Sea Limited (NYSE:SE) Q3 2020 Earnings Conference Call November 17, 2020 7:30 AM ET
Company Participants
Minju Song - Manager, Group Chief Corporate Officer’s Office
Forrest Li - Chairman and Group Chief Executive Officer
Tony Hou - Group Chief Financial Officer
Yanjun Wang - Group Chief Corporate Officer
Conference Call Participants
Miang Chuen Koh - Goldman Sachs
Thomas Chong - Jefferies
Piyush Choudhary - HSBC
John Blackledge - Cowen
Ranjan Sharma - JPMorgan
Alicia Yap - Citigroup
John Choi - Daiwa
Mark Goodridge - Morgan Stanley
Varun Ahuja - Credit Suisse
Operator
Good morning. Welcome to Sea Limited Third Quarter 2020 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Minju Song. Please go ahead.
Minju Song
Thank you, Kate. Good evening and good morning, everyone and welcome to Sea’s 2020 third quarter earnings conference call. I am Minju Song from Sea’s Group Chief Corporate Officer’s Office.
Before we continue, I would like to remind you that we may make forward-looking statements, which are inherently subject to risks and uncertainties that may not be realized in the future for various reasons as stated in our press release. Also, this call includes discussion of certain non-GAAP financial measures, such as adjusted EBITDA and net loss, excluding share-based compensation and changes in fair value of the 2017 convertible notes. 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 disclosure. For a discussion of the use of non-GAAP financial measures and reconciliation with the posted GAAP measures, please refer to the section on non-GAAP financial measures in our press release.
I have here with Sea’s Chairman and Group Chief Executive Officer, Forrest Li; Group Chief Financial Officer, Tony Hou; and Group Chief Corporate Officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights and financial performance for the quarter. 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
Hello, everyone and thank you as always for joining today’s call. We are very happy to report another quarter of strong performance across our business. We continued to see robust user growth and deepening of user engagement on each of our platforms during the quarter. We believe accelerating shift to digitalization in our global market is the sustaining trend. As the market leader in our core segments, we are well positioned to capture the growth opportunities presented by this acceleration. Our strong financial and operational results for the quarter once again underline our ability to execute well and see a disproportionate share of the faster-growing markets.
On the group level, our quarterly GAAP revenue grew 99% year-on-year to reach $1.2 billion. Gross profit grew 101% year-on-year to reach $407.6 million. We also recorded very strong bottom line results, with adjusted EBITDA reaching $120.4 million. This further demonstrates the strength and efficiency of our business model. We will continue to drive rapid growth with efficiency as we further extend our market leadership. In line with our strong results, we are raising our guidance for both digital entertainment and e-commerce for the full year of 2020. In digital entertainment, we believe our very strong performance in the third quarter will sustain through the fourth quarter. As a result, we now expect bookings for digital entertainment to exceed $3.1 billion, representing over 75% growth from 2019. This revised guidance represents an increase of more than 59% from the midpoint of the previously disclosed guidance.
We also expect GAAP revenue plus sales incentives net-off for e-commerce to exceed $2.3 billion. The revised guidance represents a more than 144% increase from 2019 and a more than 31% increase from the midpoint of the previously disclosed guidance. These revisions reflect both the strong historical performance we have achieved so far this year and our continued positive outlook moving into the fourth quarter.
Let me start with digital entertainment. The third quarter was another standout quarter for Garena with strong performance across all our key metrics. Bookings were $944.7 million, up 110% year-on-year. Adjusted EBITDA was $584.5 million, up 120% year-on-year, representing 62% of bookings. The strong performance was driven by robust active and paying user growth. Quarterly active users reached 572.4 million, an increase of 78% year-on-year. Quarterly paying users reached 65.3 million, up 124% year-on-year and representing over 11% of quarterly active users.
We are particularly encouraged by the strong active and paying user growth for the quarter. This reflects our ability to continually deliver high-quality content that attract and engage users. Free Fire sustained its strong performance. According to App Annie, it continues to be the highest grossing mobile game in Latin America and Southeast Asia in the third quarter. A key factor in Free Fire’s continued success is our ability to constantly deliver high-quality content tailored for the taste and the preferences of our huge global user base. In recent months, Free Fire partnered with celebrities such as Bollywood actors and global artists to create playable characters and other in-game content inspired by these celebrities. For example, in September, we released a playable character of a Bollywood star who was the lead actor in the highest grossing Indian film in 2019.
We have also worked with a popular global artist to create another song exclusively for Free Fire, which is a play inside game. Within 2 weeks of being launched, the song was streamed more than 25 million times across various online platforms. We introduced the more social and community features into the game. For example, the new training ground feature has been highly popular with our users. This is an area within the game where players can meet and hang out socially. So far, about one in four of our players spends time there everyday on average. This and other social features further strengthen the network effect and stickiness of the game.
On the same note, our e-sports community continues to strive. Free Fire’s tournaments held during the quarter have accumulated over 150 million online views to date. In August, we hosted a national tournament for Brazil spanning 2 months. This tournament has recorded over 47 million online views to date. We are also extending the reach of our e-sports events beyond our strong online audience. For example, the grand final for Free Fire Indonesia Masters 2020 Fall, was broadcasted on national TV reaching an even broader fan base, online and offline. Our highly local and interactive content and community activities increase the ability of our users with Free Fire. These efforts also ensure that game stays fresh and relevant for our users over time. This in turn grows our user base and improves engagement. As we move into the fourth quarter and look to 2021, we will continue to focus on providing the global Free Fire community with captivating content and fresh and engaging experiences, both within the game and through our social and community features. We are confident that there is a very long runway ahead for this franchise.
Turning to e-commerce, Shopee had another great quarter. Building on our momentum and leadership, we continue to capture more share of our region’s rapidly expanding e-commerce segment. We also continued to deliver more value to our sellers and buyers, while deepening monetization and driving efficient growth. Shopee recorded 741.6 million gross orders, up 131% year-on-year, and GMV of $9.3 billion, an increase of 103% year-on-year. GAAP revenue for the third quarter was $618.7 million, up 173% year-on-year. We also continue to drive efficiencies across the business with adjusted EBITDA loss per order decreasing by 48% year-on-year to $0.41 during the quarter.
In the third quarter, Shopee continues to rank as the number one in the shopping category across Southeast Asia and Taiwan by download, average monthly active users and the total time spent in app on Android based on App Annie. On a global level, Shopee was also the second most downloaded app in the shopping category according to App Annie. In our largest market, Indonesia, Shopee continues to further extend its market leadership. It registered over 310 million orders at a daily average of around 3.4 million orders, an increase of over 124% year-on-year. It was also ranked 1st in Indonesia for average monthly active users, downloads and the total time spent in app on Android in the shopping category in the third quarter, according to App Annie.
As e-commerce growth is important across the region, we have been focused on delivering more value for our merchants across the Shopee ecosystem. For example, in addition to the Google partnership announced last quarter, Shopee launched a new strategic partnership with 5 leading global media agencies. This program is designed to equip these agencies with in-depth e-commerce knowledge, tools and skills so they can help more brands and retail merchants scale and succeed on Shopee. Further, we help merchants create better shopping experiences to engage consumers. Shopee Live is 1 example. Sellers have found this feature helpful in driving user engagement and retention with meritable results. Shopee Life recorded over 48 million hours watched in the third quarter.
Our momentum has carried forward into a record-breaking 11.11 Big Sale shopping festival. We were heartened to see our SME sellers recording an incredibly successful sales event through the Shopee platform. In particular, the newer sellers who joined the 11.11 Big Sale for the first time sold 10x more orders than an average day. We have built powerful bonds of affinity with our users, and today, Shopee is one of the most recognized and best loved brand across our community. In YouGov’s recently published 2020 Global Best Brands ranking, Shopee was the number eight ranked brand globally and together with Amazon represents the two e-commerce brands in the world’s top 10 ranking. As we continue to solidify and extend our market leadership in e-commerce, we will stay focused on providing the best long-term value for our users and building a healthy and sustainable ecosystem for our region.
Moving on to SeaMoney, we saw the same strong growth momentum across Garena and Shopee during the quarter. Our mobile wallet total payment volume for the quarter exceeded $2.1 billion with quarterly paying users surpassing 17.8 million. SeaMoney continues to deepen its integration with Shopee, leveraging Shopee’s rapid growth and extensive reach to scale efficiently and effectively. In October, more than 30% of Shopee’s total gross orders across our market combined were paid using our mobile wallet. We also continued to expand our suite of online and off-line third-party use cases and partnerships in the third quarter. This has further increased the usage and the brand awareness of SeaMoney across our community. We see a significant opportunity ahead of SeaMoney and believe that we can capture it in a highly efficient manner by building on our core use cases. Our focus remains on building the business to enable more consumers and the merchants to benefit from the ease and convenience of our digital solutions.
In closing, the strong momentum from the first half of the year has carried on into the third quarter and beyond. Our third quarter performance is a testament to our ability to quickly adapt to the rapidly evolving needs and the preferences of our community. While we are benefiting from secular tailwinds and the rapid push towards digitalization, we remain very focused on strong execution to capture the growth opportunity. From highly local and deeply engaging content on Garena games to Shopee’s new partnerships, we will continue to listen to and innovate around our users.
As we move towards the end of 2020 and into 2021, we are further extending and solidifying our market leadership position across all the key segments of the digital economy in our region. Our conviction in the scale of the opportunities ahead for Sea over the long term is growing even stronger. We remain committed to serving our communities with technology and enabling them to benefit from the growth of the digital economy in the long run.
With that, I will invite Tony to discuss our financials.
Tony Hou
Thank you, Forrest and thanks to everyone for joining the call. We have included detailed quarterly financial schedules together with the corresponding management analysis in today’s press release. As Forrest has discussed some of our financial highlights, so I will focus my comments on the other relevant metrics.
For Sea overall, total GAAP revenue grew by 99% year-on-year to $1.2 billion, which was mainly driven by continued monetization efforts in our e-commerce business in the past quarters as well as growth of our digital entertainment business, especially our self-developed game, Free Fire. The 110% year-on-year growth in digital entertainment bookings to $944.7 million and 73% year-on-year growth in GAAP revenue to $569 million, were primarily driven by the increase of our active user base and deepened paying user penetration, and in particular, the continued success of our self-developed game, Free Fire.
Digital entertainment adjusted EBITDA was $584.5 million, an increase of 120% year-on-year mainly due to strong top line growth and our self-developed game accounting for an increased share of bookings. Our e-commerce GAAP revenue of $618.7 million included GAAP marketplace revenue of $467.1 million, up 164% year-on-year, and GAAP product revenue of $151.6 million, up 208% year-on-year. The strong results demonstrated the deepening penetration of e-commerce and our ability to capture this accelerated growth opportunities created by the rapid expansion of the digital economy.
E-commerce adjusted EBITDA loss was $301.6 million, as we continued our investment to fully capture the market opportunity in the region. We will continue to invest prudently and drive high-quality growth with increasing efficiency. Digital financial services GAAP revenue was $14.4 million, an increase of 766% year-on-year from $1.7 million in the third quarter of 2019. Adjusted EBITDA loss was $149.3 million in the third quarter of 2020 compared to a loss of $33.6 million in the same period of 2019. This was primarily due to our continued efforts to drive mobile wallet growth in our markets and expand the suite of online and off-line third-party use cases and partnerships.
Returning to our consolidated numbers, we recognized a net non-operating loss of $74.3 million in the third quarter of 2020 compared to a net non-operating income of $9.8 million in the third quarter of 2019. Non-operating loss in the third quarter of 2020 was primarily due to the higher interest expense and foreign exchange loss. We had a net income tax expense of $46.4 million in the third quarter of 2020, which was primarily due to withholding tax and corporate income tax recognized in our digital entertainment business. As a result, net loss, excluding share-based compensation and changes in fair value of the 2017 convertible notes, was $346 million in the third quarter of 2020 as compared to $175.2 million for the same period in 2019.
With that, let me turn the call to Yanjun.
Yanjun Wang
Thank you. We are now ready to open the call for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Miang Chuen Koh from Goldman Sachs. Go ahead.
Miang Chuen Koh
Thank you with that. Firstly, congratulations on another strong set of numbers. My two questions are, firstly, we see for the gaming side, the pay ratio increased significantly sequentially. So just wondering, is it due to the e-sports events you have launched or the social features you’ve added in the quarter? And along that line, what do you see as the ceiling as well for pay ratio in coming quarters? And the second question is that, can we perhaps discuss a little bit of the fourth quarter gaming trends so far, especially given the new games you’ve launched in the last few months, like Fantasy Town or Fairy Tail? I’m asking this because in terms of the full year gross billing guidance, it appears to suggest perhaps a bit of a decline quarter-to-quarter for gross billings in 4Q. Thank you.
Yanjun Wang
So in terms of the pay ratio, we see a very healthy pay ratio for this quarter. And we will continue to work on engaging with our users globally and deepening pay user ratio over time. Although we wouldn’t say that is a singular KPI we are driving, overall, I think for Free Fire, as – our goal is to make it into a long [indiscernible] and a major gaming platform with varied content and also a tiny social community. Our focus is still to drive user growth globally in all our markets. At the same time, we want to increase our user engagement, as you refer to, through a lot of community and e-sports events. One thing I also want to highlight that during the third quarter, it also happened to be the third anniversary of our Free Fire. And therefore, we had special events and content which is very well received by our community. And that also helped with the pay user ratio. So if you look at our fourth quarter, we stated that we expect the overall game booking to exceed $3.1 billion. We actually want to highlight that we meant for the fourth quarter to be sustaining the strong performance of the third quarter. And third quarter is outstanding quarter with more than 100 – close to 110% year-on-year growth. And despite that, we expect fourth quarter to continue this very strong trend with more than 90% year-on-year growth, even if we just hit the $3.1 billion, but we hope to beat that, although we want to remain conservative on our projections. And therefore, we think on the gaming side, we will continue to see very strong performance into the 4Q and next year as well. In terms of our new games, Fantasy Town is a farming simulation casual game. We also incorporated a lot of local content, for example, Indonesia local landmarks and characters into the game to really cater to our local communities preferences. Fairy Tail is turn-based RPG game. And these are our efforts to expand our genre and diversify our gaming portfolio over time. So we’re not particularly focused on monetization per se for these games, but more on understanding our local community base and their preferences and user behavior with respect to different types of games.
Operator
Our next question is from Thomas Chong from Jefferies. Go ahead.
Thomas Chong
Thank you, management for taking my questions. And congratulations on a strong set of results. My question is about the e-commerce competitive landscape. Can management comment on whether we see any intensifying competition in the Indonesia market? And on top of that front, can you also comment about how we should think about online grocery category in the Southeast Asia market post COVID? Thank you.
Yanjun Wang
Thank you. On competitive landscape, I think it continues to improve as far as Shopee is concerned, as we continue to extend our market leadership. Our Q3 quarter order growth was more than 130% year-on-year, which is way ahead of the market growth rate. And also, we believe to lead the other players’ growth rates in our markets. And as we said before, e-commerce is something that enjoys a very strong network effect, and the slide will reflect as well. So as we become a strong market leader, we believe we’ll continue to grow. And given the current environment of deepening – rapidly deepening digitalization and accelerated adoption of e-commerce, we believe it’s a golden opportunity for us to capture a disproportionate share of the market growth. In any case, we think there’s a very long runway for all players in the market given the relatively low penetration in Southeast Asia for e-commerce at this stage yet. And we believe in the longer run, given the demographic and also the geographic nature of the – our region, we believe e-commerce penetration should go much deeper and we hope to work with all players in the market to collectively expand the pie. But at the same time, we also hope to further extend our market leadership. In terms of our online grocery, we continue to see very strong demand on FMCG, including grocery on our platform. We believe that as people, especially new users during this COVID period, come on to the platform, having experienced the convenience of buying things online as well as – especially during the social distancing period, I think this is something that once it’s – people get into the user habit, it is very sticky. And we continue to see very strong growth in this category.
Operator
Our next question is from Piyush Choudhary from HSBC. Go ahead.
Piyush Choudhary
Hi, thanks a lot and congratulations for a strong set of results. Two questions, both on e-commerce. Firstly, what drove a quarter-on-quarter improvement in monetization? And could you share what proportion of revenue comes from advertising income? And you have launched this program with 5 media agencies. Can you share some initial success of that? And secondly, on GMV growth, can you give us insights on how it is faring across your countries?
Yanjun Wang
Sure. On the monetization, we are actually seeing a very strong and healthy growth in our revenue from Shopee e-commerce platform. And that is still largely attributable to increase in the high-margin part of the revenue, i.e., transaction-based fees, including commissions, opt-in programs, handling fees, etcetera, as well as advertisement. Also, the increased revenue from value-added services, which mainly consist of cross-border logistics as well as on the first-party product side contributed to the increase as well. But the key trend is that we continue to expand our high-margin revenue, thanks largely to increase in demand for advertisement by our sellers as well as opt-in programs where sellers can voluntarily pay a higher commission or fee for joining certain programs that benefit their consumers and thus improve their own sales volume such as free shipping program, earning vouchers and also promotion programs and feature seller programs on our platform journey also during the shopping event. So this, I think, is a very positive trend. We will continue to work with our sellers to improve the adoption of these programs as well as advertisement as our seller communities continue to grow with us.
Operator
Our next question is from...
Yanjun Wang
Let me address the other two questions as well. Regarding the media agency partnership, this is another great example where we help our sellers, especially brand sellers on our mall side to grow the business faster. So we have been working with various media agencies to educate them and advertisement on Shopee’s platform, our user behavior on how to best attract and engage with our users. And so that they can help their clients, which tend to see the brand better. And this is also in line with the recent trend, whereby we see a lot of brands coming on to our platform. We now have more than 20,000 brands on Shopee platform, and the number continues to increase fast, especially during this period where we see the brands increasingly see the digital solution as something that’s integral to their overall offering given the social distancing restrictions. And in terms of GMV growth across different markets, I think that we continue to see very strong growth. The market differences are in terms of – markets generally were less affected by COVID throughout this period, like Taiwan, Vietnam, as we shared before. Their growth rates continue to be robust and in line with our general trends. And they are also markets that have been affected by the lockdown more. But subsequently, have lifted most of the lockdown measures, for example, like Thailand and in Singapore, we see initially very strong increase in our e-commerce demand and especially new user growth. And those users tend to stick with us and therefore, the performance stayed throughout. Even though the Q-on-Q growth wouldn’t be so strong as between Q1 to Q2, the year-on-year growth continued to be very strong. In some markets, we even saw 5x or 6x difference. And in other markets like Indonesia, Philippines and Malaysia, we continued to see some resurgence of cases and from time to time, lockdown restrictions being imposed in different formats. And as a result, I think we still continue to see heightened demand in our platform as well. So I think it’s still too early to talk about the post-COVID situation. But given the lockdown measures have been lifted before in pretty much all the markets, and during those periods of time, we have observed a very sustained strong growth of our platform. We continue to believe that the deepening of digitalization and adoption of e-commerce during this period is sustainable.
Operator
Our next question is from John Blackledge from Cowen. Go ahead.
John Blackledge
Okay, thanks. A couple of questions. First on digital entertainment, could you discuss Free Fire’s monetization in markets outside of Southeast Asia and Latin America? And then on Shopee, in the past, you’ve called out that Taiwan is EBITDA flattish before corporate expenses, in part given significant market share advantage. In your other markets, if you get to similar market share position, is there anything structurally that would limit the margin profile? And more broadly, just any color on Shopee’s EBITDA trajectory going forward would be helpful? Thank you.
Yanjun Wang
Thank you. In terms of monetization outside of Southeast Asia, we previously shared before that our revenue contribution for markets outside of Southeast Asia already constitutes the majority of our digital entertainment bookings and we’ll continue to see very strong trends including in Latin America market which has a similar population size. But in terms of GDP per capita, probably it’s a bit higher than Southeast Asia region. We think there’s very good potential to continue to drive user growth and pay user and steepening engagement with our users and drive monetization over the long run. Again, we will – we are looking at is a very long-term game. And therefore, we are not trying to [indiscernible] we are still at the growth stage 1 and 2 to continue to grow this game in Latin America as well as other markets in the world. And in terms of the Shopee platform, Taiwan’s EBITDA margin continue to rise. So, it’s not actually flattish. So therefore, we do believe that there is – we have no doubt that e-commerce, especially a strong market leader, can command a very healthy margin, although we don’t separately disclose it, but it’s not actually flattish. So therefore, we do not believe that in other markets, there’s anything that we see that would potentially limit the margin that can be achieved in the longer run, but a very strong market leader.
Operator
Our next question is from Ranjan Sharma from JPMorgan. Go ahead.
Ranjan Sharma
Hi, good evening and thank you for the presentation. Two questions from my side. Firstly, on Shopee Brazil, can you share what is the strategy for that market now? It seems to have evolved more than a cross-border business because we do see some local sellers there. So if you can talk about your aspirations for Brazil from an e-commerce perspective. The second question is on Free Fire MAX. We have been seeing a number of open beta tests happening. If you can share what the feedback has been? And then what you’re doing to drive success of that game in more developed markets? Thank you.
Yanjun Wang
Thank you. In terms of Shopee Brazil, we shared before, was initiated and started by our cross-border team, and therefore, it’s primarily cross-border driven. And as the team continued to grow the business, we also saw adoption by local sellers, which we certainly welcome that. In terms of Free Fire MAX, again, it’s – we see it as an integral part of Free Fire, as we try to cater to the broadest range of consumers so that you can – the users can choose to play the Free Fire version or Free Fire MAX depending on their own preferences and their own preferences [indiscernible]. And basically, we are – we don’t see it as a separate game, but also as part of the Free Fire experience. And I think we are focused on making sure the user experience is highly smooth because people who are playing Free Fire and Free Fire MAX will be on the same map. So a lot of the details need to be worked up, and we will continue to focus on improving our user experience, whether it’s through Free Fire or MAX version.
Operator
Our next question is from Alicia Yap from Citigroup. Go ahead.
Alicia Yap
Hi, thank you. Good evening management. Thanks for taking my questions. Also congrats on the strong results. I have some follow-up questions on the e-commerce. In terms of the monetization, model, could you help us rank in terms of the percentage of revenue contributions or among transaction fee, VAS advertising. And also, potentially, you could help us rank by the fastest growth – growth rate, the year-over-year growth rate this quarter. Any meaningful difference between, let’s say, the country in Indonesia versus the overall group level. And then secondly, just is there a change of the product mix or seasonality this quarter? Because it seems like the AOV is a little bit lower. So what could be the reasons for that and if you can update us on the purchase frequency this quarter? Thank you.
Yanjun Wang
Thank you. In terms of the percentage of revenue, we don’t specific predict, but suffice to say that high-margin revenue from transaction-based fees as well as advertising is the majority of our revenue and also the majority of the contribution to the revenue growth. The reason we have launched transaction-based fees and advertising together in our market is that certain programs, like a lot of opt-in programs that are driving – very important contributing to the revenue growth. It’s actually relating to advertisement or featured shop, the placement on shopping platform. And the reason is under transaction-based fee is because we actually help our sellers who might not be sophisticated yet to individually manage their advertisement placement and calculate ROI on advertisement, etcetera, so that we actually facilitate that by offering this program to allow seller to pay Shopee a hire fee and then they become worry free. We will manage the keywords bidding, the placement, banner, participation in events, etcetera, for them as part of the transaction-based fee. So it’s a little bit hard to say whether that’s advertisement or transaction-based fee, but I think the important thing is it’s a high margin revenue that is the higher percentage and is driving the growth. That is also part of the reason we believe in the longer run, the profitability model of the e-commerce is not to be worried. And also in terms of our AOV for e-commerce this quarter, I think we mentioned before that low to mid double digit – low-teen to mid-teens range is something that’s probably appropriate to our market. I think naturally, as you see, countries like Indonesia and Philippines with larger populations and the growth over time, overtaking markets like Taiwan or Singapore, generally with the smaller population, therefore, those markets with lower basket size tend to account for, over time, more GMV than those with larger basket size but smaller population. And also, in particular, during this period, we see very strong growth from those markets, as we mentioned, Indonesia, Philippines, Malaysia, where there are more lockdown measures being implemented on and off during the whole period. So there is – the year-on-year growth is particularly strong from those markets. But I think, overall, we will continue to watch the product mix very closely. I think what we see is that during the COVID period, particular categories like home and living, FMCG enjoyed a particularly strong growth. Now with lockdown being eased in most of our regions, we continue to see fashion start to recover and the pace of recovery is accelerating. And it remains a top category. So the overall category – top category mix hasn’t really changed much. But we – while home and living continue and FMCG – home and health and beauty continues to be very strong, we also start to see very strong recovery of fashion.
Operator
Our next question is from John Choi from Daiwa. Go ahead.
John Choi
Good evening and thank you for taking my questions. I have two questions here. So first of all, on your Shopee business, I think clearly, we are seeing a very strong trend on the GMV and also the revenue side. I just want to understand like what are the priorities when it comes to investment to further propel the top line growth and eventually narrow down our EBITDA going forward? I think I want to know the investment priorities and where do you think you need to put your – more work into. And second is on Free Fire. I know that we’ve done very well across the region. And I think management this year, some highlights. Can you kind of elaborate a bit more how we should think about the average bookings per user right now? Clearly, it seems like we’re still in early stage, but how much more upside do we see in terms of the ARPU and are we going to launch any new type of monetization methodology within the games?
Yanjun Wang
In terms of e-commerce, I think we are very consistent in our approach and communication that we want to continue to grow our e-commerce platform and continue to strengthen our market leadership, at the same time, focus on efficiency of growth and deepening of monetization at a right pace for our market. And therefore, our focus is – never changed in that regard. Of course, as a business model, eventually – naturally breakeven will come and naturally accounting margin we believe can be reached. It is a scale business and it is also a business with very strong network effect. And therefore, we believe it’s very important to continue to drive growth, especially during a period where we continue to see very rapid adoption of e-commerce and deepening of digitalization in our region. As we emphasize, this is a golden time to drive growth, and we want to make sure the e-commerce penetration can grow further in our regions. And also in terms of digital entertainment booking, so overall, I think we have a very healthy and strong number achieved for third quarter at $1.7 per user. That is – and an active user base of more than 570 million for the quarter. So I think for our game, we believe that given the global market it is accessing and growing, there are also potential to continue to drive pay user ratio as well as average booking we can achieve for pay user over time. But again, the focus, similar to e-commerce, is to continue to grow the game itself. We are not worried about monetization of a massive – a game with a massive user base and high user engagement. This is – it does come very naturally. If you look at our performance and also top line growth as well as the bottom line at group level, especially, we didn’t even try that hard, we didn’t drive it. It just comes naturally when the business scale. So scaling is something that we continue to focus on. But of course, we are very careful about efficiency and saving, and of course, watching the natural market dynamics and be very close to our users, this is still the top priority.
Operator
Our next question is from Mark Goodridge from Morgan Stanley. Go ahead.
Mark Goodridge
Hi, guys. Just had a question on the games business, specifically for Latin America, we obviously heard from you guys last year, we’re potentially growing out a third-party publishing business in that marketplace. And then we’ve seen the huge success of Free Fire. So it’s been [indiscernible] on that front. But I just wanted to ask, would you care to share some of the initiatives that you’ve been doing, specifically this year, some of the games that are potentially coming through into – specifically into Latin America? And then following on that is there an opportunity to replicate that potential third-party publishing business into India as well?
Yanjun Wang
Thank you. In terms of third-party publishing side, we continue to work very closely with our developer partners globally and to discuss potential opportunities in the global market and the performance of Free Fire in particularly those markets is definitely very helpful, basically a data point for all developer partners in assessing our understanding of the market, operational capabilities and strong capability to drive growth in those relatively difficult and complex market, where, I would say, not – wouldn’t be another player that our scale has achieved the kind of track record that we have. So that put us in a very unique position globally in driving growth on the mobile game e-sports side. So we will continue to work with our partners and potential partners. And as usual, we don’t disclose initiatives or discussions or pipeline for confidentiality reasons. You will see it when we officially announce it. But that’s something that we also continue to focus on.
Operator
Our next question is from Varun Ahuja from Credit Suisse.
Varun Ahuja
Yes hi good evening everyone. So I have got three questions. First two on the gaming side, if you look at last two quarters, you have seen very strong quarter-on-quarter growth of more than 30% on the gaming side, primarily, I think, driven by Free Fire. So if you can provide a little bit more color? I know it has been also coincided with the COVID, but which all markets have held such a strong performance on the Free Fire. You have seen also rankings improving in U.S. and is it India where the monetization is happening much better or any other countries which have shown growth? The key things that are coming from is sustainability of this revenue growth. I know you mentioned that you believe that the game has still a long way to go. But just to give some data points to draw some comfort, it’ll be helpful. That is number one. Number two is on the new games launches. It’s been a while we have seen some new games from you. Any color, anything that will be helpful. Another thing is that League of Legends mobile is being launched, you guys didn’t get it. Any reasons for the sale? Is it not [indiscernible]? Any color on that would be helpful. Lastly, on the consolidated EBITDA, if you look at – you have come very – now if you look at on the profitability side, it’s very comfortable on your consolidated EBITDA profitability. Is it any future, if you look at ahead is it likely to remain this or is it going to fluctuate quarter-on-quarter depending upon the e-commerce investment that you will have to make? Thank you.
Yanjun Wang
Okay. Thank you. In terms of our global performance of Free Fire, the revenue contribution, we talked broadly three buckets, Southeast Asia and Taiwan and Latin America and then the rest of the world, which are the – what we call the emerging – new emergence of frontier markets for us. And that’s ranked by the time of launching and the engage – with the engagement of the game. So in terms of that, we see that revenue contribution coming from all three regions is same as revenue growth. And so we see very strong trends in all three buckets. And that is very encouraging. And of course, if you speak about long-term growth potential and runway, probably the frontier markets present the greatest opportunity in terms of – given the current very low penetration yet in the global markets, many of which, including some high-demand markets, and we haven’t really fully captured and even, I wouldn’t say, formally entered yet. So I think there are still very huge long runway and huge opportunity for our team to tap in that regard, whereas for Southeast Asia and Taiwan, for example, we will continue to drive user engagement and deepening monetization, same for Latin America, which is a relatively new market for e-sports games. I think in terms of how deep the penetration can be, including the paid penetration, remain to be seen. We already see very strong positive trends that showcase the market has at least good potential if not more than Southeast Asia, as I mentioned before. So I think we are very optimistic of continuing to growing the game there. And that is one reason that give us the confidence in the sustainability of the revenue growth of Free Fire. And if you look at year-on-year growth, Q1 was 30%; Q2, more than 60%; Q3, more than 100%. So there was a very fast rapid acceleration. I think that’s why we are very happy to see that our projection for Q4 is sustaining the strong performance of Q3 and continue to get close to 3-digit growth for gaming revenue of this magnitude, I think, is a quite achievement for our game team. And again, we will continue to grow the game for the long run. In terms of EBITDA trajectory, we do not give guidance on EBITDA. And as I said before, that our focus for each of our business is to drive growth as – given our potential, notably massive user base as well as low penetration in many of the core markets we are seeing in each of our core business units. I think the opportunity of the digital economy in our region and for our game business, in particular, globally, is really way ahead of us to tap. And for each of our businesses, we also are very confident of the ultimate profitability of the business. You can’t see a game business that’s really loss-making for a strong market leader in the e-commerce, cannot be profitable to drive a very healthy margin, and so is DFS. I think the ultimate business model has been very well proven. I think the question is how can we scale our business and at an efficient rate that is right for our market, and we will continue to execute. And our track record has shown that we focus on growth as well as efficiency at the same time. So when the margin improvement naturally comes, it comes. But I wouldn’t say it is something that we try very hard to artificially drive it.
Operator
This concludes our question-and-answer session. I would now like to turn the call back to Minju Song for closing remarks. Go ahead.
Minju Song
Thank you everyone for joining today’s call. We look forward to speaking to you all again next quarter. Thank you.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.