Recap - 17

Recap #17

1 minutes reading time
8 Mar 2023

This week’s recap includes topics such as Ulta’s record-breaking results, JD’s journey towards break-even for JD Logistics, the structural tailwinds supporting CrowdStrike, and Sea Limited’s successful transfer towards profitability.

Ulta Beauty

Record-breaking results across the board, capital allocation framework, strategic initiatives, and the key to success.

Q4 2023 Y/Y Δ
Revenue +18%
EBIT +19%
*margin 13.9 (13.8)
EPS +23%
New Store Openings +12 (6)

-> Period highlights: Our fourth quarter was a strong end to a record-setting year. For the first time in our 33-year history, our annual revenue surpassed $10 billion, and our annual net income exceeded $1 billion. In addition, we expanded our loyalty program to more than 40 million members. Achieving such meaningful milestones reflects healthy consumer engagement with the beauty category, the power of Ulta Beauty's highly differentiated model and the impact of our winning culture and outstanding teams. [...] Now to the results. For the fourth quarter, net sales increased 18.2% to $3.2 billion. Operating profit increased to 13.9% of sales, and diluted EPS increased 23.5% to $6.68 per share. Sales of all major categories exceeded our expectations, and we saw solid sales momentum across both our store and digital channels. Additionally, we continued to see healthy growth in spend per member across all income demographics. This broad-based strength reflects successful execution of our key fourth quarter events, including holiday, Jumbo Love and Love Your Skin. – David Kimbell, CEO (00:02:22)

-> Significant growth across all categories: All major categories delivered double-digit growth again this quarter, and we increased our market share in prestige beauty versus the fourth quarter last year based on data from the NPD Group. Skin care delivered the strongest growth this quarter with double-digit growth in both prestige and mass. Growth in the quarter was primarily driven by serums, moisturizers, acne treatments and holiday gift sets. Guests engaged with newness from brands like Drunk Elephant, The Ordinary and Hero cosmetics. While dermatology-based brands like La Roche-Posay and CeraVe also resonated strongly with guests. Our successful Love Your Skin event also contributed to the category's strong growth. In addition to converting members to the skin care category with prestige skin care offers, we also introduced guests to our wellness assortment with new beauty steals from a variety of brands, including Truly, Love Wellness and Sugarbear. – David Kimbell, CEO (00:04:41)

-> Strategic initiatives; first pillar: We introduced a new strategic framework designed to guide our priorities and enable Ulta Beauty to expand our market leadership and drive profitable growth. [...] Our first strategic pillar is to drive growth through an expanded definition of All Things Beauty. And this year, we continued to enhance our offerings to engage and excite beauty enthusiasts. All major categories delivered double-digit comp growth, and we increased our market share in prestige beauty versus fiscal 2021 based on data from the NPD Group. We strengthened our assortment with the addition of leading brands in every major category, including Fenty Beauty, Dior, BYOMA and MAËLYS and expanded MAC and Chanel Beauté into more doors. We also introduced guests to exciting emerging brands, including about-face, Divi, sk*p and Vacation through our Sparked platform. – David Kimbell, CEO (00:08:15)

-> Second pillar: Turning now to our second strategic pillar, All In Your World. We're focused on evolving guest experiences through a personalized connected omni-channel ecosystem. In fiscal 2022, we continued to enhance the guest experience across all our touch points. We expanded our physical footprint, opening 47 new stores and renovating or relocating 32 stores. We relaunched makeup services and introduced new salon services, including curl-specific treatments and extensions. These enhancements, combined with record-setting stylist productivity and increased transactions, resulted in strong double-digit growth for our services business. Reflecting our efforts to enhance our buy anywhere, fill anywhere capabilities, we expanded our same-day delivery offering to 6 new markets and delivered significant improvement in guest satisfaction with the BOPIS experience. – David Kimbell, CEO (00:09:50)

-> Third and fourth pillars: Moving to our third strategic pillar, expanding and deepening our engagement with guests by ensuring Ulta Beauty operates at the heart of the beauty community. During the year, we continued to drive guest love, loyalty and share of wallet, and our efforts created stronger, more emotional connections with our guests. Overall, unaided awareness grew significantly with meaningful gains among key audiences including Gen Z, Hispanic and Black beauty consumers. Importantly, we increased the number of active members in our loyalty program by more than 3 million members, ending fiscal 2022 with a record-breaking 40.2 million Ultamate Reward members, who shopped more frequently and spent more with us on average. [...] Our fourth strategic pillar is to drive operational excellence and optimization to enable us to capture additional market share on guest experience enhancements and deliver future profitable growth. – David Kimbell, CEO (00:11:28)

-> Inventory and capital allocation: Total inventory increased 7% to $1.6 billion compared to $1.5 billion last year. In addition to the impact of 47 new stores, the increase reflects inventory purchases to support new brand launches and brand expansions as well as the impact of inventory cost increases. Our well-established business model continues to generate significant cash from operations, including more than $1.4 billion in fiscal 2022. Our capital allocation philosophy remains consistent. Our first priority is to reinvest in our business to drive future growth followed by returning excess cash to our shareholders. [...] During the fourth quarter, we repurchased 722,000 shares at a cost of $328 million, bringing total share repurchases to $900 million for the year. Since launching our stock buyback program in 2014, we purchased more than 16 million shares at a weighted average price of $293, effectively returning $4.8 billion to shareholders while continuing to invest in strategic growth drivers. – Scott Settersten, CFO (00:30:26)

-> 2023 outlook: Turning to our outlook for fiscal 2023. We ended fiscal 2022 with strong momentum and are confident the U.S. beauty category will remain healthy. Our financial expectations reflect this optimism but are risk adjusted to reflect an uncertain macro environment, increasing competitive pressures and the reality that we will lap 2 years of stronger-than-expected performance. Specifically for fiscal 2023, we plan to open between 25 and 30 net new stores and remodel or relocate 20 to 30 existing stores. [...] We continue to expect to open about 100 stores over the next 2 years, but the timing of openings are expected to shift between fiscal 2023 and 2024 as we navigate these external challenges. We expect net sales will increase 7% to 8% with comp sales growth between 4% and 5%. [...] We expect operating margin for the year will be between 14.7% and 15% of sales driven primarily by SG&A deleverage, reflecting investments to support our strategic priorities and higher store expenses as well as ongoing wage pressures. – Scott Settersten, CFO (00:32:22)

-> Key to success: Our assortment is key to our success. One of the things that's really encouraging to us and again, gives us confidence moving forward is our performance has been broad-based. We're seeing double-digit growth across all major categories. And as we look forward into 2023, we see good healthy momentum in each of the categories. We feel confident. And fundamentally, it's driven by an overarching beauty trend and understanding of the power and importance of beauty and how it connects to overall wellness and self-care. That elevated connection, the increased emotional connection and the importance that beauty plays is fueling the entire category. And that's what's helping drive each element in each individual subcategory within the total beauty space. So we feel clearly good about what 2022 looked like and have good optimism going forward. A lot of newness, a lot of activity across each of our major categories. We've got newness in makeup and in hair care and fragrance. We'll continue to drive innovation in things we're excited about. – David Kimbell, CEO (00:47:49)

DAU growth, how JD logistics reached break-even on a full year basis, the new dividend policy, and the rise of JD’s private label brand.

Q4 2022 Y/Y Δ
Revenue +7.1% 
*Product +1.2%
*Services +40%
**Marketplace and Ads +11%
**Logistics and Other +75%
FCF +424%
*margin 4.1% (0.8)

-> DAU growth and JD Plus members: In the quarter, on top of our largely stable user base, we also recorded double-digit DAU growth year-on-year. More encouragingly, we are seeing an upward trend for both user structure and quality. In particular, in our core business JD Retail, repeat purchases and payment members both grew robustly in Q4 and accounted for higher proportions of our total users, which helped to drive up shopping frequency and ARPU. JD Plus reached 34 million members in Q4, while flat members continue to spend 8x the average annual amount of non-plus members, reflecting their high shopping frequency and spending power. [...] We are continuously improving our user service and operating capabilities so as to better serve our users in first and second-tier cities as well as lower tier markets. – Lei Xu, CEO (00:11:21)

-> JD Logistics reached break-even on a full year basis: Despite the impact of COVID, JD Logistics maintained a resilient revenue growth in Q4. More notably, with the continuous improvement of this business, JDL has been profitable for 3 consecutive quarters and achieved a target of break-even on a full year basis. Despite the macro challenges and dynamic competitive landscape, JDL has been able to further strengthen its position in the industry. JDL also continued to draw on the complementary strengths of and create synergies with Kuayue-Express and Deppon, particularly in the areas of integrated supply chain services, Air Express network, bulky item delivery and express network. This has enabled JDL to provide comprehensive supply chain solutions for both up and downstream customers to help them reduce cost to increase efficiency and withstand risks while at the same time build a more advanced logistics system. – Lei Xu, CEO (00:15:30)

-> Significant progress for the private label brand Jing Zao: Another example is our private label brand, Jing Zao, which translates as made by JD. It delivered over 60% year-on-year growth in 2022. The initial purpose of this business is to complement the product categories offered on our platform and to create new value for our suppliers and customers. It also helps JD to further expand throughout the up and downstream of the supply chain. We are pleased to see that 25% of Plus members have become loyal users of Jing Zao products, and the percentage continues to increase. Both JD Industrials and Jing Zao offer solid proof that we are on the right track as we adjust and focus on our core business and promising new businesses. – Lei Xu, CEO (00:17:40)

-> Period highlights: Now let me walk you through our financial results in Q4 and the full year of 2022. Net revenues grew by 7% year-on-year to RMB 295 billion in Q4. On a full year basis, net revenues grew by 2% and surpassed the RMB 1 trillion milestone for the first time in our history. [...] Product revenues were up 1% year-on-year in Q4 and 6% in the full year of 2022. Service revenues grew by 40% year-on-year in Q4, and accounted for a new high of 20% of our total revenue, up from 15% a year ago, showcasing the further diversification of our revenue streams. On a full year basis, service revenues were up 33% in 2022. Logistics and other services revenues grew by 75% year-on-year in Q4 and 55% in the full year of 2022. [...] Marketplace and marketing revenues grew by 11% year-on-year in Q4, and 14% year-on-year in the full year of 2022, a notable outperformance compared to the industry. Thanks to our commitment to supporting merchants, particularly the SMEs, we saw a healthy expansion of our merchant base, and they have been investing additional advertising budget on our platform. This bodes well for our continued progress in strengthening our marketplace ecosystem. – Xu Ran, CFO (00:23:15)

-> Free cash flow and the new dividend policy: On a full year basis, non-GAAP net income attributable to ordinary shareholders was RMB 28.2 billion, which grew at a 3-year CAGR of 38%. Non-GAAP net margin for the full year of 2022 increased by 90 basis points year-on-year to 2.7%, hitting a historic high on an annual basis. Our LTM free cash flow as of Q4 reached a historical high of RMB 35.6 billion. By the end of Q4, cash and cash equivalents, restricted cash and short-term investments added up to a total of RMB 226 billion, up from RMB RMB 191.3 billion last quarter. This gives us a stronger than ever position to support business development and again, return value to shareholders in the form of a cash dividend. [...] Furthermore, we plan to adopt an annual dividend policy going forward as a way to sustainably return value to shareholders at an amount to be determined by the Board based on our financial performance in the previous fiscal year and other factors. – Xu Ran, CFO (00:32:50)

-> Intra-city on demand sales and competitive strengths: The intra-city on-demand sales is still a very small percentage of our total GMV for JD Group. If we look at a longer time period, I wouldn't think this business will dilute the impact of our 1P business because really, they are providing our customers very different shopping experiences. The reason for us to expand to this business model was because we realized that some of our customers do have the on-demand shopping requirements even though this business model may not be as efficient as our traditional B2C e-commerce business model in terms of financial model. That means once comparing the price, the value for many products, the pricing may not be as great as our B2C business model. But when the users do have this immediate purchase request, then we can also satisfy their shopping demand. So really, it's to improve our customers' shopping experience. In terms of competitiveness of our 1P business model, I still believe our 1P business model, because of the scale of the economy, we have a very unique and very strong competitive advantage in terms of the lower cost, lower fulfillment cost. – Xu Ran, CFO (01:06:14)


The key points for the above expected results, the balance between short-term profitability and long-term opportunities, and how CrowdStrike benefits from AI and structural trends.

Q4 2023 Y/Y Δ
Revenue +48%
EBIT Non-GAAP +19%
*margin 15% (19)
Free cash flow +65%
*margin 33% (30)

-> Key points for the above expected results: CrowdStrike delivered a record fourth quarter that exceeded our expectations across the board. I will focus my comments today on a few key points. First, CrowdStrike is executing exceptionally well in a challenging macro environment. We believe this is best showcased by the fourth quarter's record net new ARR of $222 million, record net new customers of 1,873, strong retention rates, record operating income, record free cash flow of $209 million and a Rule of 81 on a free cash flow basis. Second, the dual mandate of high efficacy and low total cost of ownership faced the CrowdStrike strength as a leading consolidator. CrowdStrike's growing market share showcases the Falcon platforms, advanced AI and technology leadership that drives better security outcomes, automation and lower TCO for customers. Third, our conviction in CrowdStrike's expansive opportunity continues to grow. We see a massive opportunity to leverage our AI-driven collect data once, reuse many times platform to expand share across our markets. – George Kurtz, Co-Founder & CEO (00:02:34)

-> On track to reach long-term goals:  We remain steadfast in our vision to grow ending ARR to $5 billion by the end of fiscal year 2026 and to reach our target operating model sometime within fiscal year 2025. The key to our success in the fourth quarter was execution and strong market demand for the Falcon platform. We converted our pipeline into wins and built a record Q1 pipeline even as sales cycles elongated as we saw late in Q3, and we did not see the typical budget flush as organizations continue to work through macro concerns. Our competitive win rate remained high and ASPs remained consistent, and we ended the year with a best-in-class gross retention rate and a strong net retention rate. We believe our strong fourth quarter performance and record Q1 pipeline demonstrates the mission-critical nature of cybersecurity for modern businesses, the resiliency of our market and CrowdStrike's growing leadership as the cybersecurity platform of record. – George Kurtz, Co-Founder & CEO (00:04:41)

-> Good is never good enough on the cyber battlefield: Let me be clear, there is no participation trophy for coming in second place when up against cyber adversaries. Good is never good enough on the cyber battlefield and perceived free is never free. To demonstrate my point, I'd like to share a recent win with a company that suffered a breach after relying on an OS vendor that claimed their legacy signature-based product was good enough to take on today's threat actors. This company had initially chosen Microsoft to replace existing AV products across their estate, but quickly ran into trouble when they discovered that Defender could not be fully deployed within their heterogeneous environment, leaving their service vulnerable. Unfortunately, it did not take long for threat actors to find these gaps and breach their environment. They turned to one of our incident response partners, a leading global SI that uses Falcon as a key part of the responsive remediation service. During engagement, the customer found that Falcon provided 2.5x more coverage than Defender and was much simpler to operationalize. – George Kurtz, Co-Founder & CEO (00:14:18)

-> CrowdStrike’s Rule of 40 and FCF margin: Looking at fiscal year 2023, non-GAAP operating income growth outpaced revenue growth, increasing 81% year-over-year to reach $355.6 million and 16% of revenue, picking up 235 basis points of operating margin for the year. As our magic number and Rule of 40 reflect, we have a highly efficient model. For the past 3 years, we have grown operating income faster than revenue, and we remain focused on continuing to drive efficiency, balancing robust growth with increased leverage. In FY '23, we took advantage of opportunities we saw in the labor market and expanded the team by 46% over last year. We are now more than 7,000 CrowdStrikers strong. This gives us a significant head start to achieving our goals for FY '24 and enables us to significantly moderate the pace of new hires while continuing to invest responsibly for the long term. - 25:24 Burt Podbere, Chief Financial Officer. We ended the fourth quarter with a strong balance sheet. Cash, cash equivalents and short-term investments increased to approximately $2.71 billion. Cash flow from operations grew 71% year-over-year to a record $273.3 million. Free cash flow grew 65% year-over-year to a record $209.5 million or approximately 33% of revenue. This brings free cash flow for the year to $676.8 million or 30% of revenue. – Burt Podbere, CFO (00:27:22)

-> Short-term initiatives affect gross margin: On gross margin, it's not really about pricing. I think we expect it to fluctuate quarter-over-quarter. And as I said in the prepared remarks, we expect it to increase up to 1% in Q1. There are a few things that are impacting gross margin in the short term, which will pay dividends in the long term. One is we're continuing to invest in our data centers. And as we continue to do that, that is going to impact our gross margin again in the short term, but long term, that's what we believe is the right strategy. And second, with our acquisition of Humio, it's not been fully synchronized. So when that does happen, that will take some pressure off of our COGS. So those 2 things are really some of the drivers on the cost side. And I think as we continue to move into Q1 and beyond, we'll be looking for more of that cost optimization. And I still strongly and firmly believe in our long-term model, which talks about our subscription gross margin going up to 82-plus percent. – Burt Podbere, CFO (00:43:20)

-> Pioneers in AI:  When we think about AI, we really are one of the pioneers in AI from a security perspective. We started the company leveraging big data AI to be able to identify threats that have never been seen before and prevent them. We continue to build out our AI capabilities across all of our different modules with the massive data and telemetry that we collect every week. It's mind-boggling. We can use that to continually train and learn, and our AI continues to get smarter as we put more data into the system. So when we think about stopping breaches, the tip of the spear really is the endpoint, the workloads. That's where the adversaries are targeting, and that's where they're focused on stealing data and encrypting it and breaking in and doing damage. And I think when you look at our technology lead in this area, we've proven our efficacy through various testing outlets. We continue to get incredible scores. And at the end of the day, it's really about the brand promise of stopping breaches. And AI is a massive part of what we're able to do to implement how we stop those breaches, and it does represent a competitive advantage and moat for us. – George Kurtz, Co-Founder & CEO (00:45:02)

-> Tailwinds from structural trends:  In terms of modernizing their security stack, I think that's front and center. There isn't a CIO that I haven't talked to that doesn't want to consolidate their hodgepodge of technologies out there. And again, that goes beyond just the endpoint, right, in terms of the things that we offer and the capabilities and the outcomes. And if you just think about the endpoint market itself, as we talked about, the IDC numbers were 17.7%. There's a lot more to go, right? There's still a massive, massive amount of legacy technology that's out there. And again, customers are looking to really take a modern platform approach and consolidate their spend. So it's been something that customers are not looking to just stick with what they have, and breaches are not getting any better. They're getting worse, the threat actors being more sophisticated. And it's going to require better protection with a better outcome. – George Kurtz, Co-Founder & CEO (00:49:35)

Sea Limited

How net income and adj. EBITDA turned positive, margin improvements across all geographies for Shopee, the demographic long-term opportunity, and doing less but doing it better.

Q4 2022 Y/Y Δ
Revenue +7%
*Shopee +32%
*Garena (q/q bookings) -18%
*SeaMoney +92%
Gross profit +30%
EBIT $343M (-442)
Net income $443M (-616)
EPS $0.72 (-1.12)

-> Net income and adj. EBITDA turned positive: 2022 was another year of evolution for us, given the macro uncertainties, we pivoted decisively late last year to focus on efficiency and profitability. As a result, we began to see meaningful improvements in the bottom line. For the fourth quarter, our net income and the total adjusted EBITDA both turned positive. Moreover, we generated $320 million of cash from operations in the quarter. It has not been an easy journey. We could make this significant shift within such a short period of time only because of the collective efforts of our Sea team as a whole and a very strong determination and resilience that our team has demonstrated. We took the hard path, but we believe this is the right path to achieve long-term success. As we continue this transition and manage sustainable growth going forward, we have adopted the approach of doing less, but doing this better. We sharpened our focus on areas with the greatest of potential across our businesses. We exited or downsized operations in noncore markets, streamlined our game pipeline with investments and project closures and deprioritized noncore initiatives. These measures brought immediate cost improvements. More importantly, they allowed us to focus our managerial, operational and financial resources on doing the core things better. – Forrest Li, Founder, & CEO (00:01:50)

-> Possible near-term fluctuations for results: At Shopee, we continue to optimize customer services, seller management and logistics. And Garena, we worked to improve accessibility and the content quality of our core game. We have also been leveraging SeaMoney's strong synergies with the rest of our ecosystem to better serve the under addressed the financial needs in our market. I will elaborate more in detail during the segment discussions. Given the macro uncertainty and our recent strong pivot, we continue to closely monitor the market environment and adjust our pace and fine-tune our operations accordingly. As a result, there may be near-term fluctuations in our results and performance. However, we remain highly confident in the long-term growth potential of our markets and highly focused on capturing these opportunities. More importantly, our determination and ability to execute towards profitability enable us to start 2023 on a much stronger footing. – Forrest Li, Founder, & CEO (00:03:40)

-> Transaction-based fees and advertising drives growth: Let's now discuss each business segment in detail. Starting with e-commerce. I'm pleased to share that Shopee's adjusted EBITDA turned positive in the fourth quarter of 2022. The improvement we achieved in core marketplace revenue and operating costs were key factors driving fourth quarter profitability. In the fourth quarter, GAAP revenue was $2.1 billion, up 32% year-on-year. This was mainly due to strong growth in core marketplace revenue. Within the core marketplace revenue, both transaction-based fees and advertising revenue increased as we deepened monetization and saw greater investments by sellers on our platform to serve buyers better. Full year performance generally mirrors the trend of the fourth quarter with GAAP revenue growing 44% from 2021. In terms of operating costs, we made improvements for each of the major expenses in the fourth quarter. GAAP sales and marketing expenses improved by 34% quarter-on-quarter and 55% year-on-year driven by more targeted investments across shipping incentives and brand marketing. – Forrest Li, Founder, & CEO (00:04:40)

-> Margin improvements across all geographies for Shopee: Now looking at each region. In our Asia market, we reported a positive adjusted EBITDA of $320 million in the fourth quarter. This represents a significant improvement from the previous quarter, which had an adjusted EBITDA loss of $270 million. In our other markets, the adjusted EBITDA loss also decreased by more than 50% quarter-on-quarter to $124 million. In Brazil, we continued to enjoy strong improvement in unit economies. Our contribution margin loss per order decreased by 54% from the previous quarter to $0.47. During 2022, we have been able to drive meaningful improvements in logistics costs to our ecosystem. This will remain an important area of focus going forward. We believe that lowering the cost to serve will be key to our long-term growth by unlocking large, underserved user segments across our markets. While we have already seen early results from these efforts, there is still greater room for improvement. – Forrest Li, Founder, & CEO (00:06:42)

-> Highly focused on user experience: In addition to cost management, we remain highly focused on improving user experience. For example, we have been systematically reviewing and optimizing our process management for customer services. We focus not only on certain key metrics and targets for general user experience, but also on more proactive management. On logistics, we have been working to provide a more efficient and reliable experience to our users. This includes reducing wait time, minimizing delivery losses, and providing a more seamless impact experience to both sellers and the buyers in managing logistics. – Forrest Li, Founder, & CEO (00:07:54)

-> Shopee 2023 focus points; further optimization of cost structure: The macro environment remains uncertain and there are still headwinds on consumption in our market. With our recent pivot, we are showing a positive bottom line for the first time. Our focus this year will be to continue to solidify the efficiency gains and optimize the cost structure across our markets. In our Asian market, we will work to further strengthen our leading position and profitability. In Brazil, we will focus on driving the business towards profitability to capture the significant opportunity in this new market. GMV will largely remain an output for us in the near term. It is important to reemphasize our long-term focus on sustainable growth for Shopee. – Forrest Li, Founder, & CEO (00:08:23)

-> Demographic and long-term opportunity for ecommerce: In our view, e-commerce penetration to our market remains low as compared to its full potential relative to off-line retail. Our market also enjoys a highly favorable demographic trend in terms of their large and growing digital population. This is further supported by long-term economic growth potential across our markets. The key question presented to us at this stage is how much of these underserved needs for online consumption we can sustainably address? This determines the size of the profit we will be able to capture. We believe a large part of the answer lies in our ability to continue to improve the cost structure of our ecosystem through facility, technology, operational excellence and most importantly an unwavering commitment to serve our users. We believe everything we are doing now is to best position us to achieve sustainable growth, profitability and the defensibility of our ecosystem in the long run. – Forrest Li, Founder, & CEO (00:09:10)

-> Digital entertainment period highlights: Now let's turn to digital entertainment. In 2022, online gaming as a market was broadly impacted by ongoing moderation in user engagement and monetization. Our game experienced a similar trend. During the fourth quarter, Garena GAAP revenue was $949 million and bookings were $544 million. Quarterly active users reached 486 million with 44 million quarterly paying users. The paying user ratio and average revenue per user remains relatively stable quarter-on-quarter. For the full year of 2022, GAAP revenue was $3.9 billion, with bookings at $2.8 billion. Despite ongoing moderation, we remain highly focused on sustaining our current core game. We prioritize user engagement by offering better and more enjoyable experiences in our game. – Forrest Li, Founder, & CEO (00:11:03)

-> Doing less, but doing it better: We have targeted initiatives for existing and retaining users. We have also been streaming live game content to improve accessibility and gameplay for all users across diverse markets. In managing cost efficiency, we have comprehensively reviewed our publishing and self-development pipeline in line with our principle of doing less, but doing it better. As a result, we have divested and closed certain projects and remain selective about high potential projects to better direct our resources. This year, we will focus on solidifying our strength in core games and communities while continuing to position ourselves to pursue long-term growth opportunities as they arise. – Forrest Li, Founder, & CEO (00:12:06)

-> SeaMoney; adj. EBITDA turned positive for the first time: Lastly, our digital financial services business. SeaMoney's GAAP revenue was $380 million in the fourth quarter of 2022, up 92% year-on-year. Adjusted EBITDA also turned positive for the first time at $76 million for the fourth quarter. The improvement in profitability was driven by both strong top line growth and optimization of sales and marketing spends. For the full year of 2022, GAAP revenue was $1.2 billion, growing 150% year-on-year, and adjusted EBITDA loss was $229 million. As of the end of the fourth quarter, the total loans receivable on our balance sheet was $2.1 billion, net of allowance for credit losses of $239 million. – Forrest Li, Founder, & CEO (00:12:36)

-> Internal synergies: Our SeaMoney business is a highly synergistic part of our digital ecosystem. For example, our mobile wallet has resulted in lower transaction costs and more stimulus transaction experience on Shopee. Shopee in turn has allowed the mobile wallet to grow its user base and build user habits more efficiently. With Shopee, our credit business is able to leverage a large captive user base, a highly relevant use case with significant scale and the wealth of user insights for more effective underwriting. At the same time, Shopee Benefit has consumers enjoy more flexible payment options, successful credit and greater affordability. We expect our digital insurance, wealth management and the  banking businesses to enjoy similar synergies with our e-commerce platform to serve a large, underserved community in our market. We see SeaMoney as an important long-term growth engine for us. We will continue to prioritize the ecosystem strategy in pursuing this significant opportunity with efficiency and profitability. – Forrest Li, Founder, & CEO (00:13:15)

-> Executing on what is promised: On all fronts, we've been improving and also are well aligned with our previous target to turn quickly and decisively as we see macro uncertainties in our markets. And that has always been our ability to execute on what we promised to the market and to our own teams. As we shared, there has not been an easy quarter. There's a lot of hard work, and we make sacrifices. We exited the markets, we downsized operations, we walked through all these initiatives to decide which is core, which is less core, what we need to prioritize and what we need to deprioritize. With a lot of work condensed in a few months' time with a tremendous effort by the entire Sea team, and therefore, we managed to achieve this. I think this also gives us much better confidence to navigate whatever challenges that might come our way in the future. – Wang Yanjun, Group Chief Corporate Officer (00:27:42)

-> Short-term margin targets and strategy: For Garena, our focus now is continue to stabilize our user base and provide better experience to our users on our core games; at the same time, continue to improve our profit margins. I mean at more than 47% EBITDA margin, we believe that we are still very high compared to the industry average. And we have shown the ability to achieve a very high margin for the business before, and we'll continue watching our margin closely to improve our efficiency. In terms of digital financial services, it's a very early stage. We just turned profitable for the first quarter, and we'll continue to expand the overall service offerings to our users so that we can reach a broader user base and offer more diversified services, but the focus on that business is more on the quality and long-term sustainability and trust building with our users. It's not to us at this stage a speed-driven business. We believe in building a solid foundation, leveraging the ecosystem advantages it has. Being part of a Sea ecosystem with the strong synergies with Shopee, in particular, is the most important thing at this stage. For Shopee, it's going to be a market-by-market dynamic assessment. All our Asian markets are currently EBITDA-positive. Now the Brazilian market, which is relatively new, we've seen significant profitability improvement while we continue to see relatively stronger growth there compared to our Asia markets. – Wang Yanjun, Group Chief Corporate Officer (00:33:58)