
Sea Ltd
NYSE:SE

Sea Ltd
In the digital heart of Southeast Asia, Sea Ltd. has carved out a formidable presence, weaving together strands of e-commerce, digital entertainment, and financial technology into a comprehensive ecosystem. Founded in 2009 and headquartered in Singapore, Sea Ltd. embarked on its journey with Garena, a digital entertainment platform. This platform, predominantly known for its game publishing prowess, brought global hits like "Free Fire" to millions across the region, fostering an engaged community that fuels its robust revenue stream from in-game purchases and advertising. Garena's success laid the foundation for Sea's expansion into other sectors, characterized by a relentless focus on understanding and meeting the unique needs of the burgeoning digital economy in Southeast Asia.
Building on this solid gaming foundation, Sea Ltd. introduced Shopee, an e-commerce platform launched in 2015, which quickly rose to prominence by offering a localized approach in each market it entered. Shopee distinguished itself with a mobile-first strategy, emphasizing social interactions and engagement through in-app games and live-streaming, which bolstered user retention and spurred sales growth. Complementing these offerings is SeaMoney, their digital financial services arm designed to address the vast underbanked population in the region. Through digital wallets, payment processing, and other financial solutions, SeaMoney integrates seamlessly with Shopee, creating a loop that enhances user experience and loyalty across Sea's platforms. This strategic interplay between gaming, ecommerce, and fintech illustrates Sea Ltd.'s multifaceted approach to capturing and monetizing the diverse digital demands of its audience.
Earnings Calls
In Q1 2025, Sea achieved a notable 30% revenue growth to $4.8 billion, driven chiefly by Shopee's 20% increase in gross orders and a 58% rise in Digital Financial Services revenue to $787 million. Meanwhile, adjusted EBITDA rose from $401 million to $947 million year-on-year. Shopee maintained its market position by enhancing efficiency, trimming shipping costs, and boosting ad revenue by 50%. With guidance for 20% growth in GMV and an EBITDA margin goal of 2-3% long-term, Sea appears poised for sustainability amid expanding loan books and improved asset quality in its Money segment.
Management
Forrest Xiaodong Li is a prominent Chinese-Singaporean entrepreneur best known as the founder, Chairman, and CEO of Sea Limited, a leading global consumer internet company. Born on January 1, 1978, in Tianjin, China, Li pursued his higher education in the United States, earning an MBA from Stanford Graduate School of Business. Before founding Sea Limited, Li gained extensive experience working in strategic and operational roles across various industries. He founded Sea Limited in 2009, initially starting as Garena, a digital entertainment platform. Under his leadership, the company expanded its offerings, eventually rebranding to Sea Limited in 2017 to reflect its broader scope, which includes digital entertainment, e-commerce, and digital financial services. Sea Limited operates major platforms like Garena, Shopee, and SeaMoney. Li's strategic vision and innovative approach have positioned Sea Limited as a significant player in Southeast Asia's booming tech industry. His leadership has led the company to achieve substantial growth and become one of the most valuable listed tech firms in the region. In addition to his role at Sea, Li is recognized for his contributions to the tech community and as a key figure in the digital transformation in Southeast Asia. His success with Sea Limited has also made him one of the wealthiest individuals in Singapore, where the company is headquartered.
Mr. Chris Zhimin Feng is known for his work at Sea Ltd, a prominent global consumer internet company headquartered in Singapore. He is recognized for his role as the Chief Executive Officer of Shopee, Sea Ltd's e-commerce platform, which has rapidly grown to become one of the leading online shopping platforms in Southeast Asia and Latin America. Under his leadership, Shopee has expanded its operations and significantly increased its market presence, emphasizing competitive and strategic growth in various regions. Before his tenure at Sea Ltd, Chris Feng had a notable career in management and business, including positions at companies like Rocket Internet and Zalora. His experience in the e-commerce industry has contributed to his reputation as a strategic leader capable of steering companies toward successful expansion and adaptation in various markets. Chris Feng holds educational credentials that support his business acumen, further highlighted by his ability to lead diverse teams in competitive digital landscapes. His leadership has been key to Shopee's ability to navigate and thrive in the rapidly changing world of online retail.
Gang Ye is a co-founder of Sea Ltd, a leading global consumer internet company. He has been an integral part of the company's development and success, having held several leadership roles since its inception. Ye played a crucial role in shaping the strategic vision and operational execution of Sea's various business segments, which include digital entertainment, e-commerce, and digital financial services. Educated in prestigious institutions, Gang Ye holds a Bachelor’s degree in Computer Science from Carnegie Mellon University. Before founding Sea Ltd, he gained valuable experience working for the Economic Development Board of Singapore and Wilmar International, one of Asia’s largest agribusiness groups. His leadership at Sea Ltd, alongside other co-founders like Forrest Li, has helped propel the company into becoming a prominent player in the digital space, with successful platforms such as Garena, Shopee, and SeaMoney. Under their guidance, Sea Ltd has expanded its presence across Southeast Asia, Taiwan, and Latin America, continually innovating to meet the diverse needs of its growing user base. Gang Ye's contributions have been instrumental in Sea's growth trajectory, positioning the company as a leader in the tech industry.
Mr. Jingye Chen is the Chief Executive Officer of SeaMoney, the digital financial services arm of Sea Limited, a leading global consumer internet company headquartered in Southeast Asia. Sea Limited operates across three core businesses: digital entertainment, e-commerce, and digital financial services, under the brands Garena, Shopee, and SeaMoney, respectively. As CEO of SeaMoney, Jingye Chen is responsible for overseeing the operations and strategic direction of the company’s financial services offerings, which include mobile wallet services, payment processing, credit offerings, and various other financial products tailored to the needs of the Southeast Asian market. His role involves spearheading efforts to expand financial technology solutions that serve both consumers and businesses, addressing a market with significant growth potential due to its relatively large unbanked population. Jingye Chen has played a pivotal role in navigating the competitive landscape of digital finance in the region and driving initiatives that align with Sea Limited’s broader vision of empowering customers and enriching their lives through technology. His leadership is pivotal in enhancing SeaMoney’s infrastructure and expanding its reach, thereby contributing to Sea Limited's overall growth and integration of services across its platform. Chen's focus has been on leveraging technology and innovation to deliver accessible, secure, and efficient financial services to millions of users in Southeast Asia, maintaining a commitment to financial inclusion and the development of the digital economy in the region.
Ms. Yanjun Wang is the Group Chief Corporate Officer of Sea Ltd., a leading global consumer internet company headquartered in Singapore. Ms. Wang has a rich background in corporate law and has served in various strategic roles within the company, contributing to its substantial growth and international expansion. Before joining Sea Ltd., she worked at a top-tier international law firm where she specialized in mergers and acquisitions, capital markets transactions, and general corporate matters. Her expertise in navigating complex legal and regulatory environments has been instrumental in driving Sea's corporate governance, compliance, and strategic initiatives. Ms. Wang holds a law degree from a prestigious university, which underpins her extensive knowledge and skill set in handling intricate corporate legal challenges. Her leadership role at Sea Ltd. involves overseeing legal, compliance, and company secretarial functions, ensuring that these areas align with the company’s broader business objectives.
Feng Zhao is a prominent executive at Sea Ltd, serving as the Group Chief Financial Officer (CFO) since 2022. Sea Ltd is a leading global consumer internet company headquartered in Singapore, known for its businesses in digital entertainment, e-commerce, and digital financial services, primarily operating through its subsidiaries which include Garena, Shopee, and SeaMoney. Before joining Sea Ltd, Feng Zhao had accumulated extensive experience in financial management and corporate strategy. He previously worked at Goldman Sachs, where he played a significant role in investment banking, covering a wide array of sectors and industries, which equipped him with relevant expertise and insights into the financial workings of major corporations. In his role at Sea, Feng Zhao is responsible for overseeing the company's financial strategy, ensuring robust financial health, managing investor relationships, and supporting the company's growth ambitions across its diverse business units. His leadership in the financial realm is crucial for Sea Ltd as the company continues to expand its footprint in dynamic markets across Asia and beyond.
[Audio Gap]
Data 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 [indiscernible] will share strategy and business updates, operating highlights and financial performance for the first quarter of 2025. 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. We have delivered another great quarter of strong growth with improving profitability across all 3 businesses. Our businesses are now all self-sufficient and cash generating, positioning us well to capture future opportunities. Our strong start to the year gives us more confidence of achieving our full year guidance. 5 days ago, on May 8, we celebrated the Sea's 6th anniversary. On the same day, we rebranded our digital financial services business from SeaMoney to money, [indiscernible]. We chose the name Money because it is simple, cute, and just like our company's name see easy to write and pronounced.
Money also resonates well with the name of its sister brand, Shopee, reflecting the seamless synergetic connection between the 2 ecosystems. Our Digital Financial Services business already has a decade long history, from AirPay to ShopeePay, to SPayLater to all Money's other products and services today, we create solutions that are simple, accessible and inclusive. We use technology to enable all our communities to join the digital economy and manage their money more easily.
We remain grounded in these principles as we move forward. Today, Money is already one of the largest unsecured consumer lending businesses in Southeast Asia, and I believe we are only at the start of realizing its full potential. We have expanded beyond Southeast Asia to Brazil, and we are moving beyond payments and credit to every aspect of people's lives relating to money such as banking, investment and insurance, where we help people achieve their financial goals, it can be life-changing not just for them today, but for their children and grandchildren as well. We are excited and committed to creating financial freedom and empowerment for consumers and small businesses with technology, both for this generation and the generations to come.
With that, let me take you through each business' performance. Starting with e-commerce. Shopee has delivered a record high GMV and gross order volume in the first quarter. We sustained market leadership with improved profitability across both Asia and Brazil. Unique economics improved, largely driven by our can monetization, especially from advertising. Ad revenue grew by more than 50% year-on-year in the first quarter. Our operational priorities remain consistent: to enhance price competitiveness, improve service quality and strengthening our content ecosystem.
Our strong execution of these priorities has continued to make Shopee competitive and differentiated. On price competitiveness, our diverse product range and competitive pricing continue to resonate well with barriers. Our ability to deliver a clear price advantage over our peers comes from our closer collaboration with sellers and deeper integration with upstream suppliers.
In [ Qualtrics ] survey, we continue to ramp as best in market across Asia and Brazil for offering good product prices. This has done a lot to build our brand and share of being the most price competitive e-commerce platform in our market. In the first quarter, our average monthly active buyers on shopping grew by over 15% year-on-year, [indiscernible] hiding a seamless and reliable shopping experience. In addition to these broad measures, we constantly explore and pilot new initiatives delivering value targeted expensive customer needs.
For example, in some of Indonesia's major cities, we offer an instant delivery option that delivers orders in just a few hours. [indiscernible] our most loyal users. This paid membership [indiscernible] customer service. Adoption has been encouraging with more than 1 million users subscribing as of the end of March. Members purchased more than 3x as frequently and spend more than 4x as much as regular buyers. These are just some examples of how we continue to experiment with value-adding features to strengthen buyer engagement and stickiness.
We also continue to improve service quality to our sellers, by empowering them with intelligent tools and optimize ad tech solutions. For example, we introduced Shopee AI assistant to help sellers handle routine customer queries making their daily operations on Shoppe more effortless. Our upgraded ad tech product called GMV MAX has also made it easier for sellers to launch campaigns, reach the right audience and maximize their return.
In the first quarter, the number of sellers who spend on our ad products increased by 22% and and average ad spend increased by 28% year-on-year. We continue to make good progress with our content ecosystem. And it is playing an increasingly important role in driving buyer engagement and conversion. In Southeast Asia, content-driven orders, including those from live streaming and short videos accounted for about 1/5 of our total physical goods order volume in the first quarter. Unit economics also continued to improve, supported by growing scale, larger average basket size, better marketing efficiency and higher adoption of Shopee live ads.
We are also seeing strong traction from our partnership with YouTube, which we have expanded to all 6 of our [indiscernible] to tap on the high-traffic YouTube platform for sale. Beyond strong [indiscernible] execution. We expanded to serve more underserved market segments onboarded more sellers, diversified into higher ticket sized product categories and the improved delivery speed while maintaining our logistics cost advantage.
Looking ahead, we [indiscernible] into runway for further growth in Brazil, and we remain committed to capturing the long-term opportunities in this market [indiscernible] of achieving our full year GMV growth guidance of 20% with improving profitability.
Next, turning to Digital Financial Services. In the first quarter, Money delivered another strong set of results, with both revenue and adjusted EBITDA growing more than 50% year-on-year. This growth was delivered while maintaining stable asset quality reflecting our continued commitment to prudent risk management. In the first quarter, our loan book grew by over 75% year-on-year to reach $5.8 billion, mainly driven by the healthy expansion of our user base.
In the first quarter, we added over 4 million first-time borrowers and we see new user cohorts continuing to generate positive profit over time as we scale. By the end of the quarter, active users for our consumer and SME loan products exceeded 28 million, representing more than 50% growth year-on-year. At the same time, our overall portfolio quality remains healthy with our 90-day NPL ratio staying relatively stable at 1.1%. [indiscernible] SPayLater campaigns with Shopee effectively drove new user acquisition and further increased penetration on Shopee.
By the end of March, Thailand's loan book surpassed $1 billion. Brazil also delivered robust loan book growth in the first quarter, driven by both SPayLater's higher penetration on Shopee and a growing contribution from buyer cash loans. Such strong growth across different markets, diversifies our overall loan book and reduces our exposure to any single market economic cycle, giving us a more stable and resilient loan portfolio.
We also continue to roll out new products and strengthening our underwriting capabilities in enabling us to serve a wider range of users across different [indiscernible] these products are helping us attract more higher income users who may be more selective in their adoption of credit products, having having a larger cohort of premium users gives us significant cross-selling opportunities and higher customer lifetime value. [indiscernible] this led us maintain good asset quality which benefits our long-term growth and profitability. [indiscernible] SPayLater has grown meaningfully by leveraging Shopee [indiscernible] for over 10% of our total loan book in Malaysia.
We are seeing healthy repayment behavior with off Shopee at SPayLater loans and the unique economics continue to improve. In Indonesia, off-Shopee growth has also been boosted by the stand-alone ShopeePay Financial services app, which has surpassed 30 million downloads as of March. The app suppose everyday payments beyond the Shopee platform. It seamlessly integrates at SPayLater functionality to enable the use of credit for off-Shopee repurchase. We continue to enhance the app with new features to drive user engagement and position it as a central hub for daily financial activities. This lays a strong foundation for cross-selling a broader suite of financial products and services in the future.
In summary, Money is on the right track to continue delivering strong loan book growth while maintaining sound credit quality, and we are confident of achieving our full year guidance. As we scale, we remain focused on risk management as a top priority, given our unique business model and the strong support we have from our Shopee ecosystem we are confident that we can grow money in a way that is resilient to credit cycles and profitable into the long term.
Next, turning to Digital Entertainment. Garena had a stellar start to 2025 with this past quarter since 2021. In the first quarter, Garena's total bookings grew 51% and adjusted EBITDA grew 57% year-on-year. In addition to Free Fire, our other games such as the Renovaler, EA Sports for FC online and Call of Duty Mobile has also had a good start in the first quarter, giving Garena a strong growth outlook for the year.
In January, we launched a Free Fire frac collaboration with Naruto [indiscernible]. This was our biggest ever anime IP collaboration to date. We spent over 2 years with the IP partner preparing for this major campaign. We came up with a comprehensive suite of content and features such as special moves, character-inspired variables and recognizable things from the animation. Our development team put a lot of effort into upgrading our character models to introduce the intricate finger movement and the hand sign that are iconic to the anime. This went a long way to bring authenticity and the sensation of the anime into Free Fire.
The Naruto campaign was a resounding success with extremely positive feedback from our gamer communities around the world. Official video impressions gathered over 300 million views since the [indiscernible] campaign and the player feedback made it clear. The Naroto campaign stands out as the highest rated collaboration Free Fire has ever done. The collaboration's strong social phenomenon allowed Free Fire to not only capture new users but also reactivate churn players. Thanks to the huge success of the collaboration, Free Fire's average DAU in the first quarter was close to its peak quarterly average DAU during the pandemic.
This further reinforce the Free Fire position as the world's largest mobile game by average DAU and downloads according to sensor tower. Beyond the Naruto campaign, our focus on hyperlocal content continues to drive strong user engagement by connecting with players through their culture and daily life. In the first quarter, Free Fire celebrated Ramadan through passively designed in-game missions in Indonesia, allowing players to contribute real-world donations of clothing and food, turning the gameplay into a shared act of generosity during the holy month. This resonates very positively with our gamer community.
In [indiscernible] , we brought community spirit to life by organizing off-line floaters in Taiwan during the culturally significant module [indiscernible] and lighting blessing candles at tempos on behalf of users during Lunar New Year. The responses to these events on social media has been overwhelmingly positive. These initiatives show how our local teams proactively transform our games into platforms where culture revelance meets social impact.
Beyond our existing games, we are growing our portfolio to deepen our capabilities and scale our market presence. In April, we published a Delta Force Mobile, a first-person tactical shooting game across markets in Southeast Asia, MENA and Latin America. Since launch, the game has seen good traction with over 10 million downloads. We have also started preregistration for Free City, a self-developed open-world adventure game and we'll launch it in phases beginning in May.
We are confident that these new launches will deepen user engagement with our gamer community across our markets. In summary, Garena had a very strong start to the year. We will continue to drive Free Fire popularity and longevity and expand our game portfolio for overall system growth. We remain confident of delivering our guidance of double-digit growth for Garena's user base and bookings in 2025.
In closing, we are very happy with this strong start to 2025. All 3 of our businesses have shown strong growth and improving profitability. We remain committed to executing well and driving greater efficiency. We look forward to delivering a strong 2025 and beyond. Thank you, as always, for your support.
With that, I invite Tony to discuss our financials.
Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 30% year-on-year to $4.8 billion in the first quarter of 2025. This was primarily driven by GMV growth of our e-commerce business and the growth of our Digital Financial Services business. Our total adjusted EBITDA was $947 million in the first quarter of 2025, compared to an adjusted EBITDA of $401 million in the first quarter of 2024.
On e-commerce, Shopee's gross orders grew 20% year-on-year to 3.1 billion in the first quarter of 2025. and GMV increased by 22% year-on-year to [ 28.6 billion ] in the first quarter of 2025. Our fourth quarter GAAP revenue of $3.5 billion included GAAP marketplace revenue of $3.1 billion, up 29% year-on-year and GAAP product revenue of $0.4 billion. Within marketplace revenue, core marketplace revenue, mainly consisting of transaction-based fees and advertising revenues was $2.4 billion, up 39% year-on-year. Value-added services revenue, mainly consisting of revenues related to logistic services was $0.8 billion, up 4% year-on-year.
E-commerce adjusted EBITDA was $264 million in the first quarter of 2025, compared to an adjusted EBITDA loss of $22 million in the first quarter of 2024. The Digital Financial Services GAAP revenue was up by 58% year-on-year to $787 million. Adjusted EBITDA was up by 62% year-on-year to $241 million. As of the end of March, our consumer and SME loans principal outstanding reached $5.8 billion, up over 75% year-on-year. This consists of $4.9 billion on book and $0.9 billion of book loans principal outstanding.
Nonperforming loans past due by more than 90 days as a percentage of total consumer and SME loans was 1.1% at the end of the quarter. Digital entertainment bookings were $775 million in the first quarter, up 51% year-on-year. Returning to our consolidated numbers, we recognized a net nonoperating income of $89 million in the first quarter of 2025, compared to a net nonoperating loss of $18 million in the first quarter of 2024.
We had a net income tax expense of $136 million in the first quarter of 2025, compared to net income tax expense of $79 million in the first quarter of 2024. As a result, net income was $411 million in the first quarter of 2025, as compared to a net loss of $23 million in the first quarter of 2024.
Thank you, Forrest and Tony. We are now ready to open the call to questions. Operator?
[Operator Instructions]
Your first question comes from the line of Pang Vit of Goldman Sachs.
Two questions from me. Number one, on Shopee. You delivered a very strong improvement in profitability this quarter. What drives that uptick? And how should we think about the margin trend in the coming quarter? As these profit grows, how do you think about the risk to Shopee GMV growth amid this uncertain macro environment? And what gives you the confidence to maintain that 20% outlook? That's question number one.
Question number two, can you also share more color around the strong performance at Money as well? What do we see that drives the uplift in loan book, whether it's new geography, new products? And how should we think about the return and margins on these new loans?
Starting from the Shopee side, there are a few factors driving the good growth for Q1. Part of that comes from seasonality. I think this year, Q1 is the first year that Ramadan falls fully in Q1 and the holiday falls in Q2. In the past, it's always either in Q2 or partially in Q1. So that contributed part of the numbers. Second one is we do improve take rates over time. I think as we shared in the opening that if you look at the ad take rate, we grew 50 basis points from last year. So that helps on our take rate side.
The other one -- the other side of that is we also optimize our costs over time. Our shipping costs, for example, has dropping meaningfully from last year. We also optimized our sales and marketing over time as well. On top of that, we also optimized our operating cost through many of the initiatives. For example, we're using a lot more AI solution to automate many of our customer service and listing management, et cetera. So all those contribute to a better cost structure. And as a result, contribute to our margin improvement. So the -- if you look at the rest of the year, we believe the top line guidance of 20% growth still stays.
If you look at the profit side, the year, as a long-term trend, we're still targeting around 2% to 3% of the EBITDA over GMV. Of course, in the short term, we are not squeezing our ecosystem as much as possible. We are still focused very much on the growth side to make sure that we have a good growth while improving the EBITDA over time. Although if you look at quarter-over-quarter, there might be some seasonality, as I shared just now.
From the macro perspective, we have not seen a material impact to our Shopee growth from the macro side. I think part of that is because we are very much a local marketplace our cross-border business has been a relatively small percentage of our [indiscernible] businesses. So the cross-border trade impact from any aspect will not impact our overall business materially.
And also, if you look at our businesses, we are very much price-driven in a way we are a price-leading platform in our market. So if any users who would like to seek any alternative for that purchase for a lower price element, typically, they will come to us, given the low penetration of the e-commerce in multiple markets, this will potentially help us to advance the e-commerce penetration while our user looking for a cheaper alternative versus their other channels. The -- on top of that, Shopee is also more intent-driven marketplace where the impulse-driven purchase has a less percentage. So it's less impacted by the fluctuation on the discretionary spending. And all those will help us to grow well even with the macro uncertainties. There is -- the only thing that might impact our number in a way is a ForEx. As you're probably aware that in some of our markets, the ForEx rate can fluctuate quite a lot from time to time. So I think we are still okay right now if you look at the number, but we will monitor closely on the ForEx side. But again, that shouldn't impact our operation too much in our local market because we are very much a local marketplace rather than depends on the cross-border trading.
If you look at the Money side, the Money growth has been driven primarily both on the penetration of Shopee through SPL. So we see a higher percentage of SPL penetration on the Shopee side. And also, we are seeing a very good growth on the non-shop side, especially on our BCL products. We have seen a pretty good growth from our BCL products and also for SPL off-line, for example, we have been growing our SPL limit extra with cell phones, with -- we're also starting a 2-wheel financing as well for motorbikes in Indonesia. The offline spending through the National QR code has been growing very well in the past few months as well.
If you look at the country mix, the all countries are growing well, although that we see that some newer countries has a slightly faster growth rate versus bigger countries by nature of the phase of the market. The -- in terms of the margins, we've seen a pretty good margin in Q1. Part of that is driven by optimizing some of our sales and marketing during Q1, giving the good momentum on the seasonalities. There might be some fluctuation over time on the margins, given the country mix might change slightly over time. And also given that the product mix might shift over time as well and also given that our target segment, we might expand over time and also some of the sales and marketing spending. But overall trend, we should still have a very good margin and the absolute amount of the EBITDA margin, if you look at long term, should keep growing. Although we will expect the percentage margin percentage might go down a bit given the country mix and product mix and expanding of the base.
Next question comes from the line of Piyush Choudhary of HSBC.
Two questions. Firstly, how are you thinking about incremental capital allocation? It seems in the first quarter, a majority of cash flows have been invested into money segment to drive credit business. So incrementally, would you use own capital for Money segment? Or would you like to diversify sources of capital in the future?
Second question is on gaming. 1Q booking was very strong. What's the outlook for booking growth in gaming business? Can the current run rate be maintained? Or there could be quarterly volatility I understand your full year outlook on double-digit growth, but can it be like upward of 25% or any kind of range if you can talk about on the booking growth.
Yes. For the first question, yes, and we are like for all our 3 business now is self-sufficient and constantly generating cash quarter-by-quarter. And we are actively monitoring our cash position and really think through what is the best way in terms of the capital allocation from the shareholder perspective. Actually, this has been constantly the topic like not only for the operations, but only on the Board meeting on the board level. And specifically, in terms of the -- if we are going to continually using our own money for our local growth -- we have been very, very cautious on that. And in general, we would prefer to diversify our source of funding. And we would rather like instead of using all our own cash, although it's probably in the short term, like from the short-term perspective, may make more economic sense. But want to build up a more sustainable and healthy source of funding by collaborating with the third-party financial institutions and by exploring different ways of our source of funding, and this is including work with other banks, right, in terms of the channeling arrangement and including like -- including like even we explore some structured products like EBS and some other channels as well.
So -- and that is what is primarily our focus in terms of the software funding for diversification. And in terms of the -- for the question on Garena, yes, we have a very, very strong first quarter, and we are very excited about that. And I think this is an extension of our strong growth momentum starting from a year ago. So 2024 has been a very, very strong year for Free Fire and Garena in general, and we are very happy to see entering to Q1 this year, that growth is even accelerated. And I think that is a very, very positive sign that Free fire, itself will be continuing to be a very, very long-term focus and could be, as we always aspire and build it as every green franchise and platform.
And in terms of the quarterly volatility, yes, I mean, Q1, historically, in most of the year, this has been the -- because of the seasonality, you already seen really been a strong month because of a lot of policies end up like in this quarter, for example, the Lunar New Year and this is a big holiday across a lot of our markets. And as Chris just mentioned, like even like for this year, Ramadan is also been in the first quarter, like mainly in the first quarter as well.
And specifically for Q1, the grade performance has also contributed a lot the IP collaboration with Naruto that is a super successful collaboration. Of course, this has given us a lot of inspiration, right? And it gives us a very, very good back practice, we should explore more the Cap collaboration along this line, but it probably will not happen every quarter. So we expect some volatility. But looking at from the whole year perspective, we still remain very, very optimistic, and we feel very confident about the growth perspective of the gray number this year. I think at this moment, like we are excited by Q1 results, but I think we also be -- should be just the cautious and be like more like a focus on the product itself rather than just to say, okay, what is the financial number we can deliver. And when we have a greater visibility across the year. And if we have a better sense of how the year will look like, and we'll come back to the market and give the more detailed update on that.
Your next question comes from Alicia Yap of Citigroup.
Two questions here. First, it seems like Shoppe and also your peer in Brazil continue to do -- grow really well this quarter. So can management share with us the main driver for the sustainable fast growth stage in Brazil? And how long do you anticipate the fast growth stage to last?
Second question is on the overall Shopee VAS revenue. So with the subscription membership, given it will be driving higher frequency purchase order would that actually put a pressure on your VAS revenue growth in the short term? How should we think about overall monetization rate over the next few quarters?
On the Brazil question, we do see Brazil has a very good potential for us and for some of our peers as you can see. For Brazil, the key thing that we are doing well is similar to which are before. Number one is we have been a leading pricing advantage in the market. We always focus on to make sure that in our platform, the user can get the best pricing. And that has been very welcomed by our core mass user groups. Second one is we have been working a lot on our infrastructure, especially on the SPX logistics, not only lowering down the cost, but we also shortened our delivery time quite a lot over the time. For example, if you look at Q1 2025 versus last year, our delivery time has been shortened by 2 to 3 days, which is quite meaningful impact to the experience.
We also have same-day delivery in Sao Paulo as well, which helps us to penetrate better in the cities. We are also starting procurement services for some sellers we just started, but we are seeing very good feedback from our sellers. And all this essentially help us to serve our users better, with the better pricing with the better service and logistics with the lower shipping costs. I think that's kind of what drives our Brazil growth. We will foresee that if we can continue to improve on those aspects, we will still be able to grow the market, given the penetration of e-commerce in Brazil is still relatively low even compared to our South Asia market.
We will try to essentially improve on those, as I said. So as far as we can. On the second question, on the VIP mentorship, we do see a very good pickup of the VIP memberships as far as shared in the opening that we are seeing quite a lot of users subscribed to it, 1.5 million also as we shared. And the purchase frequency is a lot higher compared to the non-VP users. We also see better retention for those users in general. I don't think this conflict with the VAS revenues per se. I think we see this as a public starting 2 different elements. Our VF revenue contributes a lot from the [indiscernible] those shipping services and other type of services. Of course, ad is on topic as well. So if you look at the overall monetization the commission side of the monetization, we will probably not increase as much as you have seen last year, but there might be still some potential. We will adjust in different markets based on the feedback from the sellers.
We have not seen any negative feedback from the seller yet in terms of the commission side. So we'll monitor very closely based on seller feedback and also the pricing in our marketplace to adjust on the commission side. But on the ag side, as we shared a few times, we still see there are meaningful potential for us to increase the ad take rate. through both optimizing our efficiencies on the ad placement in our marketplace and also the seller adoption to increase cell adoption, we both make it easier for sellers to invest in our ad but also make the efficient -- the return of investment better for the sellers. So by doing all this, this will help us to increase the ad take rate.
If you compare where we are right now versus the other marketplace similar to us, we still have meaningful room there. So that will help us in general on the monetization side.
Your next question comes from the line of Divya Kothiyal from Morgan Stanley.
2 questions from me. The first one on e-commerce's competitive landscape. Could you please comment on how you're seeing the competitive landscape in and Brazil? And how does that tie into the margin expansion that we are seeing? And specifically on Brazil, if you could comment on the launch of TikTok, becoming big in Brazil as it did in ASEAN and what would our strategy would be versus TikTok. So that's the first question.
And my second question is, again, on fintech, specifically in Brazil. Could you give us some sense on how big Brazil is now relative to GMV there? How big is it as a part of the loan book? What are the differences in the returns, margin profile that you see for Brazil versus your ASEAN market? And how differently do we need to manage asset quality there given these differences?
On the competitive landscape, in general, we are seeing a relatively stable competitive landscape. I mean there's always fluctuations here and there, but largely strategically, we didn't see a big movement on that. And I think our margin improvement largely come from, as I said earlier, better a take rate, better cost structure. And just better operations from our side. So we will probably don't see any big impact from that front. In our market, both in ASEAN and Brazil, I think as you rightly point out, TikRok shop launched in Brazil, actually just a few days ago. We will closely monitor the development. I think the core for us in Brazil is to -- we would like to make sure that we have a good pricing, we have a good infrastructure to deliver lower cost and better experience. And we believe those things, if we do it well, we can continue to grow, as I shared in the last comment, -- the shopping line has been available in Brazil for quite a while, although the ecosystem development of Intau Brazil for live stream is still in early stage. -- actually not only as you can probably see that Medialso has livestream features here and there.
And also the other social media platforms also have [indiscernible] features. So it's not completely new to the market. But although the overall development of the lifetimes echos in the market is during the early stage. So we will monitor quite closely. If you -- compared to Asia, the live stream behavior, as we see right now is probably not as prominent as we have seen in the Asia market. But again, just like what we did in Asia, if we see there is a good trend of Ecoson development, we have the capability, we have the experience. We have the technology to capture where we need it.
On the fintech side, the -- as you probably know, Brazil is a country we launched much later compared to Asia market. So the -- we have seen a very good growth on the penetration of SPL shopping GMV although the absolute amount is still much lower than where Asia is, which shows that a much larger potential in the coming quarter to grow in Brazil as well. If you look at the overall margins, if you look at the EBITDA margins, it's somewhere sort of in the middle among our market.
It's probably the better higher than some of the market, but lower than the other markets, so somewhere in the middle. The difference is in Brazil, the interest rate is, in general, a bit higher. It's a high interest market. and the high interest are able to cover slightly higher risk as well in the market and just the nature of the market rather than anything we did very differently. We have been quite well profitable in the market. I think quite a while ago. It took us quite some effort to figure out how to do risk assessment in Brazil, which is likely different than Asia. Because the data source and the user behavior, et cetera, are side different. But I think we find a path, and we have a good grasp on the risk of the market.
We also integrate a lot more data over the last few quarters. And we'll continue to integrate more data in the coming quarters, lapping on the open finance framework that the President Central Bank has set up, which we think that we can leverage a lot on. So yes, so in general, Brazil, we believe that it's a good market for us, and there is quite a good potential for us in the coming months and years.
Your next question comes from the Jiong Shao of Barclays.
My first question is on your -- so EBITDA margin as a percentage of GMV. You have made a lot of progress, very impressive progress the last couple of quarters. Now it's a bit over 0.9%. I think you have said before, your long-term target is 2% to 3%. I was hoping you can comment on the sort of the timing to achieve that target. And that take up -- I mean it's a bit lower than some of your peers in other parts of the world. Do you think there could be other potential upside to that target?
Second question is on your spending. The takeaway for VAS came down a little bit sequentially. Was that because the shipping subsidies? Have you made a sort of decision tweaking in how you spend your money, sales and marketing vis-a-vis shipping subsidies. Is that sort of seasonal in Q1? Or is that sort of a strategic decision you made for this year or in the foreseeable future. Thank you so much.
Yes. I think on the EBITDA margin, I think as we shared before, I think the 2% to 3%. We think that's a meaningful range we can look at. Although if the market is right and if the growth as well, it could be better than that. And I think the -- we are not constrained by the range that we shared. I guess that's what I'm trying to say. As you already pointed out, the our global peer has a high range, and I think that's a good aspiration for us to look at. And it's something that will evaluate time depending on how the competitive landscape is and how the market growth is fundamentally and also how the buyer and seller respond to what we do. At this point in time, we still see there's a lot of growth potential in our market. the penetration of e-com is still low, and we still see more than 20% growth in the market last year. And we are sharing that we will have 20% growth this year as well.
So we don't want to take the last end of the market at this stage, growth is more important to make sure that we can penetrate the market. On the spending side, the take rate, as you can see on the revenue side is more driven by the GAAP accounting as you probably guess it. The -- if you look at our absolute take rate in the GAAP terms, it will subtract out the subsidy that we give out. And it's true that in Q1, we have more shipping subsidies that cancel out the number a bit more. So if you take that out, our take rate should be increasing rather than decreasing we do see shipping subsidy as a good ways of driving the user growth and Part of that is because we do have a cost advantage on our SPX side. We dynamically adjust on how do we deploy different type of subsidies, either shipping or it's other forms. And it's a more dynamic process and we do this test every day, every week based on the response of the market, we'll adjust for it.
So directionally, we do believe that shipping update is a useful, effective, as we're showing in Q1, but it's not something we set on stone, and we will measure this based on the testing results and we do it very dynamically when we operate the businesses.
Your next question comes from the line of John Choi of Daiwa.
I've got 2 questions. First of all, on Money, your new other fintech business, I think we're talking about like driving off-Shopee growth. Can you kind of comment like what kind of investments are required here given that there will be much more investments compared to your Shopee platform and how this will impact our current EBITDA margin going forward? That's my first question.
The second question is related to the AI investments. And also, how are you deploying this AI? What kind of investments have you been doing? And what's the plan? And how is this helping our business efficiently right at the current stage? And how do you expect this to improve our business down the road?
If you look at the off-Shopee growth, there are a few types. I think the first type is the cash loans Second type is the SPayLater offline, out of Shopee platform. If you look at the Cash Loan side, Cash Loan is actually very profitable businesses. the return of assets probably even better than the pay later on Shopee. So -- and we've been growing this quite well in the past. So we don't think that we need a particular investment to grow this, that can impact the margins for this part.
For the SPayLater, off-Shopee, for example, the scanning National QR code or specific type of categories for cell phones for motorcycles. The investment is very much on the teams that we have to built to deploy these services. And we have been running this business in a very prudent approach. So we have been trying to make sure that for all the services that we roll out, in general, we have a positive return rather than requires a big investment upfront.
Given the nature of our businesses, the way we run this is rather than you launch a new product and you try to do a big marketing, you try to attract a lot of new customers for that particular product, we first always leverage on our existing user base, especially the user base we have been built through our SPayLater. So we target the new product to the existing user base, which will help us to save on the marketing cost also help us to manage risk very well for any new product we launched even for this off-Shopee products. So by doing all those, typically, we will have a positive return when we add a new product to our assortment.
And the impact of EBITDA is left from the upfront investment, but more from, as I said earlier, as time goes, there will be a country mix, the certain country has a higher profit margin and others. And also when we expand to different segments, and this can be across all [indiscernible], that doesn't matter on-Shopee or off-Shopee. For certain off-Shopee product, it might have slightly lower margin by nature. For example, if you look at the big-ticket items like we talked about the motor loans, typically will have slightly lower margins versus the small ticket loans. If you look at a pure percentage of outstanding basis, but still, if you look at absolute terms, it will still bring us positive EBITDA as absolute terms. So it will be a good product to have, if you think about the absolute return.
For the AI investment, we believe that AI will make a big change to our industry, both from a consumer-facing side and also from our internal product improvement. I think we shared a little bit on this last time. As an example, one of the big improvement that we did is on our search recommendations and our ad. So we're deploying AI solution to help us to target our user a lot more efficient when users search us. And when people come to our app, so we can recommend more accurate products to them and also help us to have better efficiency on the ad product. That's why we can improve the active rate over time.
Another example is the IGC production that we can help our sellers to create for their product descriptions. We have been increasing the video coverage for our product description a lot over time, and part of that is driven by the -- we are enabling the seller to create videos based on the images or based on some of the descriptions. And typically, for this investment, we always have a very clear ROI measurement for any of the investment share before, whether we are spending our AI resources are better our ads. We're spending our AI resources on better the pro descriptions we measure the return of investment of debt through our click-through rate, measure our investment through our conversion rate. And most of our investments so far, anything in meaningful side has been positive return for any investment with AI resources.
Besides those consumer facing, we are also investing quite a lot on improving our internal productivities, for example, that we're using AI to help our internal listing team to future the product, our marketplace a lot more efficient so we can discover the contest, the fraud, et cetera, in a lot cheaper way. And again, those -- for all those things we measure based on for [indiscernible] AI investments versus the savings that we have typically bring a positive return. And we still see there's a lot of applications that we can do on both fronts. But again, we do this in a very prudent way.
This concludes our question-and-answer session. I would now like to turn the conference back to Mr. Elson Joy for any closing remarks.
Thank you all for joining today's call. We look forward to speaking to all of you again next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.