Investor Presentation - August 2018 - Macquarie Group
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Investor Presentation August 2018
Disclaimer
This presentation by Sea Limited (“Sea”) contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of
1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident,” “guidance,” and
similar statements. Among other things, statements that are not historical facts, including statements about Sea’s beliefs and expectations, the business, financial and market outlook and projections
from its management, as well as Sea’s strategic and operational plans, contain forward-looking statements. Sea may also make written or oral forward-looking statements in its periodic reports to the
U.S. Securities and Exchange Commission (the “SEC”), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or
employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any
forward-looking statement, including but not limited to the following: Sea’s goals and strategies; its future business development, financial condition, financial results, and results of operations; the
growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in the region, including segments within those industries; changes in its revenue, costs or
expenditures; its ability to continue to source, develop and offer new and attractive online games and to offer other engaging digital entertainment content; the growth of its digital entertainment,
ecommerce and digital financial services platforms; the growth in its user base, level of user engagement, and monetization; its ability to continue to develop new technologies and/or upgrade its
existing technologies; growth and trends of its markets and competition in its industries; government policies and regulations relating to its industries; and general economic and business conditions
in the region. Further information regarding these and other risks is included in Sea’s filings with the SEC. All information provided in this presentation is as of the date hereof, and Sea undertakes
no obligation to update any forward-looking statement, except as required under applicable law. This presentation contains certain financial measures that are not recognized under generally
accepted accounting principles in the U.S. (“GAAP”), including “adjusted revenue,” “total adjusted revenue,” “adjusted net loss,” “adjusted EBITDA,” and “total adjusted EBITDA.” The
reconciliation of those measures to the most comparable GAAP measures is contained within this presentation. The non-GAAP measures have limitations as an analytical tool and you should not
consider them in isolation or as a substitute for an analysis of Sea’s results under GAAP. This presentation does not contain all relevant information relating to Sea or its securities, particularly with
respect to the risks and special considerations involved with an investment in the securities of Sea. Nothing contained in this presentation shall be relied upon as a promise or representation as to
the past or future performance of Sea.
1
We Are One of the Leading Internet Companies in Our Region
Digital Entertainment #1 Market Share in Our
Region by Revenue1
Leading Digital #1 Market Share in Our
Payments Provider Region by GMV and
Total Orders2
Digital Financial E-commerce
Services
1. #1 position is derived from mobile and PC online game market rankings as estimated by Newzoo and Niko Partners, respectively, for the full year ended December 31, 2017
2. Gross merchandise value (“GMV”); according to Frost & Sullivan’s estimates for the full year ended December 31, 2017 and three months ended June 30, 2018
2
Our History
Garena Interactive
Holding Limited is Expanded Garena Launched
founded; launched to all seven e-commerce business,
digital entertainment markets in our Shopee, in all seven
business, Garena region markets in our region
May 2009 Launch September 2012 Milestone June 2015 Launch
2010 Milestone April 2014 Launch Listed October 2017
First
Launched digital
investment
financial Sea is publicly
from
services listed on the
Tencent
business, AirPay NYSE
3
Investment Highlights
1 Southeast Asia and Taiwan: Enormous Growth Opportunity
32 Home Court Advantage: Global Experience Alongside Deep Local Knowledge
43 #1 in Digital Entertainment1 and E-commerce2 in Our Region
45 Robust Business Performance
1. #1 position is derived from mobile and PC online game market rankings as estimated by Newzoo and Niko Partners, respectively, for the full year ended December 31, 2017
2. According to Frost & Sullivan’s estimates for the full year ended December 31, 2017 and three months ended June 30, 2018
4
1 7 Key Markets in Our Region: Strong Market Potential
Our Region at a Glance1
Taiwan
23.6 million pop.
Vietnam
93.6 million pop.
The Philippines
Thailand 105.3 million pop.
69.1 million pop.
Malaysia
32.1 million pop.
Singapore Indonesia
5.6 million pop. 262.0 million pop.
Total Population: 591.3 million GDP: US$3.2 trillion
1. According to IMF World Economic Outlook as of April 2018 (calendar year ended December 31, 2017)
5
1 Massive Market Opportunity in Our Region
Online Game Market Size1 E-commerce GMV2
US$ Billions US$ Billions
7.8
82.8
3.7
31.8
2017 2021E 2017 2021E
Payment Infrastructure Will Serve As A Key Enabler In The Expansion Of These Markets
1. Refers to the aggregated market size of the the mobile and PC online game markets according to Newzoo’s Global Games Market Report as of April 2018
2. Gross merchandise value (“GMV”); according to Frost & Sullivan’s estimates as of 1Q18
6
2 Strong Home Court Advantages
Local Market Shared
Local Partners Local Team Infrastructure
Knowledge
Game player behavior Local cybercafé partners Staff dedicated to Local data centers
and preferences using Garena's localization, marketing
Localized content proprietary system and operations Central data science capabilities
Local eSports events Local community and
Garena league organizers Strong online security
Regulatory understanding and
Shopper tastes and Local Shopee Mall Local sales &
preferences partners marketing staff licenses
Customized product and Local logistics partners Shopee University
category management teams in every market Finance
Customized user experience for seller on-boarding
Shopee
Local shopping events
Legal
Local use cases Large number of On-the-ground team
Custom mobile partner operated to service counters
user interface counters and merchants
Local merchant partners
AirPay Local banks integrated
with AirPay App for
direct top-up
7
2 Deep Relationship with Tencent
Invested in every round – in 2010,
Local market knowledge
2012, 2013, 2014, 2015, 2016 and
2017
Preferential access content to On-the-ground local leadership
portfolio
Leading PC online game: Proven execution track record
League of Legends1
Leading mobile game: Local payments & distribution
Arena of Valor2
Strong relationship and board
Success in e-commerce
presence
Co-development opportunities
Co-development opportunities
1. League of Legends is operated by Riot Games, Inc., a wholly-owned subsidiary of Tencent
2. Developed in collaboration with Garena
8
Garena DIGITAL ENTERTAINMENT
3 Key Stats
US$139.1mn2 Popular IPs
#1 Market Share in Our Adjusted Revenue
Garena
Region by Revenue1 in 2Q 2018;
19% YoY Growth
160.6mn QAUs3 Content Development Extensive eSports
90.6mn MAUs4 Capability with Platform- Capabilities
6.6mn QPUs3 Centric Approach
1. #1 position in the region is derived from mobile and PC online game market rankings as estimated by Newzoo and Niko Partners, respectively, for the full year ended December 31, 2017
2. Calculated as 2Q 2018 Digital Entertainment (“DE”) GAAP revenue + 2Q 2018 change in Digital Entertainment deferred revenue
3. Quarterly active users (“QAUs”) and quarterly paying users (“QPU”), for the three months ended June 30, 2018
4. Monthly active users (“MAUs”) during the month of June 2018
103 We Work With Top Developers Globally
Developer Partners Benefits to Garena Garena’s Value Add
Exclusive Publishing Rights
Massive Captive User
Base
Integrated Payment
Processing Network
Game Curation and
Marketing
Content Localization
Localized Operation
Offline eSports Events
and Online Streaming
Retain 65%-80% of Data Analytics
Gross Billings
113 Free Fire: Our First Self-Developed Mobile Game
Free Fire Characters
• Third person shooter in battle royale format
• Fully developed by Garena in-house
• Game was launched on 4th December 2017
• Top 5 in the Action Games category in 5 of our 7 key markets1
• Top 5 in the Action Games category across 30 markets worldwide1
• 16 million DAUs
Game Features / Updates
50-MAN BATTLE│MULTIPLE MODES│REALISTIC OPEN WORLD│LARGE VARIETY OF VEHICLES &WEAPONS
LAUNCH OF FIRE PASS: PLAYERS CAN COLLECT BADGES TO UNLOCK REWARDS (UPGRADE TO FOR MORE REWARDS)
VEHICLE DEATH RACE: 40-MAN, DUO-ONLY MAXIM: EAT & HEAL FASTER NEW MAP: TRY THE FLYING FOX
1. According to App Annie Android download ranks (August 20, 2018)
123 Digital Entertainment: Robust Growth in Free Fire Continues
Garena Garena
Quarterly Active Users Quarterly Paying Users
Millions Millions
160.6
7.2 7.2
126.7 6.6 6.5 6.6
87.8
64.2 69.0
2Q 3Q 4Q 1Q 2Q 2Q 3Q 4Q 1Q 2Q
2017 2017 2017 2018 2018 2017 2017 2017 2018 2018
133 Garena's eSports Activities Drive Virtuous Cycle Dynamics on Our Platform
More Viewers
More More Attractive
Games Broadcasts
Value Transfer More Game Players
Robust Seamless Online Enhanced Gamer Additional
Ecosystem Streaming Experience Engagement Revenue Sources
143 Arena of Valor (“AOV”) eSports Ecosystem
eSports League eSports In The Region
International
Professional eSports Tournament Broadcast AOV Pro League at Garena’s
on Thai National TV eSports Stadium in Taiwan
Amateur
Campus
Grand Finals of Vietnam AOV Tournament Finals at a
AOV League Mall in Indonesia
15Shopee E-COMMERCE
3 Key Stats
#1 Market Share in Our US$2,221.8mn GMV 171% YoY Growth
Shopee
Region by GMV and in 2Q 2018 in GMV
Total Orders1
Marketplace Model with 127.8mn Orders 181% YoY Growth
Improving Marketing Yield in 2Q 2018 in Orders
Gross merchandise value (“GMV”); according to Frost & Sullivan’s estimates for the three months ended June 30, 20183 Shopee’s Marketplace Advantage for Buyers and Sellers
Anytime and Anywhere Centralized, Standardized
Shopping Platform Accessible On
Smartphones And PC
Convenient Shopping and
Discovery Across a Wide Easy-to-use Interface
Product Assortment
Reliability and Security Powerful Seller Tools
Integrated Logistics,
Seamless Payment
Fulfillment, and Payment
Options
Solutions
Buyer Seller
Integrated Logistics Other Value-Added
Solutions Services
Social Commerce
Experience for Better Shopee University
Services and a Stronger
Sense of Community
183 Shopee is a Social-First, Mobile-Centric E-Commerce Marketplace
Shopee App
Localized Indonesian Version of Shopee App
Shop with a Chat
Direct and real-time communication
between buyers and sellers
Seller Center Localized Campaigns
Useful tools for sellers to Hyper-localized marketing campaigns
organize and manage their ensure high user engagement
business
Popular Products
Logistics Trending products recommended through
Integration proprietary algorithms and big data
Reliable partners Daily Flash Sales
providing transparency of Great deals refreshed multiple times daily
fulfilment status and
wholesale shipping rates
Social Feed
A unique stream of updates from friends and recommended sellers to facilitate new product discovery and
personalized recommendations3 Introduction of Shopee Mall to Cater to Larger Sellers
Shopee Mall provides large sellers with the option to customize their brand experience
Dedicated section for Dedicated page for Official
Official Shops on home Shops with banners and shop logos
page
Keyword
search
priority for
Official Shop
in search
results3 Monetization Tools
Monetization Commissions
• Charged on successfully completed transactions i.e.
Featured listing order has been paid and delivered
Performance Based
charged based on
Advertising
cost-per-click • Commissions are computed based on the net
transaction value and excludes the shipping fee
Varying fee levels • Commission rate varies across markets and sellers
Commissions charged on • Shopee Mall sellers (typically brands)
transactions • Marketplace sellers
• Cross-border sellers
Value-Added
VAS & Direct Sales
Services Service Fee
(“VAS”) Logistics Outright
Recently launched Service Sales
Fulfilment Consignment
Direct Sales Fee / Mark-up Service Sales
Recently launched
Online Store
Operation3 Advertising: The Buyer and Seller Perspective
Front-End (Buyer) Back-End (Seller)
When a user searches
for “bag”, sellers that bid on
the keyword “bag” will
appear higher in the list of
results shown
Charges
When the user clicks
on an ad, the seller is
charged the bid price of
the keyword “bag”
Paid Ad Label
223 Robust Growth Across All Markets
Shopee Shopee
Gross Orders GMV
Millions US$ Millions
127.8 2,221.8
111.4 1,941.4
98.3
1,578.6
65.9 1,064.8
45.5 821.2
2Q 3Q 4Q 1Q 2Q 2Q 3Q 4Q 1Q 2Q
2017 2017 2017 2018 2018 2017 2017 2017 2018 20183 Economies of Scale with Rising Order Growth
Shopee
Millions Gross Orders Sales & Marketing as a % of GMV
6.6%
6.8%
YoY QoQ
6.2% 6.2%
127.8 127.8
111.4
45.5
2Q 2017 2Q 2018 1Q 2018 2Q 2018AirPay DIGITAL FINANCIAL SERVICES
3 AirPay E-Wallet – How it Works
“Reverse ATM Network”
Mobile Top-up
Cash AirPay Counters
Customers
Game Top-up
Top-Up
Major Use
Cases Lifestyle
Bank
AirPay User AirPay App
Transfer or Bill Payment
Credit Card
“Access on the Go”
263 Overview of AirPay App
AirPay App
Localized Thai Version of AirPay App
Current AirPay E-Wallet Balance
Ability to Link Credit and Bank
Accounts
QR & Barcode Scanning
Functionality ₧ůĆŃ ń ĽΓŚ Mobile Top-Up
Bill Payment
Food Delivery
Ą⌐
ΘŚżńα
Ţ ⁿĽ Ř
α ⁿ· α
ŃŘσ
Źľ Ź
σ ů ·╔SFŰΘŚ
ΓŹΘ
Movie Tickets
Top Up Services
Direct top-up for game credits and other
third-party providers
╗
Ľ ŤŰŃΓ
Γ · ⁿĽ Ř
α ⁿĆŘ ń ĽΓŚⁿĽ Ř
α ⁿ· α
Ń
Insurance eTickets
ŇŚżĆΓ
Ń ←
Ś· ₧ŚŘ ╗
Ľ ŤŚľ
Γ Online booking of bus and ferry tickets
eVouchers Donations
Access to vouchers and deals
from restaurants and beauty parlors čφ
ŇŹ· ←
ŹŃⁿ· α
Ń ĂΘč ╕
ńŚα
ůŤŃŃ⌐ Θ
Leisure
Purchase amusement park tickets ńŚα
→ Ă
ŢŔ⌂
ů→Θč⌂
ĽŢ Pizza Hotels
Pizza
Compare and book hotel rooms
Funds Transfer
Send funds to other AirPay or bank
accounts
273 Further Strengthening of Payment Infrastructure
AirPay
Gross Transaction Value
US$ Millions
2,463.9
1,702.2
1,027.5
448.2
348.0
2Q 3Q 4Q 1Q 2Q
2017 2017 2017 2018 2018
28Garena Shopee AirPay FINANCIAL HIGHLIGHTS
4 Expanding Leadership on Organic Growth
71% YoY Growth in Total Adjusted Revenue1 19% YoY Growth in DE Adjusted Revenue2
US$ Millions 146.0
134.7 141.9 139.1
116.9
DE Adjusted Revenue EC Adjusted Revenue
DFS Adjusted Revenue Other Services Revenue
219.6
18.2
3.4
2Q 3Q 4Q 1Q 2Q
58.8 2017 2017 2017 2018 2018
128.4 3.6 171% YoY Growth in E-commerce GMV
5.3
2.6 2,221.8
1,941.4
1,578.6
139.1
116.9 1,064.8
821.2
2Q 2017 2Q 2018 2Q 3Q 4Q 1Q 2Q
2017 2017 2017 2018 2018
Note: Financial figures are unaudited
1. Sum of digital entertainment (“DE”) adjusted revenue, e-commerce (“EC”) adjusted revenue, digital financial services (“DFS”) adjusted revenue, and other services revenue. For details on reconciliation, please refer to slide 32
2. Digital entertainment revenue plus change in digital entertainment deferred revenue 304 Non-GAAP Revenue
Total Adjusted Revenue
US$ Millions US$ Millions
219.6 219.6
18.2 18.2
197.0
3.4 13.3 3.4
3.9
58.8 58.8
33.7
3.6
128.4 5.3
2.6
139.1 146.0 139.1
116.9
2Q 2017 2Q 2018 1Q 2018 2Q 2018
DE Adjusted Revenue EC Adjusted Revenue DFS Adjusted Revenue Other Services Revenue
Note: Financial figures are unaudited 314 Reconciliation between GAAP and non-GAAP Revenue US$ Thousands 2Q 2017 2Q 2018 Digital Entertainment Revenue 91,459 108,029 Change in deferred revenue 25,433 31,073 Digital Entertainment Adjusted Revenue 116,892 139,102 E-commerce Revenue 1,1501 54,6551 Sales incentives net-off 1,447 4,160 E-commerce Adjusted Revenue 2,5972 58,8152 Digital Financial Services Revenue 5,342 2,866 Sales incentives net-off - 547 Digital Financial Services Adjusted Revenue 5,342 3,413 Total Revenue 101,547 183,779 Change in deferred revenue 25,433 31,073 Sales incentives net-off 1,447 4,707 Total Adjusted Revenue 128,427 219,559 Note: Financial figures are unaudited. 1. For 2Q18, revenue of $54,655 included marketplace revenue of $33,160 and product revenue of $21,495, net of sales incentives. For 2Q17, revenue of $1,150 was entirely marketplace revenue. 2. For 2Q18, adjusted revenue of $58,815 included marketplace revenue of $37,320 and product revenue of $21,495. For 2Q17, revenue of $2,597 was entirely marketplace revenue. 32
4 Non-GAAP EBITDA
Total Adjusted EBITDA
US$ Millions US$ Millions
40.2 48.6 55.0 48.6
(76.2)
(11.0) (188.3) (188.3)
(179.6)
(50.9) (2.7)
(1.2)
(6.8) (8.6) (6.8)
(12.9) (144.7) (9.9) (12.9)
(161.9) (1.6) (161.9)
(2.5) (2.5)
2Q 2017 2Q 2018 1Q 2018 2Q 2018
DE Adjusted EBITDA EC Adjusted EBITDA DFS Adjusted EBITDA
Other Services Adjusted EBITDA Unallocated Expenses
Note: Financial figures are unaudited. Please refer to the appendix for details on reconciliation between GAAP and non-GAAP figures. 334 Cost and Expense Trends
Cost of Revenue Sales & Marketing
US$ Millions 175.2 US$ Millions
165.1
75.7 74.1
2Q 2017 2Q 2018 2Q 2017 2Q 2018
General & Administrative Expenses R&D Expenses
US$ Millions 51.8 US$ Millions 12.9
27.6 6.7
2Q 2017 2Q 2018 2Q 2017 2Q 2018
Note: Financial figures are unaudited. 344 Net Loss and Adjusted Net Loss
Net Loss Adjusted Net Loss1
US$ Millions US$ Millions
(92.1) (86.9)
(198.7)
(250.8)
2Q 2017 2Q 2018 2Q 2017 2Q 2018
Note: Financial figures are unaudited. Please refer to the appendix for details on reconciliation between GAAP and non-GAAP figures.
1. Excludes share-based compensation and fair value change for convertible debts. 35Garena Shopee AirPay APPENDIX
Reconciliation between GAAP and non-GAAP EBITDA US$ Thousands 2Q 2017 2Q 2018 Digital Entertainment Operating income / (loss) 16,020 15,137 Net effect of change in deferred revenue & related cost 17,336 24,872 Depreciation and amortization 6,887 8,603 Digital Entertainment Adjusted EBITDA 40,243 48,612 E-commerce Operating income / (loss) (77,438) (195,034) Depreciation and amortization 1,205 6,719 E-commerce Adjusted EBITDA (76,233) (188,315) Digital Financial Services Operating income / (loss) (11,309) (7,297) Depreciation and amortization 265 517 Digital Financial Services Adjusted EBITDA (11,044) (6,780) Note: Financial figures are unaudited. 37
Reconciliation between GAAP and non-GAAP EBITDA US$ Thousands 2Q 2017 2Q 2018 Other Services Operating income / (loss) (3,326) (14,900) Depreciation and amortization 662 1,963 Other Services Adjusted EBITDA (2,664) (12,937) Unallocated Expenses Operating income / (loss) (6,413) (17,423) Share-based compensation 5,248 14,913 Unallocated Expenses Adjusted EBITDA (1,165) (2,510) Total Operating income / (loss) (82,466) (219,517) Net effect of change in deferred revenue & related cost 17,336 24,872 Depreciation and amortization 9,019 17,802 Share-based compensation 5,248 14,913 Total Adjusted EBITDA (50,863) (161,930) Note: Financial figures are unaudited. 38
Reconciliation between GAAP and non-GAAP Net Loss US$ Thousands 2Q 2017 2Q 2018 Total Net loss (92,119) (250,788) Share-based compensation 5,248 14,913 Fair value change for convertible debts - 37,160 Adjusted Net Loss (86,871) (198,715) Note: Financial figures are unaudited. 39
4 World Class Management Team With Global Experience and Local Expertise
Forrest Li Gang Ye Nick Nash David Chen
Chairman & Director & Group President Group Chief of Staff
Group CEO Group COO
Tony Hou Chris Feng Jin Oh Yanjun Wang
Group CFO CEO of Shopee CEO of Garena Group General Counsel
Maneerut Anulomsombut Alan Hellawell Santitarn Sathirathai
(Nok) Group Chief Group Chief Economist
CEO of Thailand Strategy Officer
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