue and profit growth. Our credit business benefits from Shopee’s transaction volume and the user base.

In addition, we are also seeing strong growth in off-Shopee loans, which include cash loans and off-Shopee SPayLater consumption loans. By the end of the first quarter, off-Shopee loans accounted for over 40% of our total consumer and SME loans outstanding. Going forward, we see further upside to improve our off-Shopee penetration across different markets as we continue to grow. As we scale up our credit business, we continue to maintain a prudent approach to risk management.

We generally begin by granting low credit limit, short-tenure loans to users to build their credit history. For users with good track records, we gradually increase the credit limit, loan tenure, and credit product offering. As we gain more users and more data, we continuously fine-tune the risk model for each market. This allows us to grow our business while maintaining good risk control.

Nonperforming loans past due by more than 90 days as a percentage of total consumer and SME loans remained stable at 1.4%. We anticipate further growth for our digital financial services business throughout the year. As we healthily grow our user base, we will be able to offer a broader set of financial services to meet our users’ needs in the future. Finally, turning to our digital entertainment business.

We are pleased to share that Garena is back to positive growth, with bookings up 11% year on year. This was led by Free Fire’s strong performance across market. In the first quarter, Free Fire’s average MAU increased 24% year on year. Our operational priorities for Free Fire will remain consistent in 2024: improving user acquisition, engagement, and retention.

We continue to introduce play modes, redesign features, and launch new content at a high — all at a high frequency, allowing Free Fire to sustain high player engagement with its huge user base. In January, we launched Chaos, a major version update allowing players to vote for key events in the game setting. This interactive feature has made Chaos highly successful. And in April, we launched the Mechadrake version update, allowing players to team up to combat a mechanical monster, in addition to the usual PvP gameplay.

Our constant efforts to understand users’ needs, address key issues from a product perspective, and frequently introduce fresh and exciting content are paying off. In its seventh year, Free Fire is still one of the largest mobile games in the world by user scale and remains highly effective in attracting new users. According to Sensor Tower, Free Fire was the most downloaded mobile game globally in the first quarter. Given this track record of being able to sustain and grow Free Fire’s massive global user base, we are confident of building Free Fire into an evergreen franchise.

To conclude, we have a clear road map for profitable growth. Our results in the first quarter have given us a strong start to 2024, and we are well on track to deliver our full year guidance. With that, I will invite Tony to discuss our financials.

Tony Hou — Chief Financial Officer

Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 23% year on year to $3.7 billion. This was primarily driven by GMV growth of our e-commerce business and the growth of our credit business. Our total adjusted EBITDA was $401 million in the first quarter of 2024, compared to an adjusted EBITDA of $507 million in the first quarter of 2023.

On e-commerce, our first quarter GAAP revenue of $2.7 billion included GAAP marketplace revenue of $2.4 billion, up 33% year on year, and GAAP product revenue of $0.3 billion. Within GAAP marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues, was $1.7 billion, up 47% year on year. Value-added services revenue, mainly consisting of revenues related to logistics services, was $0.7 billion, up 8% year on year. E-commerce adjusted EBITDA loss was $22 million in the first quarter of 2024, compared to an adjusted EBITDA of $208 million in the first quarter of 2023.

For our Asia markets, we had an adjusted EBITDA of $11 million during the quarter, compared to an adjusted EBITDA of $276 million in the first quarter of 2023. In our other markets, the adjusted EBITDA loss was $33 million, narrowing meaningfully from last year, when losses were $68 million. Contribution margin loss per order in Brazil improved by nearly 88% year on year to reach negative $0.04. Digital financial services GAAP revenue was up by 21% year on year to $499 million.

Adjusted EBITDA was up by 50% year on year to $149 million. Digital entertainment bookings were $512 million. GAAP revenue was $458 million. Adjusted EBITDA was $292 million.

Returning to our consolidated numbers, we recognized a net nonoperating loss of $18 million in the first quarter of 2024, compared to a net nonoperating income of $23 million in the first quarter of 2023. We had a net income tax expense of $79 million in the first quarter of 2024, compared to net income tax expense of $62 million in the first quarter of 2023. As a result, net loss was $23 million in the first quarter of 2024, as compared to net income of $87 million in the first quarter of 2023.

MC Koh — Investor Relations Director

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

Questions & Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions]The first question comes from the line of Pang Vitt of Goldman Sachs. Please go ahead.

Pang Vittayaamnuaykoon — Goldman Sachs — Analyst

Hi. Good morning — good evening, management team, and congratulations on a solid set of results. Two questions from me. Number one, how do you derive confidence that you will be able to drive sustainable growth, especially once you start to lower those subsidies and move toward profitability? If your competitor decides to turn more aggressive, is there a way for you to properly react toward that? That’s question number one.

On number two, on gaming, given a very strong first quarter trends and results, how are you seeing trends toward second quarter and rest of the year? Can you provide color on what exactly you have done in order to derive growth and any thoughts on the run rate of margin going forward as well?

Chris Feng — President

It’s Chris here. I will take the first question on the e-commerce side. I think, for us, the most important thing is to work on the long-term competitive moat for e-commerce. I think, to us, as I shared in the previous call, is number one, the cost to serve, to make sure that we can serve the transactions to our buyer and sellers in a lower cost.

Number two is the price competitiveness of the product, to make sure that the price for the same product on our platform is always better than the other platforms. To do that, we have to work closely with the sellers, especially upper the value chains, to ensure that we can offer the lower price to the buyers always. Number three is the quality of services. As far as I mentioned quite a few times that this is one of the key areas we’re focusing on to improve, not only the delivery services to our consumers, but also the return services and the customer service experiences, etc.

I think all the three things will contribute to our long-term competitiveness for our e-commerce businesses. As long as we can do this well, we believe that we can deliver better value to our buyers and sellers so we can grow better than the market that we operate in. At the same time, if you look at, you know, in the past few months, we do observe the overall market is in a stable — more stable situation in regarding to the competition point that you mentioned. And if the competitor does get more aggressive, I think we have to evaluate exactly, you know, what they did and how they did it.

We will look at market by market, category by category to evaluate what’s the best response we have. But all in all, in the long term, it’s the three things I mentioned earlier. The long-term competitive moat will create value for our market to our consumers and our sellers. And we do believe that as long as we do well on that, we should be able to grow well, regardless of what the competitor does in the short term.

I think that will, you know, bring us to a better position in the market over the years. Of course, there might be fluctuation in the short term, up and down, but it shouldn’t change the long-term picture.

Forrest Li — Chairman and Chief Executive Officer

On the gaming side, we are very — we’re, like, very happy to see what we have achieved in the Q1, right? And it’s a pretty strong result and the strong trend, and we see this trend continued in Q2 so far. And in general, we are pretty optimistic about the rest of the year, I think as we shared in the last quarter, right, and we expected we’re going to achieve, specific for Free Fire, the double-digit growth, right, for the whole year. And I think, like, the current — the growth and the trend is pretty much kind of a reflection of what — not just what we have done in the past quarter, and it’s — actually, it’s reflected what we have done in the past two years, right? And we have gone through some challenges and faced some tremendous headwind, especially after COVID, right? And the — but I think, like, we always believe, OK, the ambition and our aspiration is building Free Fire into an evergreen franchise. So, with that kind of fundamental belief and we didn’t kind of like rush to monetizing the game way may kind of continually go down till it’s completely gone.

And we very, very much focus on like all the user experience and try to fine-tune the product and to — and with a very, very much user-centric approach, right? And in the past two years, we have been conducted a lot of study, trip, right, and the surveys, right, and then go to talk to the gamers, ask them what they like and what they don’t like about the — about Free Fire, why they play and why they do not play. And the tremendous development effort is also spent on continually fine-tune the game based on the feedback we received. I think that that is a kind of what we have seen now is accumulated result through those — through this effort. And another factor I want to mention is we kind of observed the whole market have gone through the post-COVID situation now after like almost two years of — for that period, and we seen kind of like gamers kind of focus on the gameplay.

As we shared before, like during the COVID time, like gamers play a lot of game, right, and there’s not much other options for entertainment, and they kind of feel burned out. And that’s why, so right after COVID, and there, we see, there is a tremendous kind of like trends, right, and then the gamers start to focus on other entertainment. And — but after another two years, I think, like, now, the whole gamer community globally, we see kind of that trend start coming back and the gamers start kind of reenjoying, right, the gameplay, specifically for Free Fire. And this is a trend, it’s not just happen specific on a single market.

And actually, it’s happened across all the market, and we have the game operated. So, in summary, I think, like, based on what has happened in the market and what we have done for Free Fire is a pretty much a very, very good product market fit, right? And I think, like, we make the Free Fire as an ideal product for gamers at the right timing when they are kind of have a strong appetite for — to enjoy the gameplay. So, we will do all our best to continue this trend, right, and hopefully to continually to grow Free Fire, the user base, and the — and also the monetization part as well for the rest of the year.

Operator

Your next question comes from the line of Alicia Yap of Citigroup. Please go ahead.

Alicia Yap — Citi — Analyst

Hi. Can you hear me OK?

Forrest Li — Chairman and Chief Executive Officer

Yeah.

Alicia Yap — Citi — Analyst

Hello. Yeah. OK. Hi.

Good evening, management. Thanks for taking my questions. I have a question related to Shopee. Just wonder, were you willing to return to loss-making to defend your share if the competition is, indeed, getting more aggressive? What other levers can you further pull to allow you to defend your share while also maintain your profitability trend? And if we look at the commission take rate, excluding the advertising, how much more room can we actually still raise the commission take rate across different countries? Thank you.

Chris Feng — President

On the commission take rate, generally, we still see there is a meaningful room to increase the commission take rate, although probably not aggressive — not as aggressive as last year in term of increase. We also see that there’s meaningful room on the ad take rate that we can look at. I think I shared this in the previous call as well that we believe that our ad take rate is still sizably lower than the peers that we see in other markets. So, there is a meaningful room there.

And in term of the competition, I think similar to the previous question that’s been raised, the — for us, the most important thing to focus on the long-term core competitiveness, the cost to serve, the price competitiveness, the service experience, and all those things will bring us a long-term advantage for us to outcompete the competitor in the market. In the short term, you know, we have observed a more stable competition environment in the past few months. And if it changes, we will study it country by country, category by category, and evaluate what’s the best way to respond to that.

Operator

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

Navin Killa — UBS — Analyst

Hi. Good evening and thank you for the opportunity. I actually had a couple of questions. The first one was just trying to understand the strength in the GMV for e-commerce.

How much of that is attributable to seasonality given the movement that we have seen around [Inaudible] this year? And therefore, I guess, in the context of that, I noticed that you haven’t changed your GMV guidance of high single-digit — sorry, high teens growth. I’m just wondering how you think about that. And I guess the second question is, you know, on the logistics strategy, clearly, we are starting to see some results. If you could share some numbers on the percentage of orders that are delivered on your own platform and how do you see that number evolving in the medium to long term?

Tony Hou — Chief Financial Officer

For the GMVs, as far as shared in the opening, in Q1, we did see a very strong GMV growth, and part of that is contributing by the seasonality as, this year, we have both Lunar New Year and also the Ramadan falls into Q1 and the Ramadan holiday falls into Q2 versus the different patterns in the past few years. But we don’t think that’s the only reason. I think that’s contributing part of the reasons. Another part of reason is that all the execution work we’ve done in the past few quarters start to give us benefit in term of the top-line growth.

And also, the bottom-line improvement, in fact, is coming ahead actually. The exact split, it’s probably hard to really split that — the — for — in term of the both. But I do, you know, emphasize on that. It’s not only the seasonality, but also the hard work we’ve been doing are giving us the benefit on both the top line and bottom line.

For the logistics, the — in Asia, the — we do deliver more than half of our orders through our own SPX Express. In Brazil, we probably have more than 70% now, and we will be looking at increasing the percentage over time. I think both percentage will increase over time.

Operator

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

Divya Kothiyal — Morgan Stanley — Analyst

Thank you very much. Good evening. My first question is on the e-commerce business. Could you talk about the drivers for the 23% quarter-on-quarter reduction that we’ve seen in sales and marketing expense for this segment, especially with regards to where we are in terms of unit economics for livestreaming e-commerce versus marketplace.

And also, if you can comment in which scenario do you think we can get back to the profitability levels of over 1% of GMV that we were able to achieve in the beginning of last year? My second question is on the DFS business. The marketing spends have remained elevated in this quarter. Could you talk about what parts of SeaMoney are these being allocated to and what kind of traction you’re seeing? And would it be fair to say that the — this segment’s top-line growth may actually deviate from the e-commerce growth going forward as you build new cases? Thanks.

Tony Hou — Chief Financial Officer

Yes. On the e-commerce side of the questions, we do see a sizable reduction on the sales and marketing. The — part of that is contributing that — contributed by the better UEs from livestream that we see from, you know, Q4 to Q1. But part of that is also contributed to just general better performance in the marketplace in general.

So, for livestreaming, just a little bit context on that, I think we do see our livestream volumes still growing in most of our markets, but the UE actually increased — improved significantly for various other market. And in generally — in general, I think, in the coming quarters, we will see similar patterns that our UE will continue to improve for livestream. The — in term of the EBITDA per GMV, I think we will eventually go, you know, to that. I think the number you mentioned, the 1%, I think that’s a reasonable number to look at.

And in the long term, I think we shared that we believe that 2% to 3% is a meaningful number to look at. I think just to add a little bit on the previous question that I — make sure I don’t miss that. I think the question was on the guidance for the high teen growth on the GMV for e-commerce. I think the number we see in Q1 has given us much stronger confidence in terms of, you know, achieving that, both the high single-digit GMV growth and the breakeven in the second half of the year.

And we have been seeing, you know, a good trend in the latest months as well. I think we will monitor the numbers. We will update the market when we see the — see through the quarter. I think there are many factors impacting the numbers.

Part of that is just seasonality. Part of that is also in term of the forex of the U.S. exchange rate, etc. But, you know, I think we will update the market when we see more numbers.

Regarding the DFS, for the DFS, we do believe that still a large part of the DFS contributed by the credit businesses, I think, as we shared in the opening. If you look at the credit businesses, at this point in time, still a sizable part of that is contributed by the Shopee PayLater, which is growing together with the Shopee. But although, we do see the better penetration over time within Shopee for Shopeep PayLater. Besides Shopee PayLater, there’s also many other use cases like the buy cash loan, we call it BCL, which is not part of the Shopee payment system.

You know, it’s a cash loan you can take out to spend in any other places. And also, we are increasing the use cases in other scenarios, for example, the offline Shopee PayLater, you can — for example, in Indonesia, you can scan a QR code and using Shopee Pay to scan a QR code and pay that with SPL, similar to a credit card experience. We also have handphone loans in Indonesia as well, expanding to other markets. I think all those use cases will expand our digital financial businesses beyond the Shopee ecosystem.

In term of the sales and marketing, I think our businesses has a fairly good margin, as you can see from the EBITDA. At the same time, our business is still in a very early stage. The penetration of Shopee is still in the early stage. The cash loans is still in the early stage.

And many other use cases are still in the early stage. So, we see there’s a huge potential there to grow over time. And in some quarters, we do see — you know, there are good acquisition channels. In some quarters, we see a new product mix change because our new products coming out, etc.

So, that — there is intention to acquire more users to our digital financial service ecosystem given the very good unit economics we have seen so far. And the actual marketing spend depends a little bit on what we see on the customer acquisition cost and the UE we saw from the new users, plus the new product we’re launching in different markets. So, it will fluctuate a bit, just in practice.

Operator

Your next question comes from the line of Sachin Salgaonkar from Bank of America. Please go ahead.

Sachin Salgaonkar — Bank of America Merrill Lynch — Analyst

Hi. Congrats on a good set of numbers. I have two questions. First question is on Shopee EBITDA.

You already achieved EBITDA breakeven in Shopee for Southeast Asia. So, should we think this is sustainable going ahead and we could see improvement in EBITDA out here or there was some seasonality factor specifically in this quarter? Should we see some volatility in EBITDA or, directionally, it should continue to improve? And second question is on average revenue per user in the gaming business. We saw it being lower than the historical trend. So, I just wanted to check anything specific happened in the quarter or is this a new trend going ahead?

Tony Hou — Chief Financial Officer

Thank you. On the EBITDA side, it does contribute partially by the seasonality as well. Simply because, in most of our market, we are contribution margin positive, so we see a higher top line. It will help us on the EBITDA as well.

The — similar to the top line, we are observing the trend on how the market evolves. In — during the quarter, I think we are about one and a half months into the quarter, the — our guidance, you know, shared previously, we are pretty confident of achieving that. And whether there is any changes to that, I think we will share with the market. Yeah.

Forrest Li — Chairman and Chief Executive Officer

For the game, I think that is — it simply reflect we have a lot of new users to come to our game, like specifically for Free Fire, right? And even like Free Fire has been in its seventh year, but we see it very, very effectively attract the new users. That’s why we believe, like, the game can still go for very, very long time. And when, like, we have the new gamers, new players coming to the game. And in general, I think, like, they are kind of average spending is compared to the like a more kind of like experienced gamers or like who have played the game for longer time will be relatively low, right? And there is a — usually, like gamers will kind of play the game.

And the more they play, there will be better engagement. And then there’s a higher chance for the monetization. So, I think that’s — there’s nothing specifically about the — the monetization is a kind of just to reflect the fact that there’s a very, very strong user growth for the game in the Q1.

Operator

Your next question comes from the line of Piyush Choudhary from HSBC. Please go ahead.

Piyush Choudhary — HSBC — Analyst

Yeah. Hi. Good evening, management, and congratulations for a strong set of results. Two questions.

Firstly, again, going back to 2024 guidance, after such strong performance, why like choppy guidance of turning EBITDA positive in 2H has not been revised upwards? Do you expect volatility in the upcoming quarter? If you can comment on the competitive intensity in Indonesia and across ASEAN, you know, after merger of TikTok and Tokopedia. Like has there been an increase in competition and thus you’re keeping guidance unchanged? Any color over there will be helpful. That is first question. Secondly, in DFS, what — is it higher customer acquisition cost or even higher funding costs which has led to margin drop? And if you can talk a little bit about the outlook for the margins in DFS.

Thank you.

Tony Hou — Chief Financial Officer

On the competitions, we’ve seen the market has been relatively stable in terms of competitions. I — we didn’t see any signs of changes, to be honest. Of course, we cannot predict, you know, what’s the competitor are doing, but we didn’t see any particular signs of difference on competitions. On the guidance, again, I think the — we are very encouraged by the number we see in Q1.

We are pretty confident on achieving, you know, what we shared. But — and I think we are coming to one and a half months in Q2. I think the — we will look at the market bit more. I think the — you know, in the time, when we have better sense of the numbers, we will share with the market on how we look at the forward-looking guidance.

The — there’s no particular reason of that, you know, from competition or other reasons. Yeah. For the DFS questions, the margin fluctuations more coming from the customer — the acquisition costs rather than on the funding cost. In fact, our funding cost is actually getting better quarter on quarter.

The — again, the acquisition cost, a lot depending on what do we see from the market and how much we spend on current users basis — versus the value they will bring to us in long term. And also depends on the new product launches we have in various market.

Operator

Your next question comes from the line of Ranjan Sharma from J.P. Morgan. Please go ahead.

Ranjan Sharma — J.P. Morgan — Analyst

Hi. Good evening and thank you for the presentation. Two questions, please. Firstly, on the sales and marketing expense, it seems to have reduced to 2.9% of GMV for the e-commerce business.

Based on your comments on competition, should we expect — or are you seeing the same level of spend in the second quarter as well? And the second question is on the fintech side. If you can shed some color on how much of the loan book is coming from Brazil or whether that will be a focus for the lending business given the strategy of some of your competitors in the market. Thank you.

Tony Hou — Chief Financial Officer

Yeah. On the sales and marketing spend for e-commerce, we do see that is a reduction in Q1 by many different reasons. Part of that is due to the livestreaming that — you know, the big investment done in the last — in Q3 and Q4 last year start to give us the benefit, so we don’t need to spend so much. Part of that is general marketplace spending are optimized.

In the coming quarter, I believe that we’ll continue to optimize our sales and marketing spending. The — and we do believe that the general trend will come down. Although, honestly, if you look at month to month, there will be some fluctuations, even for accounting reasons or for forex reasons, etc. Yeah.

For the loan book, we do have a high expectation for Brazil. We do believe that Brazil can be a very good market for our digital financial service businesses, although we only started Brazil mid-last year, which gives us a very short period time to accumulate our loan book. So, right now, the Brazil loan book is still, let’s say, a relatively smaller share of our entire loan book businesses. I don’t think we disclose the country-by-country split for the loan book.

But yeah, but it’s a small part of it, and it can be a potential good growth driver in future.

Operator

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

Jiong Shao — Barclays — Analyst

Thank you for taking my questions. Congrats on the strong results. Two quick follow-ups on the e-commerce side. One is I was wondering, could you talk about linearity in your improvement in unit economics throughout the quarter? And related to that, the percentage of livestreaming in terms of the orders now.

And that’s — I think that’s the first question, which is why people are asking why Q2 is not a breakeven point for you. And then I had a follow-up question on the Shopee Express SPX business. You talked about over 50% of orders in Asia are done through Shopee Express and 70% in Brazil. Do you have like a target number for the percentage for orders fulfilled by Shopee Express? And the unit economics or contribution margin for the orders done through SPX, is that any different from your average, are they better or worse? Any information, color, or data point would be very, very appreciated.

Thank you.

Tony Hou — Chief Financial Officer

For our livestreaming, in term of the percentage of orders, it’s stable versus last quarter. I think we shared the percentage around 15% in Southeast Asia last quarter. I think it’s relatively stable, although the basket size increased during this quarter because we optimized some of the category mix and the UE. In term of the driver for the UE improvement, as I shared earlier, it’s both the livestreaming part of the improvement and general marketplace improvement.

Actually, on top of that, you know, things we talked about the logistic piece, we also see a better logistics cost improved over time, which, you know, drive down the cost as well fundamentally. In term of the percentage of the orders through our own logistics, I think each market might evolve slightly differently. So, we probably don’t have a fixed target for all the market. Although, we can say it’s largely in average.

I think we’ll see a bigger part of the share of logistics will go to our own SPX. The bit — it should be more than what we have right now. But we probably wouldn’t set a very, very specific target for all the market. In term of the unit economics for those orders, the — given that our cost per order for our own SPX is lower than the cost per order for 3PLs in the market, essentially for every order we deliver in-house, we will be able to save part of that cost, which essentially, you know, contributed part of the unit economics improvement that you see here.

I think the degree of the UE difference slightly varies market by market. The — but I think the trend is pretty stable across most of the market that we are able to improve this over time even further.

Operator

Your next question comes from the line of Pang Vitt from Goldman Sachs. Please go ahead.

Pang Vittayaamnuaykoon — Goldman Sachs — Analyst

Thank you very much and two follow-up questions from my side. Firstly, on the logistics for Shopee Express as well, you did share that you see greater unit economics for Shopee Express versus 3PL. Can you explain or walk us through a little bit on how you’ve done it differently and how are you able to achieve this better unit economics and efficiencies versus 3PL as well? That’s question number one. Question number two, earlier, you have mentioned that there is still room for advertisement take rate, especially versus global peers, for Shopee.

Can you share of the current ad take rate you’ve seen currently for Shopee and what’s the long-term target on what Shopee can achieve?

Tony Hou — Chief Financial Officer

Yes. On the logistics front, there a couple of reasons that drives better UE. I think number one is there is a margin actually that the 3PL takes. So, we retain that margin.

As simple as that. That’s number one. Even when you take that out, I think we’re still better for a few reasons. One is we are able to better plan our capex over a long period of time because we are able to forecast how is our businesses evolving, not only just the total volume, but, you know, the volume split in different regions, in different route, etc.

So, this helps us to optimize our capex and our operating models for a long period of time. That’s one. Second one is given that we have a good forecast, even in the short term, on our order volume upstream, for example, you know, in the next week, what our volume will be; or in the next day, what’s the volume will be, this will help us to do a lot of operational planning better, for example, how many workers you want to come in to work today versus tomorrow and how many trucks you want to prepare for pickups tomorrow or two days later. I think this will essentially help us to improve on the day-to-day operation efficiencies.

Number three is even beyond the planning, we are able to retool quite a lot of the buyer — or seller, sorry, seller behaviors to optimize for our logistics. For example, the way that we pick up from the sellers, when the seller should pack their product, whether the seller should drop off versus pick up, all those things, we can do quite a lot of influence on the upstream to optimize for the downstream fulfillment. And number four is as a technology company, we do have better tech capabilities in term of how do we — using technology to optimize our entire supply chain. And all those tools, all those automation, and all those forecasting models we build will help us to essentially have better efficiency through the fulfillment network.

I think number four is because we can work together with the marketplace side, we can roll out quite a lot of new services to the consumers. But when we roll out new services, we can control the cost because, you know, we can do many of the new service planning end to end, together with the marketplace upstream. I think one of the example that in the opening we give is the On Time Guarantee deliveries. And to do that — I think everybody can do that, you know, theoretically.

You can always give a voucher to the fact that if you deliver late, right? But how do you do that economically is a big question. How do you make sure that you can have a good forecast of your deliveries end to end, from the buyer place order to the seller pack the order, to the first-mile pick up the order, to the sorting center, and to the mid-mile, to the last mile. And the entire modeling process and the entire retooling part of the seller behavior and associated behaviors, that requires a lot more joint planning across the value chain. And because we can do it together, so we can do it more economically compared to if you work with pure third parties.

I think for, you know, all that reasons put in together, we kind of are able to achieve better unit economics. And not only just the cost but also better service levels and differentiated services we can offer to the consumers in our market.

Operator

Your next follow-up question comes from —

Tony Hou — Chief Financial Officer

And for the — sorry, for the ad take rate, the — I don’t think we disclosed the ad take rate actual numbers, but what we can share is that if you compare with, you know, our global peers, for example, in China or in the U.S., we are kind of like still meaningfully lower than what they are. We still have a few percentage to catch up to them. So, there is meaningful room for us to increase the ad take rate. I think there are few tools that we can deploy to do that.

I think one is just having more seller participation in term of the — to enhance the total pool of the SKUs that’s utilizing the ad. But in order to do that, we have to develop a simpler ad product for the consumer — for the sellers to use. Unlike many of the sellers in a more developed market who are more familiar with the app, in our market, we have quite some sellers that are less familiar with app, so we have to customize our ads tool for those sellers to make sure that it’s easier for them to adopt so they can — so we can have more SKUs into our ad pool. That’s number one.

Number two is to increase the ad efficiencies through technology. We are spending quite a lot of effort on making sure that we increase the conversion rate for ads products, so the conversion ads, so we can actually serve more ads to our users because of the increased conversion rate. And number three is to find a way to balance organic and the ad traffic better. So, by having an enhanced product to balance the organic and ad products in a common stream, we can essentially — dynamically adjust the ad load, depending on the conversion rate and the SKU participation and the scenarios within our app.

So, by doing all the three things, we see that there’s a meaningful potential to increase the ad take rate over the next few quarters.

Operator

The next follow-up question comes from Navin Killa from UBS. Please go ahead.

Navin Killa — UBS — Analyst

Hi. Thank you for the opportunity again. I just wanted to ask a question with regards to your cash, which, obviously, you know, remained strong and continues to grow. I know several of your peers have started talking about buybacks and have even announced buybacks.

What’s your thinking on the use of the cash balance? Thank you.

Chris Feng — President

Yeah, thanks for the question. We currently don’t have any plans on buybacks or any sort of things. Our operation results are strong, and we are kind of like quite confident on our outlook of each of our — of the business lines. And pretty much, we’ll be focusing on these.

Operator

The next follow-up question comes from Alicia Yap from Citigroup. Please go ahead.

Alicia Yap — Citi — Analyst

Hi. Good evening. Thanks for taking my follow-up questions. Two from me here.

One is on the DFS. Can management share the ranking of the growth by the product or the services line and the ranking by the revenue or profitability contribution for your fintech product this quarter? And then second, you know, I’m not sure if I missed it, but assuming if you will be relaunched in India in sometime in the future, what could be the incremental upside to the user and the growth if this become reality? Thank you.

Tony Hou — Chief Financial Officer

For our DFS businesses, there are a few main business — main product that we have. The SPL, Shopee PayLater; and BCL, buy cash loans; and the other — the offline product that we have. I think the — at this point in time, the SPL, in term of outstanding, is still the biggest product. But if you look at the EBITDA contribution, you know, the UE, the buy cash loan will have a higher UE than the Shopee PayLater.

I think that’s kind of like a rough picture, if you will.

Forrest Li — Chairman and Chief Executive Officer

For Free Fire relaunch in India, at this moment, we are actively working with the — all the like stakeholders, including like the regulators, the potential local partners, right, and the — to figure out what is the best plan to relaunch Free Fire in India. And — well, if that is successful, I think that will be a meaningful potential upside in terms of the users and the bookings, considering India is a very, very big market. And — but just to clarify, at this moment, for our outlook for the rest of the year in terms of the — our like double-digit growth, right, and this is not taking into the consideration of the relaunch of the India. It’s like basically the — basically, we come out this guidance and outlook based on the current business, what we have seen for the existing kind of trend of our current market for Free Fire.

Operator

This concludes our Q&A session. I would now like to turn the conference back over to Mr. MC Koh for any closing remarks.

MC Koh — Investor Relations Director

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

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

MC Koh — Investor Relations Director

Forrest Li — Chairman and Chief Executive Officer

Tony Hou — Chief Financial Officer

Pang Vittayaamnuaykoon — Goldman Sachs — Analyst

Chris Feng — President

Alicia Yap — Citi — Analyst

Navin Killa — UBS — Analyst

Divya Kothiyal — Morgan Stanley — Analyst

Sachin Salgaonkar — Bank of America Merrill Lynch — Analyst

Piyush Choudhary — HSBC — Analyst

Ranjan Sharma — J.P. Morgan — Analyst

Jiong Shao — Barclays — Analyst

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