Sea Limited American Depositary Shares, each representing one Class A Ordinary Share 2026 Q2 Earnings Call

Please go ahead. Hello everyone, and welcome to Sea's 2026 Second Quarter Earnings Conference Call.

I am Casey from Sea's Investor Relations team. 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 the 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 second quarter of 2026. 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.

Hello, everyone, and thank you for joining today's call. Our strong momentum from the first quarter has continued into the second. Sea generated $7.8 billion in revenue at 48% year-on-year and over $917 million in adjusted EBITDA. Our investments have enabled Shopee and Monee to continue to strengthen our market leadership while improving our user penetration. Many of our initiatives' unit economics continue to improve, a testament to our strong financial discipline and operational efficiency. We will continue to invest prudently in serving more users and serving them better, broadening our foundation for profitable growth into the future. With that, let me take you through each business's performance. Starting with Shopee. Shopee continued its strong momentum into the second quarter. GMV grew 28% year-on-year, marking eight consecutive quarters of sequential growth. We again achieved a new high in cross-border volume and revenue.

We generated an adjusted EBITDA of more than $250 million during the second quarter. Our improving operational efficiency and growing scale have strengthened our unit economics. We can now profitably serve a wider range of users, enabling us to lean further into user acquisition. We have engaged and re-engaged several user groups through brand awareness campaigns, expanding our content channels, and broadening our logistics offerings to cater to different purposes. This drove remarkable new buyer growth in the second quarter. Average monthly new active buyers grew more than 35% year-on-year, a significant acceleration from previous quarters. Average monthly active buyers increased 18% year-on-year, and overall buyer engagement also continued to improve, with purchase frequency increasing by 8% year-on-year. Our monetization strengthened further in the second quarter.

Ad revenue was up more than 70%, and ad take rate improved by over 90 basis points year-on-year. We continued to make advertising simpler and smarter for sellers. For example, pairing ads with vouchers that are personalized to buyers to increase purchase conversion and improve the efficiency of sellers' ad spend. Ad adoption and spend continued to improve across our seller base. The number of ad-paying sellers rose around 45%, while average ad spend per seller increased more than 15% year-on-year. Our operational priorities remain consistent, improving price competitiveness, service quality, and our content ecosystem. To keep strengthening our execution across these priorities, we continued to deepen our structural moats across logistics, Shopee VIP, and content. Strong logistics capabilities continue to be a key contributor to Shopee's reputation for excellent service.

We continued to make delivery faster and more reliable across a wider product assortment in the second quarter. Instant and same-day delivery gained strong traction as we captured more everyday purchases. Our instant service in Indonesia can now deliver in as fast as one hour in urban areas. We continue to extend our presence in high-frequency categories such as the groceries and the pharmacy items to serve our buyers better. Order volumes using instant delivery grew around 80% year-on-year in Indonesia, while cost per order fell by around 20%, driven by economies of scale and efficiency gains. Beyond delivery, we also made good progress in fulfillment, with order volumes up more than 20% quarter-on-quarter. Fulfillment benefits both sides of our marketplace. Sellers offload operational complexity and scale more efficiently, while buyers enjoy faster, more reliable delivery.

In some markets, more than 50% of our fulfilled parcels arrive the next day, meaningfully higher than the platform average. The gains are especially noticeable in places where geography makes delivery challenging. For example, in Mindanao, a mountain region in the Philippines, fulfillment cuts buyer waiting time by one to three days. Buyers can feel the difference. Listings that converted to fulfillment saw more than a 20% quarter month uplift in orders on average in Southeast Asia. Second, our Shopee VIP program continues to scale strongly. Now live across Asia and Brazil, total membership exceeded 15 million at the end of June, up 45% from the previous quarter. Across Asia, VIP members contributed 24% of GMV in the quarter. Average monthly retention remains strong at around 80%, and members continue to show higher engagement, spending meaningfully more after subscribing.

In Brazil, early adoption has been encouraging since our April launch, with membership already surpassing 1 million. Beyond buyers, we are seeing encouraging support among both Shopee sellers and external partners for our Shopee VIP program. We have broadened member benefits across travel, dining, and entertainment, improving the program's value proposition. More sellers and partners have come on board to co-fund benefits, demonstrating the value they see in engaging our Shopee VIP buyer base. This has helped improve the program's unique economics in Asia. Third, we have continued to improve our content ecosystem to make product discovery more engaging. Orders from live streaming and short-form video grew more than 50% year-on-year, accounting for more than 35% of physical goods orders in Southeast Asia. Unit economics also improved sequentially as we further optimized our marketing spend. We have deepened our relationships with YouTube and Meta to drive order growth.

Shopee affiliate orders generated by these creators on Facebook increased by more than 85% quarter-on-quarter, with Facebook Reels proving to be a very popular channel to drive purchases. We have now extended our Instagram collaboration to all eight of our core markets, and we are seeing promising early results from Indonesia, the first market where we launched the partnership. I am particularly happy with our progress in Brazil, which remained our fastest-growing market in the second quarter. We once again outpaced the broader market on GMV growth, supported by increases in active buyers, purchase frequency, and average basket size. We continue to invest in and optimize our end-to-end logistics capabilities, expanding our network while ramping up utilization. We improved the delivery speed, reducing average buyer waiting time by 15% year-on-year, and doubled our penetration of fulfillment order year-on-year. These logistics improvements are also supporting our expansion at market.

We onboarded nearly 500 new official brands during the quarter, while GMV from Shopee Mall sellers more than doubled year-on-year. We still see significant headroom for growth in Brazil, and we will continue to invest in this market in a disciplined and profitable manner. I am pleased that Shopee has delivered a strong first half of 2026. With this solid momentum, we are optimistic that Shopee will achieve the milestone of $1 billion in adjusted EBITDA for the full year. Next, moving to Monee. Monee delivered another great quarter with continued strong growth in both revenue and adjusted EBITDA. Credit remained the primary driver of growth. Our loan book reached $11.1 billion at the end of June, up 62% year-on-year. Asset quality remains stable with our 90-day NPL ratio at 1.0%. The Philippines has become our sixth market with a loan book exceeding $1 billion.

We continue to expand our credit business on three fronts, acquiring new users, deepening our relationships with existing users, and expanding our credit use cases. One key enabler of our credit business growth has been the ongoing advances we have made in our credit risk capabilities. Our latest risk models are pre-trained on a broad set of behavioral and transactional data across our ecosystem using transformer architecture similar to those following today's large language models. The model learns from the full sequence of a user's actions over time, capturing richer context around how customers interact with our platform. Recent enhancements to our underwriting models have helped lift approval rates by around 10% when compared to previous models while maintaining a similar level of risk. This further reinforces the scale of our ecosystem as a durable advantage.

To further strengthen this capability, we are also drawing on more external data sources to better assess users who are newer to our ecosystem. For instance, through partnerships with local mobile operators in Indonesia and open finance data in Brazil. We have also used AI to build tools to efficiently verify a diverse range of user-submitted income documents across markets, languages, and formats. Review time reduced by around 95% while maintaining a very high level of accuracy, letting us respond to credit limit requests from users almost instantly. Supported by this improvement in risk underwriting, we have been pushing harder on new user acquisition. We have found that many users begin using SPayLater for convenience, and subsequently generate more value through repeat transactions, installment conversion, and adoption of our other credit products.