Sea Ltd

NYSE:SE

Q3-2025 Earnings Call

[Operator]

Good morning and good evening to all, and welcome to the Sea Limited Third Quarter 2025 Results Conference Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you.

I would now like to welcome Ms. [ Rebecca Lee ] to begin the conference. Please go ahead.

[Unknown Executive]

Thank you. Hello, everyone, and welcome to Sea's 2025 Third Quarter Earnings Conference Call. I am Rebecca 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 our strategy and business updates, operating highlights and financial performance for the third 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.

[Forrest Li, executive]

Hello, everyone, and thank you for joining today's call. After a very strong first half of the year, our momentum has continued into the third quarter. We achieved a total revenue of $6 billion and adjusted EBITDA of $874 million, representing 38% and a 68% year-on-year growth, respectively. Shopee's GMV grew by over 28% year-on-year. Monee's loan book expanded 70% year-on-year while maintaining a stable risk profile, and Garena delivered its best quarter since 2021, with quarterly bookings up over 50% year-on-year.

Our focus remains the same, continuing to deliver high and profitable growth across all 3 of our businesses. With e-commerce and digital finance penetration in our markets still low but increasing, strong growth lays the best foundation to maximize our long-term profitability. I'm very pleased with the profitable growth we have consistently delivered, and we will keep on this path.

With that, let me take you through each business performance. Starting with e-commerce. Shopee delivered another record-setting quarter, achieving new highs in quarterly GMV, gross order volume and revenue. We have now achieved 5 consecutive quarters of sequential GMV growth, driven by more active buyers and a higher purchase frequency, and we have improved our year-on-year profitability across Asia and Brazil. Our monetization continued its upward trend into the third quarter. Take rates increased both year-on-year and quarter-on-quarter.

Ads were a big contributor, our efforts to make ad services both simpler and smarter, broader adoption and higher ad spent by our sellers. Ads revenue increased over 70% and ad take rate rose by more than 80 basis points year-on-year. The number of sellers using our ad product increased by more than 25%, and their average ad spend increased by over 40% year-on-year. Our monetization gains, strong growth momentum and healthy balance sheet have positioned us well to capture even more growth opportunities.

Our 3 operational priorities: Enhancing price competitiveness; improving service quality; and strengthening our content ecosystem has proven to be a winning formular and they remain consistent. Within these priorities, let me highlight some of the areas we have been investing into that we believe are critical for our long-term competitiveness and profitability. First, we continue to improve our logistics capability, a highly strategic competitive mode that has depreciated us from our peers. We launched [ XPI experience ] in 2018 while we recognize that reliable and cost-effective every was the most urgent logistics demand in our market due to wide differences in geography and in structure. Over the years, we have learned how to deliver packages by truck, plan, boat, motor bank and more. We delivered well in dense, congested at high right cities. We also delivered well in rural areas where we need to cross river, navigate right field and locate homes without formal addresses for postal call.

This experience has given us a very deep understanding of every region in our market. Our delivery capability has now developed to the point where we can identify and deploy service quality improvements addressing best user needs in different markets. This helps us to serve more user better while improving our operational efficiency even further. For example, in Indonesia, we saw growing demand from urban buyers for very fast delivery and willingness to pay a premium for it. So we rolled out same day and instant delivery with delivery times as fast as under 2 hours. The response was excellent. Orders using these faster options in the Greater Jakarta area increased by more than 35% year-on-year in the third quarter. But for rural regions, we saw a preference for economical delivery. So we came up with a delivery solution that reduced the cost per order by 20% compared to our standard delivery allowing rural buyers to enjoy free shipping with much lower minimum spend. This boosted Shopee's popularity among rural buyers, orders deliver outside sector a increased by more than 45% year-on-year in the third quarter.

In Taiwan, we noticed a very different customer demand. Many buyers prefer self pickup options. So we expanded our automated long-term store network to over 2,500 locations in less than 3 years, making us the only e-commerce player in Taiwan with a long-term network at such scale. Today, it is a key logistics channel, accounting for more than 70% of all our deliveries in Taiwan. This move has paid off in more than one way. The [indiscernible] run at over 30% lower cost per order than traditional pickup location. On top of that, the larger locations double up as last mile hubs for home delivery at a lower cost compared to traditional last-mile models. In other words, we are making our buyers happier while reducing our costs.

In the third quarter, our GMV in Taiwan showed double-digit growth year-on-year and we still see a lot of room to deepen our penetration further in this highly attractive market. Today, we have built [ SPX Express ] into a clear leader in scale coverage and cost in our Asia market. Our deep local insights have enabled us to customize ground strategies to create a more efficient and effective solution in every market reinforcing our cost advantage.

Our logistics capability underpins the strong growth we have seen from Shopee this year, playing a big role in making us the platform of choice for both buyer and the seller. With our delivery capability well scaled, our next goal to further deepen our logistics competitive mode is to enhance our fulfillment capability. This addresses a more upstream need for our sellers, ensuring fast accurate order handling in addition to speedy and reliable delivery.

We aim to make fulfillment as second core pillar of our overall logistics capability another way for us to strengthen our reputation among buyers and sellers and ensure high levels of customer satisfaction, just as we did with delivery. These efforts are already underway.

In previous calls, I have shared updates on initiatives such as intelligent demand forecasting, where we preship commonly ordered product closer to where we anticipate better demand will be. This helps us reduce buyer-rating time and fulfill orders more cost efficiently. For instance, in Indonesia, if we wait until an order comes in from a remote island before shipping the item out from Java, we must rely on more expensive forms of transport, such as airplanes to get there quickly. But we have already anticipated this demand. We can use cheaper forms of transport to preship it to the area, let us deliver it quickly and cost effectively once the order is placed.

We have made further headway in fulfillment by starting to offer warehouse solutions in some of our markets. Offering fulfillment services benefit everyone. It takes the burden of packaging and the shipment of sellers. It gives buyers more consistent service, and it allows Shopee to better optimize end-to-end logistics while serving more buyers and sellers. We are investing in this capability in a capital-efficient way, for instance, by mostly leasing rather than buying land and warehousing. The most intense investment comes not in the form of money, but in time and effort. It would be very difficult to build a fulfillment capability without a deep understanding of logistics needs in our markets and a tightly integrated delivery network to pair it with. After 7 years of experience with XPS Express, we have booked.

Second, we continue to find new and exciting ways to deepen user engagement. Our subscription-based shopping VIP membership program is a great example and has continued to gain strong traction. At the end of September, we have key members across Indonesia, Thailand, Vietnam surpassed $3.5 million, up more than 75% from the previous quarter. Given the price sensitivity of many customers in our market, the success of our VIP program shows the high value we are delivering to our customers. VIP members are demonstrating higher engagement in Indonesia, these members spend around 40% more after subscribing to the program. Shopee VIP members also bought 3x more frequently and spend 5x more than non-subscribers in the third quarter, accounting for about 10% of total GMV in Indonesia.

We have also deepened user engagement by enhancing Shopee's content ecosystem. Our partnership with YouTube continues to gain strong traction. In the third quarter, Shopee orders driven by YouTube content across our Southeast Asian market grew by more than 30% quarter-on-quarter. With these strong results, we are now extending this partnership to Brazil. Late last month, we also announced a collaboration with Meta to launch new tools allowing seamless product promotion and check out between Facebook and Shopee accounts. We are expecting to see how this partnership will enrich our buyer community further.

Third, we are committed to embracing AI as a powerful way to improve the whole consumer retail experience. Our AI efforts have already begun to bear fruit, contributing meaningfully to our monetization gains in the third quarter. Smarter search, better recommendation and a more personalized content have made Shopee easier and more enjoyable to shop. We have also used AI to enhance product discovery beyond search helping buyers find relevant and interesting items even when they arrive without a specific purchase in mind. We empowered sellers with AI tools, enabling them to generate image, video, test description and virtual showrooms to make their product listings more opening.

These initiatives have increased buyer engagement, improving our purchase conversion rate by 10% year-on-year in the third quarter. Taken together, all these efforts have resonated with our customers. Buyer purchase frequency across our markets continues to improve, going up further 12% year-on-year in the third quarter. Average monthly active buyers also increased 15% year-on-year in the third quarter and Shopee remains consistently regarded as the e-commerce platform, offering the most price competitiveness product in both our Asian market and Brazil based on [indiscernible].

I would also like to highlight our progress in Brazil, where Shopee continued to deliver exceptional growth while maintaining positive adjusted EBITDA. Our GMV growth there has been outpacing the market, driven by sustained increases in monthly active buyers, purchase frequency and average basket size over the past several quarters. Our widespread assortment, highly competitive pricing and structural cost leadership are enabling us to scale rapidly and profitably. Our continuous improvement in delivery speed and reliability have enabled us to expand into more upmarket product categories.

Deliveries speed improved sequentially in the third quarter with average delivery time improving by about 2 days compared to a year ago. In the Greater Sao Paulo area, when 3 parcels were delivered the next day and nearly half within 2 days. With these improvements, we are seeing more merchants leasing higher-value products and the new buyer cohorts showing higher spending patterns. In the third quarter, GMV for ShopeeMall, our premium Shopee section more than doubled year-on-year in Brazil.

In conclusion, Shopee has delivered another quarter of strong and profitable growth. With our strong performance year-to-date, we now expect Shopee full year 2025 G&A growth to be more than 25%.

Next, moving to digital financial services. Monee has delivered another very strong quarter with revenue growing by 1% and adjusted EBITDA growing more than 35% year-on-year, while our 90-day NPL ratio remained stable at 1.1%. This strong growth was broad-based driven by both user growth and product expansion across multiple markets. Our loan book spending by around $1 billion during the quarter to reach $7.9 billion at the end of September, solidifying our position as one of the largest unsecured consumer lender in Southeast Asia.

Thailand has reached another major milestone surpassing $2 billion in loans outstanding at the end of September. In Brazil, our loan book more than tripled year-on-year in the third quarter with improving portfolio quality and a stronger user performance. Our significant credit history with a very large base of users across many markets allows us to roll out products more widely while maintaining the health of our portfolio. We used to take a wide lead approach to onboarding new users. Now any Shopee user in most of our markets can apply for SPayLater credit, and we can make credit approval decisions very quickly, in many cases, almost instantly.

Moving to this old [indiscernible] approach enabled us to add more than 5 million first-time borrowers in the third quarter. New user cohort build well with generally positive economics, a testament to our increasingly advanced risk underwriting capability. At the end of the quarter, active users across our consumer and SME loan products reached $34 million up nearly 45% year-on-year. Meanwhile, loan disbursements to new users still accounted for less than 10% of total divestment in the third quarter as we continue to accept credit quality before cross-selling more products.

We are also making our credit product on Shopee SPayLater and personal cash flow easier to use in a wider set of use cases. In many of our markets, where credit card penetration remains low, we are steadily establishing SPayLater as a trusted and convenient payment method of choice for all kinds of purchases, both online and off-line.

On SPayLater has grown steadily as penetration continues to deepen across all our markets. GMV penetration now ranges from single digits in early market to over 30% in more mature ones, reflecting our discipline in scaling only with incremental disbursements up profitable. We see meaningful room to continue increasing SPayLater on Shopee penetration across our markets.

Of SPayLater showed strong traction this quarter. growing over 300% year-on-year and over 40% quarter-on-quarter. It still only accounts for less than 10% of our total loan book as of the end of September. So large upside remains for future growth. This product segment represents a significant opportunity to unlock success to offline spend a very large part of consumer expenditure in many of our markets. The stand-alone Shopee pay app supporting both online and off-line payments across a wide range of merchants is a key pillar of our strategy to grow our money businesses of Shopee.

In payments, it offers users a faster and more seamless experience, giving them direct success without having to go through the Shopee app. Beyond payments, it helps us unlock more use cases, positioning Shopee Pay as a one-stop platform for users' broader financial needs of shop credit, insurance, wealth management and more. The app has launched in Indonesia, Thailand, Vietnam and Malaysia and is showing strong traction. More than 20% of our Shopee Pay monthly transaction users are using the stand-alone app.

Personnel cash loans also grew strongly this quarter. In Indonesia, we have been offering higher limits and longer tenures to attract more prime users who demonstrate strong repayment behavior. Loan sizes can typically range from a few hundred dollars to over $1,000, allowing us to serve users with larger financial needs. Building on this side, we have similarly expanded access to prime users in Thailand and Malaysia where user adoption is going up quickly.

In Brazil, personal cash loans grew close to 50% quarter-on-quarter, driven by the continued popularity of the combined credit limit we offer to SPayLater users. In conclusion, Monee has delivered another excellent quarter, building well while diversifying our credit portfolio across markets, users and products. Our portfolio quality and our unit economics have remained healthy, and we are standing SPayLater's reach beyond e-commerce and bending it into users' everyday financial user use cases. This will build a pathway for strong offshore growth for many years to come.

Finally, moving to digital entertainment. Garena has delivered another stellar quarter. Bookings were up 51% and adjusted EBITDA grew 48% year-on-year, making it our best quarter since 2021. [indiscernible] anchored with a strong performance with the 2 high impact campaigns, Squid Games and NARUTO SHIPPUDEN Chapter 2. The campaigns received a huge positive response accelerating our growth momentum from the previous quarter. Our Sqid Game collaboration incorporated iconic challenges from the blockbuster Netflix TV series, such as the Red Light Green Light and the Glass Bridge. The event drove strong participation with the Red Light Green Light challenge being played more than 300 million times in the quarter.

Our NARUTO SHIPPUDEN Chapter 2 event expanded on the resounding success of Chapter 1 in the first quarter of this year. Based on gamer feedback and the performance insights, we added new fund favorite [ Linja ] characters, new attack botanics, highly sought after collectible items and the new one-on-one mode, letting players use signature abilities from the series. Chapter 2 went time to surpass Chapter 1 in both engagement and revenue. We saw an extremely high social media share rate for Chapter 2, doubled already high bar set by our anniversary event. Both Naruto chapters have achieved the highest satisfaction scores of any campaign launched over the past 2 years.

Our Naruto content was very successful because it's focused on what players value most, authenticity through attention to detail. The strong focus underpins how we take IP collaboration to the next level, and it is driven by Garena's core creative culture. First, we require every major IT partnership to be led by a team of a genuine, super fun of that IP within arena to ensure authenticity and respect for the original work. Naruto fans love how closely the gameplay mirrors small but important details from the anime. For instance, One key storyline from the original anime was about [indiscernible] returning to to the Ninja village that has been exiled from. In Chapter 1, we had built this Ninja Village into our map and introduced iconic attack skills from the main anime characters.

In Chapter 2, we introduced attack skills that was specifically from the [indiscernible] characters like fire balls, black fire and exploding birds and redesigned the map to feature a desert version of the Ninja Village. Continuing the narrative between the chapter in a way that was true to the original anime created a highly immersive experience and broad fan excitement to the next level. These detailed only super fun would care about and understand how to incorporate into game play.

Second, we take a global yet local approach, bringing global IP to our markets in highly localized way. For instance, we took advantage of the huge traction of our Naruto campaign to hold Ninja being offline event in 8 markets across Asia and Americas, attracting tens of thousands of banks. The largest of these events was a 2-day international All Star Ninja Clash [indiscernible] tournament in Bangkok with teams of 3 bar players flying in from across Asia and Latin America to compete. The Bangkok tournament with a huge success, becoming a top trending event on YouTube gaming and on social media across key markets.

In addition to such events, our teams stay closely connected to players through creative programs and fan groups, taking into a constant stream of feedback and ideas that shape game design condition. This effort builds very strong community connection and loyalty across our market. Beyond [indiscernible], we continue to expand our publishing portfolio with the launch of EA Sports FC Mobile in [indiscernible], strengthening our long-standing partnership with Electronic Arts. The game quickly became the country's most downloaded mobile gaming October based on center tower. By combining EA's world-class football franchise with Garena's local know-how, we are deepening our expertise in sports game and reinforcing our position as a trusted publishing partner for global titles.

With this very strong quarter, Garena remains on track to achieve more than 30% year-on-year growth in bookings for 2025. Our creative debt, disciplined execution and close connection with players will continue to drive Garena's growth.

In conclusion, all 3 businesses have built up the strong momentum from the first half of the year and delivered another quarter of exceptional growth. We will continue to make our digital ecosystem even more vibrant strengthening our leadership position and deliver sustainable and profitable growth to our shareholders.

With that, I invite Tony to discuss our financials.

[Hou Tianyu, executive]

Thank you, Forrest, and thanks to everyone for joining the call. For Sea overall, total GAAP revenue increased 38% year-on-year to $6 billion in the third 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 $874 million in the third quarter of 2025 compared to an adjusted EBITDA of $521 million in the third quarter of 2024.

On e-commerce, Shopee's gross orders increased 28% year-on-year to $3.6 billion in the third quarter of 2025, and GMV increased by 28% year-on-year to $32.2 billion in the third quarter of 2025. Our third quarter GAAP revenue of $4.3 billion included a marketplace revenue of $3.8 billion, up 37% year-on-year and GAAP product revenue of $0.5 billion. Within GAAP marketplace revenue, core marketplace revenue mainly consisting of transaction-based fees and advertising revenues was $3.1 billion, up 53% year-on-year. Value-added services revenue, mainly consisting of revenues related to logistic services was $0.7 million, down 6% year-on-year due to increased shipping subsidies.

E-commerce adjusted EBITDA was $186 million in the third quarter of 2025 compared to an adjusted EBITDA of $34 million in the third quarter of 2024. The Digital Financial Services GAAP revenue was up by 61% year-on-year to $990 million. Adjusted EBITDA was up by 37% year-on-year to $258 million. As of the end of September, our consumer and SME loans principal outstanding reached $7.9 billion, up 70% year-on-year. This consists of $6.9 billion on book and $0.9 billion of book loan per cable 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 grew 51% year-on-year to $841 million. GAAP revenue was up 31% year-on-year to $653 million. The growth was primarily due to the increase in our active user base as well as the deepened paying user penetration. Digital entertainment adjusted EBITDA was $466 million, up 48% year-on-year.

Returning to our consolidated numbers. We recognized a net nonoperating income of $61 million in the third quarter of 2025 compared to a net nonoperating income of $50 million in the third quarter of 2024. We had a net income tax expense of $161 million in the third quarter of 2025 compared to net income tax expense of $93 million in the third quarter of 2024. As a result, net income was $375 million in the third quarter of 2025 as compared to a net income of $153 million in the third quarter of 2024.

[Unknown Executive]

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

[Operator]

[Operator Instructions] Your first question comes from Pang Vitt with Goldman Sachs.

[Pang Vittayaamnuaykoon, analyst]

Two questions from me, both on the e-commerce side. Number one, on your growth guidance of more than 25% year-on-year for 2025. What do you bake in, in terms of the driver and competitive landscape? What will it mean for your margin trend? And how should we think about these trends carry into 2026? That's question number one.

Question number two, just to have a good understanding of the margins. So margin trend for e-commerce came down to 0.6% in the quarter despite higher take rate. Can you help us understand where is the investment area, whether this is in the fulfillment, as you mentioned? Or is there also something else that we should be aware of? Are these more fixed all variable? And how long and how much should we expect this investment cycle to be?

[Hou Tianyu, executive]

Yes. In terms of the growth assumption of more than 25%, I think we are kind of half into the quarter already. It's basically based on what we see so far in the market on the momentum and competitive landscape, it's pretty much reflective of kind of what we see so far as we come into the quarter.

And regarding the margin questions, the -- if you look at the previous year versus this year, we do see a consistent improvement of margin. If you look at year-to-year basis, as we shared before, we will obviously see quarter-to-quarter fluctuations sometimes for seasonality reasons for some of the investment cycle of the initiatives and could also be a particular market status in terms of where we are pushing some of these initiatives.

So I think if you look at a bit sort of year-to-year trend, even going forward, I think we believe that we are able to deliver the 2% to 3% EBITDA margin as we shared before, and also have an improvement year-to-year if you look at the yearly basis.

In terms of where we are investing, one of the thing is what we mentioned in the opening, further investment into the logistic capabilities and fulfillment capabilities. And beyond that, we are also deepening our buyer engagement and [indiscernible] shares through, for example, our Shopee VIP program that we shared in the opening as well. And all those efforts has been showing a pretty good result. Our buy frequency improved 12% year-on-year and average monthly active buyers increased 15% year-to-year as well, which contributes to our great growth this quarter, which is way above the guidance we gave in the of the year, which is 20%.

The -- most of these investments are less fixed per se. We take a relatively asset-light approach even coming to our logistics and [indiscernible] businesses. We don't want to lend. Most of our CapEx is just improvement of building the warehouses or sorting facilities, et cetera. For our buyer engagement and [indiscernible] share program on IP is also less fixed. Obviously, you will see a little bit of investment in the early days to get everybody understand the program and join the program. But as time goes, it should be a quite profitable program as you probably have seen in other e-commerce platforms. across the globe.

[Operator]

Your next question comes from Divya Kothiyal with Morgan Stanley.

[Divya Kothiyal, analyst]

My first question is on your new market entry strategy and framework. Could you explain the rationale behind closing some of the cross-border operations in LatAm and the reentry into Argentina? What milestones would you monitor for Argentina before making it a localized business? And is this part of your 2026 priorities?

My second question is on market shares. If you can comment on the market shares in ASEAN, how have they moved in the third quarter? And also, if you could comment on Taiwan, do you foresee increasing marketing spend and investments in Taiwan next year? We're also seeing a bigger contribution from cross-border with Taobao getting more popular there. So if you can comment on the market shares on ASEAN and Taiwan, that would be helpful.

[Hou Tianyu, executive]

Yes. I think regarding the new markets, we take a very highly selective approach on any new geographic expansions. Many of the initiatives will be very early stage, testing the market in nature. The reason we look at Argentina is it's essentially a expansion of our capability that built in Brazil, leveraging on our existing cross-border infrastructure and the operational experiences we had already built in Brazil. The objective is more to capture the operational synergies across the adjacent regions and open additional channel of our sellers with a minimal increased mental investment. I think the -- we will take some time to learn about the market without sort of have a heavy investment into the market at this point in time.

For Chile and Colombia, we decided to wind down our cross-border operation in Chile and Colombia as part of our ongoing review of our global business priorities to ensure our resources are focused on the key business priorities in line with our long-term strategy in the region. Latin America is still an important market for us. We will continue to explore the opportunities to serve the consumers and business well there. If you look at the absolute size in Latin America, obviously, Brazil is the largest one, where we are have a very large presence there. Argentina, as we mentioned and Colombia and Chile, a relatively smaller market and also rate more distant from Brazil. I guess that's thinking around the first question.

Regarding the market share in South Asia in quarter 3. As we shared, our growth has been above kind of the expectations we shared before. And across the region, we do believe that we are gaining market share in South Asia growing faster than the market in South Asia. For Taiwan, in particular, the cross-border to Taiwan has been, in general, a smaller part of the businesses, giving the complexity for the buyer experience on cross-border side. So we are less concerned about the cross-border players selling from overseas to Taiwan as a potential impact to our businesses.

Actually, if you look at the recent quarters, we grew very well in Taiwan. We grow double digit, which is faster than the overall market in Taiwan. So we are pretty confident that given we are the largest e-commerce platform with the largest assortment with the best pricing. And also, we have the best delivering infrastructure with a much lower shipping and fulfillment costs compared to anyone in the, market we are able to defend our market share, well, we are able to grow even faster in Taiwan with our investors a much better build than previous years.

[Operator]

Your next question comes from Alicia Yap with Citigroup.

[Alicis a Yap, analyst]

Congrats on the solid results. Two questions. One is if you can elaborate a little bit more overall competitive landscape in Southeast Asia. So are there any countries that we are seeing more intense competition lately? And also any countries that where you see peers are growing faster than Shoppe? And do you anticipate the live streaming peers to start shift more of the traffic and also the purchase frequency to the shelf-based, the marketplace model in addition to the live streaming? If that is happening, what could be the potential threat to Shopee?

And then second question is, should we assume the investment cycle this time around similar to maybe like a couple of years ago where there could be some step-up investments that are more front-end loaded with GMV growth and my share growth to follow to later, especially for, for example, like you need to ramp up your fulfillment capability in some of the markets, which will yield better results later on. So could you clarify if this time the investment cycle could be similar to what we saw last -- I mean 2 years ago?

[Hou Tianyu, executive]

On the competitive landscape, what we see is relatively stable competitive landscape. I think as you can probably observe as well from your own sources, we didn't see any particular market different from another, I think, has been a general trend across the South Asia market in terms of the intensities or the behavior of the competitors.

Regarding whether the livestream peers focus more on shelf space model, I think it's not something new. I think it's something we try to do for quite a long time. It's as you probably see from China as well, et cetera. But we do see that the nature of the platform is different. I think the percentage of shelf commerce, it's relatively consistent, let's say, from what we observed. The -- also, if there are much more traffic pushing towards that, that is a potential of impacting how the overall app behavior and the user retention as well. But anyway, I think that's kind of similar behavior, you will see in China and South Asia. But we wouldn't see that new thing impacting the comparison in a meaningful way.

On the investment cycles, I think the short answer is probably not. It's probably quite different from what you see 2 years ago in terms of the investment to the content ecosystem, if you remember that. I think what we are doing now is more as a continuous investment to our business to strengthen our competitive mode, pretty aligned with what we shared continuously every quarter, we would like to invest into our infrastructure to have better logistics and now we are extending logistic fulfillment network as well. It's actually in a way it's not company new, it's a capability we have been trying to build for a period of time. And now we felt it's a good time to scale it even more.

But as I shared just now, it's less CapEx-intensive businesses, as you probably imagine, and also as we grow the businesses, it will help our growth as well because this will help us to lower the overall cost to serve as ecosystem and also reduce the delivery time to the user to help us to penetrate the user more. And many of this contribute to our growth faster than we expected earlier the year as well.

If you take a look at the VIP programs, yes, it's a little bit sort of investment in the early days, but we also see that with the investment, we -- the user are willing to spend more with the platform as well. I think Forrest shared that the users purchase more than before they joined the program. So in a way, it's a big front load investment, then they return come later. I think this time, you will see it's more ongoing investment program to strengthen our competitive mode, as I shared earlier, and this will impact on the general growth as we invest.

[Operator]

Your next question comes from Piyush Choudhary with HSBC.

[Piyush Choudhary, analyst]

Congratulations for great set of numbers. 2 questions. Firstly, for Shopee Logistics, what percentage of orders are now fulfilled by [ XPX ] within Asia and Brazil. How has it changed over the last 1 year or so how much of increase in your cost of services is driven by this logistics investment and the outlook for this cost item? That is first.

Secondly, on Garena, can you share the outlook for Free Fire for 2026 after successful 2025? Any plant IP collaborations, any new game launches?

[Hou Tianyu, executive]

On the SPX, I do believe we shared before, more than half of our orders delivered through our SPX and the percentage has been increasing, let's say, overall over the last year as we scale our network.

On our cost per order, it has been continuously improving year-to-year. I think that's part of that contributed to our growth as well because this lower than the cost buyer have to pay to receive orders. But on top of that, I also want to highlight, not only we try to not only reduce the cost of our SPX delivery cost, but we also increase the speed for our SPX costs. Forrest mentioned that in Brazil, we reduced by way in time by 2 days, if you look at year-to-year. The -- in Asia, we also reduced the time quite meaningfully year-to-year and quarter-quarter as well by both introducing the faster shipping channel.

If you look at many countries we have the instant delivery now. We also have same-day deliveries, but also reducing the normal delivery channels speed. I think this all helped to contribute to our growth, as you see.

[Forrest Li, executive]

For the Garena outlook and the -- Well, we are very excited to observe the momentum. I think this is extremely valuable like -- since the turnaround like 2 years after the post COVID headwind. And in 2024, we have a very, very high growth, and that is the strong momentum continuing into [ 2005 ]. Actually, the growth is -- it's even accelerated this year compared to last year. So the momentum is still very, very strong. So we remain very optimistic and the positive like for the [ 2006 ], we believe the user base will continue to grow. The content that the offerings will be more like the experience, user experience more immersive. And I think like the specific this year with a very, very successful IP collaborations. And I think Garena an organization, we unlocked a very important capability. So how to continually work with global IPs and deliver the best content, very unique experience to our large user base, right?

Whatever we put on the platform, put into the game like on a single day, more than 100 million gamers from all over the world, we are going to be able to experience that he's a very, very such -- very, very powerful distribution platform, distribution channels. So we'll continue to work with more IP. But of course, we are also very, very selective as well. And we're also quite excited to kind of see what like the AI can do in terms of boosting the both the creative side, production side and also the user experience side. We think that is a potential boost for the future growth as well.

At this moment, we are in the process of like for the detailed planning of next year. I think probably we'll have a better sense, we're ready to share to the market what will be the specific outlook we received for Garena in 2026 next quarter. We always have some new games in our pipeline. We have a very, very strong and dedicated experience developed first to especially focus on the new games. And we have several games already in the pipeline or like in some markets already live in the trial period where learning experiences. And at this moment, I think it'd be premature to project what is the impact, I think, considering the size of the scale of the Free Fire in terms of the user base and the revenue and perfect, I don't think at this moment, even if we have any new games at early stage will be made significant impact in terms of the pro-user numbers and the revenue and the financial side.

But we're going to continue to put a lot of effort. And I think that through the new game development, we also learned about the different genes and we also learned the difference about some new markets we haven't been to. I think this will remain at a very, very good opportunity for future growth. So when we have like a [indiscernible] is the right time to share. So we'll also keep all our shareholders and investors informed.

[Operator]

Your next question comes from Jiong Shao with Barclays.

[Jiong Shao, analyst]

My first question is on the VIP membership. I'm trying to get a better understanding of that program. That's clearly a great thing to do longer term. I suspect in the near term, I was wondering what's the unit economics look like for the members? And what do you think the eventual VIP member penetration should be in the region? So the reason I obviously ask that is because your gross margins for e-commerce came down a bit quarter-over-quarter. So I suspect it's kind of negative initially. And is there a time frame to kind of reach breakeven for the members?

Second question is about AI. I think Forrest did reason they did some media interviews talking about AI may power the company to be one of the first trillion dollar company in the region. I was hoping you can talk about what are some of the things potentially you may do -- you want to because some investors are worried about some massive AI CapEx that may be affiliate associated with any kind of new venture?

[Hou Tianyu, executive]

On the VIP program, we are still in a very early stage of rolling out the program as you public can see, it's only a few months, but we see a very good growth on the users sign up. If you look at sort of quarter-to-quarter, we see a $0.75 growth on the members. In terms of the GMV penetration, we are seeing the early states, we're selling the teams, and we believe this can be a lot higher public similar to the percentage you observed in other part of the world in terms of the penetration.

The -- I think the important thing for us to look at the economics is that the -- we would like to make sure the members not only receive better benefit from the platform because they are paid members and the important core users. We also want to make sure that we work with our partners to bring the benefit to them as well.

If you look at Indonesia, was videos -- in the end, we were with FTP plays. We also work with ChatGPT as well of a free program to the VIP members. I think all those will help us to have good economics for this program. But you are right in the early days it does require some sort of investment to bring the user over.

One thing that we monitor very closely is the retention rate. We would like to make sure that the user will bring to the program has good retention. And in our early market, we see the retention improve almost doubled from the last quarter to this quarter period of time, which is a big breakthrough for us, giving that in our market, credit card is not a common payment method in many other market, people use credit card to make sure that it's a confused payment. We are working on multiple a way to ensure that the retention goes well with the program well, especially together with our digital finance side through a SPayLater as well.

[Forrest Li, executive]

Sure. John, on the AI question, yes, I mean, as I shared during the interview, you mentioned we are deeply excited about this new technology. I think that represent a fundamental technological revolution and which will create massive new opportunities and supercharge technology's ability to on value -- unlock value for people everywhere. I think is extremely exciting for the market area which still like millions of -- hundreds of millions of people is underserved, right? And we have seen that uplift in the past 10 years through the mobile Internet revolution, and we have observed and how that much the smartphone, the mobile Internet transfer and the [indiscernible] life help bring how much like a joy convenience to people's lives. And of course, we are part of this transformation, and that is what we are really as a company and what it's about our mission.

We try to focus on the applications and how to connect those are like fantastic technology to the people's daily life every corner of the -- like from every corner of the world. And we believe that we'll see some similar pattern of AI revolution, probably we believe this impact and the value creation will be much, much bigger. At this moment, so we -- like the things you mentioned, okay, we probably were not going to do what the the big pack is going to do. We're not going to like develop trying to make some fundamental large language model breakthrough. We're not going to build data centers. I think like for that part, we were very much like open to work with all the like a big tax -- we kind of -- we have a lot of admiration with respect to how much effort and how much they can do to continually have the breakthrough of the technology and make the technology more powerful and more useful. And what we are going to more focus on, applications and how that technology build the silicon value anywhere in the world transform to a consumer's daily life, small businesses like in Indonesia, in Vietnam, in Brazil.

So that was expected what we're good at. And we have a lot of practice that we learned in the past decade, and I think that is also kind of like make us really, really excited. So we're going to have a very, very critical and bottom market approach. So -- and we are very much focused on seeing the immediate return the result as I shared in my opening, right? And we are very excited to see some very critical use in Shopee, right? And how much this kind of help on the advertising conversion, how to make the product discovery easier and it's like a more discovery beyond traditional search, right, how to help sellers improve the product leasing quality and how to improve the base retention and the conversion rate. And I think I probably shared in the previous quarter -- like a quarter and also this is -- we see the improvement in terms of the customer service capability and now a majority of our customer service is it's handled by AI like a chatbot and the satisfaction rate is very, very high.

So that is all the things like we have seen the results and the progress of bottom up. And we believe with the continuing improvement capability build, enabled by the more advanced large language model and other part of the AI development, and there will be more and more things we can apply into the day-to-day business and which make a positive impact into people's daily life.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Rebecca Lee for any closing remarks.

[Unknown Executive]

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

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.