Sea Limited (SE) Q4 2021 Earnings Call Transcript

Sea Limited (SE 2.03%)
Q4 2021 Earnings Call
Mar 01, 2022, 7:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and good evening. Welcome to the Sea Limited fourth quarter and full year 2021 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, and hello, everyone, and welcome to Sea's 2021 fourth quarter and full year earnings conference call. I'm 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 and may not be realized in the future for various reasons as stated in our press release. Also, this call includes a discussion of certain non-GAAP financial measures such as adjusted EBITDA and net loss, excluding share-based compensation. 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 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 fourth quarter and for the full year of 2021. 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 -- Chairman and Group Chief Executive Officer

Thank you, Min Ju. Hello, everyone, and thank you for joining today's call. In 2021, we continue to focus on growing and evolving our business to address the fast-changing needs of our users and communities. We have invested with vision and efficiency to capture the pending opportunities available to us during this period of accelerated digitalization.  As a result, we have greatly deepened our engagement with consumers and small businesses, vastly expanding our total addressable market and extended our leadership across all our businesses.

Moreover, our growing scale, leadership and strong cash balance means we are well placed to leverage efficiencies across our ecosystem.  As we look ahead, I would first like to take this opportunity to share with you how we plan to manage sustainable growth going forward. We believe we are now in a strong position to manage the levers of our business to reach profitability across more markets and segments in 2022 and beyond. We currently expect Shopee to achieve positive adjusted EBITDA before HQ costs allocation in Southeast Asia and Taiwan by this year. We also expect SeaMoney to achieve positive cash flow by next year.

As a result, we currently expect that by 2025, cash generated by Shopee and SeaMoney collectively will enable these two businesses to substantially self-fund their own long-term growth. At that point, we believe Shopee and SeaMoney will be generating meaningful cash in our existing core markets of Southeast Asia and Taiwan as strong market leaders, while Shopee will also have achieved significant scale and a strong market position in our new growth market of Brazil.  On the path to this inflection point, we plan to continue to invest in Shopee and SeaMoney with efficiency. We have around $10 billion of cash, cash equivalents and short-term investments on our balance sheet, including close to $7 million raised in last year, which we intend to invest into the growth of Shopee and SeaMoney over the coming years. Based on our current plan, we believe that we have the financial resources required to grow the two businesses to the inflection point without having to heavily rely on cash generated from the digital entertainment business.

Of course, any additional growth from Garena will further strengthen our position. And we remain extremely focused on developing Garena's global platform, which we see as a key strategic asset in the long run.  Next, let me share with you how we are thinking about resource allocation for this period. Broadly speaking, Shopee Lat Am and Brazil, in particular, as well as R&D will be our top two focus areas for investments. Our investments and the overall impact on the bottom line is likely front-loaded as unit economics and profitability for our businesses generally improve its scale.  Firstly, we will continue to invest in Shopee Lat Am with a focus on Brazil.

Of course, it'd be much easier operationally for us to just focus on the seven existing core markets for Shopee. However, we strongly believe that by investing prudently and sustainably in Shopee Lat Am and Brazil in particular, we will generate significant value for our shareholders in the long run.  While we do not underestimate the challenges of any new market expansion. I would also like to highlight that we have established track record seven times in seven highly diverse and complex markets of Southeast Asia and Taiwan. We will start in each of those markets in 2015.

We have significantly net resources, experience and the know-how, and as a result, face a much more formidable competitive landscape that we currently do in our market expansion. Moreover, our growth trajectory in each existing core market has generally followed certain patterns, whereby we are able to first manage strong user and order growth with improving efficiency and then achieve market leadership and profitability with scale.  As I will share in greater detail when we discuss the segment results, Shopee Brazil has already achieved strong user traction, meaningful commercialization and fast improving unit economics less than two years after entering the market. This gives us further confidence in managing growth in these markets.  Achieving success in Brazil, which is the sixth most popular country in the world where profitability model for marketplaces has also been long proven and would allow Shopee to substantially expand its total addressable market that significantly enhanced its competitiveness as a global e-commerce platform and further diversified its businesses across the world.  Secondly, our technology and R&D capabilities are already a strong competitive moat for us. And we aim to invest in deepening this advantage.

Our scale, market leadership and ability to leverage efficiencies across our entire ecosystem position us very well to continue to build core strength in tech. We intend to ramp up investments in R&D to continually provide better and greater varieties of services offerings and features to our users, as well as to maximize our long-term growth potential.  The result of some of these investments are already visible across our business in fast evolving offerings and features. Such offerings and features range from UGC tools, user engagement features of Shopee and fintech products under SeaMoney to share technology platforms, improve security and risk management structure and enhance commercialization and financial underwriting systems just to name a few. These investments are both necessary for our current operations and are highly important to our future growth.

We strongly believe that our investment in technology will continue to serve as a key competitive moat across our ecosystems.  I will discuss the near to midterm plan. I would also like to share our longer-term view about the future we are working very hard toward. As we look ahead, it is clear that consumer activities and experiences are increasingly converging online at the intersection of content, commerce and community. It is also clear that agile, adaptable companies that has successfully tapped into active, engaged and social communities will have a unique advantage as we move into this new era.

Our three core businesses collectively offer immersive and interactive digital, social and commercial experiences to a large global community, supported by our fast-growing digital financial infrastructure and deep online/off-line operational capabilities. We therefore believe that our ecosystem comprises a complete consumer stack and innovation stack that is distinctively relevant to the new opportunities being presented. All the business investment and decisions we are making today are intended to also better position us to best serve the changing needs of fast-growing digital-native generation.  Let us now discuss the performance of our group and each of our businesses in the fourth quarter and the full year of 2021 and our outlook for 2022. At the group level, GAAP revenue increased 106% year on year to $3.2 billion and the gross profit was $1.3 billion, up 146% year on year for the fourth quarter.

Meanwhile, for the full year of 2021 GAAP revenue grew by 128% year on year to reach $10 billion, and gross profit reached $3.9 billion, up 189% from 2020.  The rate of bookings for the full year is $4.6 billion, and shopping debt revenue reached $5.1 billion. Both businesses performed in line with our recently raised full year guidance. For 2022, we currently expect bookings for digital entertainment to be between $2.9 billion and $3.1 billion. With many economies reopening further in the fourth quarter and into this year, we have observed some moderation in online activities and the fluctuation in user engagement.

Moreover, due to our anticipated government actions, as we previously reported in the press release, Free Fire is currently unavailable in the Google Play and iOS App Stores in India. Our guidance, therefore, takes into consideration these headwind factors.  The midpoint of the guidance of $3 billion reflects our current expectations that our bookings for 2022 will be close to the level in 2020 while also considering the uncertainty in India. While we will continue to assess the longer-term trends as our markets continue to evolve, we remain highly confident in the long-term prospect of our digital entertainment business.  Next, we expect GAAP revenue for e-commerce to be between $8.9 billion and $9.1 billion, representing 76% year-on-year growth at the midpoint of the guidance. This strong outlook, particularly against the very high base of 2021, reflects our deeper engagement with consumers and small businesses across our markets, vastly expanding e-commerce addressable market and continued improvement in commercialization.  I'm also excited to share our 2022 outlook for digital financial services segment for the first time.

SeaMoney made strong progress in 2021 as we continue to scale our mobile wallet experiences and launched more products and services which saw successful adoption across the ecosystem. We anticipate that this trend will continue and [Inaudible] growth engine for us. We expect GAAP revenue for SeaMoney for this year to be between $1.1 billion and $1.3 billion, representing 155% year-on-year growth at the midpoint of the guidance.  Let's now turn to our businesses in more detail. Beginning with digital entertainment, in the fourth quarter, Garena generated bookings of $1.1 billion, an increase of 7% year on year.

Adjusted EBITDA was 56% of bookings at $603 million. Quarterly active users reached 654 million, up 7% from a year ago, and quarterly paying users were 77 million, an increase of 6% year on year. For the full year of 2021, Garena recorded bookings of $4.6 billion, up 44% year on year. Adjusted EBITDA was up 40% compared to 2020 at $2.8 billion, representing 50% of bookings.  During the fourth quarter, online game momentum moderated somewhat given the reopening trends in many of our markets.

That said, it is worth emphasizing that Free Fire continues to have one of the largest and most engaged user communities of online gaming history. According to data.ai, previously known as App Annie, for the third year in a row, Free Fire was the No. 1 most downloaded mobile game globally in 2021. Free Fire also ranked 2nd globally by average monthly active users for all mobile games on Google Play in the fourth quarter and full year.

Free Fire also returned its leadership as the highest grossing mobile game across both iOS and Google Play in Southeast Asia and Latin America for both the fourth quarter and the full year based on data.ai. We have maintained this leading position in Southeast Asia and Latin America for 10 consecutive quarters. Furthermore, Free Fire was the highest growth in mobile battle royale game for the fourth consecutive quarter in the U.S. according to data.ai.  We remain committed to investing in content in Free Fire to enhance user experience and uplift user engagement.

For that, we have a comprehensive pipeline in sales that includes partnership or regional and user-generated content and e-sports activities. For example, this month, we have a crossover event with Assassin's Creed, one of the most popular global video game franchises. And we're also excited to have BTS, one of the world's most streamed artists worldwide enter the universe of Free Fire as our global brand ambassadors in the coming months.  Additionally, we've seen strong engagements with user-generated content through modes like Craftland, our recently introduced map editor feature. Since launch, the most popular Craftland maps have subscribers close to 40 million users so far.

We will continue to encourage user-generated content by enhancing greater features and accessibility. We believe that a strong user reception to Craftland is a positive indicator of the initial success to encourage user participation in content creation and to build Free Fire into an increasingly open platform and is well aligned with major emerging industry trends such as the metaverse.  Besides Free Fire's strong performance, the other games in our portfolio continue to perform well. For example, Arena of Valor has grown year on year in 2021 across both active users and bookings despite being in its fifth year of operations.  In 2022 and beyond, we expect to expand our portfolio with more games across diverse genres such as multiplayer action, role playing, sandbox and casual games. Over the long term, our priority remains sustaining and growing our existing major franchises while diversifying our games portfolio.

Our strong and growing self-development capabilities will be a key component of this diversification effort. Our teams are working on multiple prototype games across different genres and stages. In due course, we expect to bring more self-developed games to market. We also continue to actively acquire and invest in top talent and game IP to further expand our capabilities of both genre and geographies.

Meanwhile, we will keep growing our publishing relationships, leveraging our unique set of strengths across diverse global markets. We believe that this comprehensive approach to portfolio diversification will allow us to identify and execute around the largest game trends in the years to come.  More importantly, we see games as one of the most engaging and immersive forms of entertainment, bringing communities from across the world together to play and interact. That will play a vital role in shaping the virtual experiences of users, and we are well positioned to capture new opportunities that arise, given our core competency in developing highly social, immersive and interactive global game platforms with live operation and scale. Therefore, we are highly focused on maximizing the long-term potential of Garena.

We see it as our key to potentially greater success in a future world where activities, experiences, interaction and consumption are increasingly virtual.  Now let's turn to e-commerce. Shopee had a great year in 2021 as the business scaled and strengthened its market position across both new and existing markets. For the quarter, Shopee's GAAP revenue grew 89% year on year to reach $1.6 billion. Its recorded gross orders of $2 billion, an increase of 90% year on year and a GMV growth 53% over the same period to reach $18.2 billion.

The strong performance contributed to strong results for the full year of 2021 where Shopee achieved GAAP revenue of $5.1 billion, up 136% year on year. The full year gross orders totaled $6.1 billion, up 117% year on year, and GMV reached $52.5 billion, an increase of 77% from 2020. Monetization improved across all revenue components with GAAP revenue as a percentage of total GMV rising from 6.1% in 2020 to 8.2% in 2021. Our strong revenue growth shows how more merchants across the market trust the Shopee platform and understand the value we deliver to them.

Our leading market position is also evident in strong brand recognition and engagements from consumers on Shopee. It was the top e-commerce brand in YouGov's Best Global Brands 2021 and ranked fifth overall.  In terms of engagement, our buyers shopped on Shopee over six times a month on average in the fourth quarter with the initial monthly order frequency existing eight times. We are very pleased with the progress made around engaging our buyers and will continue to deliver more value to them. According to data.ai, Shopee ranked first in the shopping category globally by downloads in the fourth quarter and the full year.

In the same category for Google Play, Shopee ranked first globally by total time spent in app and second by average monthly active users in the fourth quarter and the full year.  During the same period, Shopee also continued to be the top-ranked app in the shopping category across both iOS and Google Play in each of Southeast Asia and Taiwan by average monthly active users and the total time spent in app. In Indonesia, Shopee was ranked the No. 1 app across these same metrics with gross orders growing around 88% year on year during the fourth quarter.  We have also scaled our products in Brazil, serving the local sellers and buyers. During the fourth quarter and the full year, Shopee was ranked first by download and the total time spent in app and the second by average monthly active users from shopping category according to data.ai.

In the fourth quarter, Shopee Brazil recorded more than 140 million gross orders, growing at close to 400% year on year, that's more than $70 million of GAAP revenue, up by around 626% year on year. We believe our offering provides a new and fresh online shopping experience that caters to the underserved segment of the Brazilian market. We see Brazil as a new growth market for us as we are very excited about its growth prospects and the long-term value we can deliver to the ecosystem.  Meanwhile, we continue to see efficiency gains as we scale. For Shopee Southeast Asia and Taiwan, the adjusted EBITDA loss per order before HQ cost allocation was $0.15 in the fourth quarter, an improvement from $0.21 in the fourth quarter of 2020.

As shared earlier, we believe Shopee is on track to achieve positive adjusted EBITDA before HQ costs allocation in Southeast Asia and Taiwan by this year.  Our newer markets have also made progress with adjusted EBITDA loss per order before HQ costs allocation improving consistently in every quarter in 2021.  Basically, in Brazil, our adjusted EBITDA loss per order before HQ costs allocation improved by more than 40% year on year during the fourth quarter to below $2. Across both of our markets, our total adjusted EBITDA loss per order was $0.45 in the fourth quarter, an increase from $0.41 for the fourth quarter of 2020. This increase was attributable to the increasing contribution from the newer market which are at a much earlier stage of development. These markets are both growing faster and incurring higher than adjusted EBITDA loss per order than Southeast Asia and Taiwan.

For the full year, our total adjusted EBITDA loss per order across all markets was $0.42, improving 9% compared to 2020.  Over the past couple of years, we accelerated the growth of Shopee by quickly adapting and serving our buyers and sellers through the pandemic. We've also successfully strengthened our competitive position in Southeast Asia and Taiwan, as well as Brazil. Going forward, we expect Southeast Asia and Taiwan to keep growing healthily, while we further strengthen our market leadership and execute toward profitability. In our new growth market, Brazil, we are focused on efficient and sustainable growth as we continue to scale and improve our service offerings to local sellers and buyers.  Finally, our digital financial services business, SeaMoney, performed well in the fourth quarter and the full year of 2021.

In the fourth quarter, GAAP revenue was $198 million, up 711% year on year, driven by the growing adoption of our product and services. For the full year of 2021, our GAAP revenue grew 673% year on year to reach $470 million. Current active users across our SeaMoney products and services reached $45.8 million, up 19% year on year.  In the fourth quarter and full year 2021, we further expanded our digital financial service offerings across credit, insurtech and in digital bank services. For example, we launched the SeaBank in Indonesia during the latter half of the year with strong traction in terms of user growth.

We also obtained a bank license recently in the Philippines. Indonesia, which has the most comprehensive set of products and services among our markets, over 20% of the quarterly active users have used multiple SeaMoney products and/or services in the fourth quarter.  We view this as a highly positive indicator of the strong efficiencies we can leverage in bringing new digital financial service offerings to the large and fast-growing user base in our entire consumer Internet ecosystem. In particular, we see Shopee and SeaMoney as both highly synergistic with one another and enjoy a strong flywheel effect in their building.  The total payment volume of our mobile wallet was close to $5 billion in the fourth quarter, up 70% year on year, and $17.2 billion for the full year, up 120% year on year. In 2021, we grew our mobile wallet services across both on-platform and off-platform use cases, leveraging our growing ecosystem of products and services.

This further drives a positive flywheel effect that allows us to benefit through higher growth and better efficiency as we drive adoption across both consumers and merchants.  In the fourth quarter, we expanded our payment acceptance point to include key merchants like AirAsia in the Philippines, 7-Eleven in Malaysia and several in Thailand. We believe there are many other large opportunities within our market that SeaMoney can address. We are looking forward to rolling out more digital financial products and services in 2022 as we continue serving the underserved in our ecosystem with technology. At the same time, as the business grows with our communities adopting more financial services and products, we are also excited to see that SeaMoney is on track to achieve positive cash flow by next year.  To conclude, I'm proud of the progress our team has made in 2021, both in scaling our businesses and serving our communities.

We believe we are very well positioned to continue strengthening our market leadership while focusing on sustainable and efficient long-term growth. We are highly confident that the learnings and the resilience we've seen over the past year will only further enhance our ability to execute on our long-term strategies and continue to deliver significant value to our community and stakeholders. I would also like to personally and on behalf of Sea, thank our stakeholders and [Inaudible] for your continued long-term support. We hope to return your trust and investment in us with continued strong execution and focus on the long-term success of the company.  With that, I will invite Tony to discuss our financials.

Tony Hou -- Group Chief Financial Officer

Thank you, Forrest, and thanks to everyone for joining the call. We have included detailed financial schedule together with the corresponding management analysis in today's press release, and Forrest has discussed some of our financial highlights. So I will focus my comments on the other revenue metrics.  For Sea overall, total GAAP revenue increased 106% year on year to $3.2 billion in the fourth quarter, and 128% year on year to $10 billion for the full year of 2021. This was primarily driven by the growing adoption of products and services across our e-commerce and digital financial services businesses as we continue to deepen the engagement with our users, as well as the growth of our digital entertainment business.  Digital entertainment bookings rose 7% year on year to $1.1 billion in the fourth quarter and 44% year on year to $4.6 billion for the full year of 2021.

GAAP revenue was up 104% year on year to $1.4 billion in the fourth quarter and 114% year on year to $4.3 billion for the full year of 2021. Digital entertainment adjusted EBITDA was $603 million in the fourth quarter and $2.8 billion for the full year of 2021. On e-commerce, our fourth quarter GAAP revenue of $1.6 billion included GAAP marketplace revenue of $1.3 billion, up 104% year on year and GAAP product revenue of $0.2 billion up 48% year on year.  For the full year of 2021, GAAP revenue of $5.1 billion included GAAP marketplace revenue of $4.1 billion, up 156% year on year and GAAP product revenue of $1.1 billion, up 83% year on year. The strong result, the deepening penetration of e-commerce and our ability to capture these significant growth opportunities.  E-commerce adjusted EBITDA loss was $878 million in the fourth quarter, and $2.6 billion for the full year of 2021 as we continued our investment to fully capture the opportunities in our markets.

We remain committed to continue investing in a prudent and sustainable manner and growing the ecosystem to serve our users better.  Digital financial services GAAP revenue was $198 million in the fourth quarter and $470 million for the full year of 2021. This represents year-on-year growth of 711% and 673% for the quarter and full year, respectively. The growth was primarily due to increasing traction as we continue to expand our suite of services offerings.  Adjusted EBITDA loss was $616 million in the fourth quarter and $617 million for the full year of 2021. This was primarily due to our continued efforts to drive mobile wallet adoption.

Returning to our consolidated numbers, we recognized a net nonoperating loss of $71 million in the fourth quarter of 2021 compared to a net nonoperating loss of $124 million in the fourth quarter of 2020. For the full year, our nonoperating loss was $132 million compared to a loss of $180 million for the full year of 2020.  Our nonoperating loss for the fourth quarter and full year ended December 31, 2021, was primarily due to interest expense on our convertible notes. We had a net income tax expense of $106 million in the fourth quarter of 2021 and $333 million for the full year of 2021. This was primarily due to property income tax and withholding tax recognized in our digital entertainment business.

As a result, net loss, excluding share-based compensation, was $483 million in the fourth quarter of 2021 and $1.6 billion for the full year of 2021. With that, let me turn the call to Minju.

Minju Song

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

Questions & Answers:

Operator

[Operator instructions] Our first question is from Alicia Yap from Citi GP. Please go ahead.

Alicia Yap -- Citi -- Analyst

Hello. Hi, good evening, management. Thanks for taking my questions. I have two questions.

The first one on the digital entertainment. Regarding your guidance, I believe you are not including any of those new games that you mentioned in the pipeline that potentially you can publish in later the year. So I just want to clarify on that. And then, related to that as well, besides India, which country do you think we'll also see some declining trend?  And then second question is on the e-commerce.

With the decisions to exit trends, at what point would you also evaluate some of these cross-border tractions in Poland and Spain that you could maybe kind of prompt you to moving ahead with your next step of the penetration? Thank you.

Yanjun Wang -- Group Chief Corporate Officer

 Thank you, Alicia. In terms of digital entertainment, our guidance does take into account of games that we believe might be launched this year. Of course, any new games in the initial launch stage probably will focus more on user growth and management penetration as opposed to immediately focus on monetization. So the contribution probably might come toward the later part of the year or later part of the stage of the development of the game.  And in terms of the trends, I think the overall opening up post COVID is across all the markets.

And therefore, we do start to see the weakening. I think it's industrywide as well. And we are still evaluating the data and the trends. At the same time, we are very much focused on the long-term success of the Free Fire IP, which we see it as a very important strategic asset to us.

While, of course, it is contributing billions of dollars of cash every year, but most importantly, we want to build into a long-lasting IP and with hundreds of millions of active users fully engaged and socializing and playing different types of games at most and also incorporating more IP over time into this game and platform to go into more of an important franchise which we will use as also key to the future development of the virtual economy. So I think while there are some headwinds, our focus on the long term has not wavered and our view toward the game as a long-term play has not changed.  Because of e-commerce, as they shared, we are focused on Southeast Asia and Taiwan as our core existing markets, which has continued to enjoy very strong growth despite the very strong comps versus last year during the height of COVID. And as you can see, we also have gained significant ground vis-a-vis our peers. In Indonesia, we grew more than -- about 88% year on year in the quarter.

And also, in ASEAN + six countries, our growth rate is around 80%. So our growth rate is meaningfully, significantly, in fact, higher than our next peer, while we are already multiple times their size. So that is highly encouraging. And at the same time, we are looking at more and more markets turning profitable as we shared in terms of adjusted EBITDA before HQ costs allocation.

So this will become -- the market will not only be a growth engine for us, but also potentially down the road contribute positive cash to fund our global growth.  And another growth area that we focus on is Brazil. Not only we have reached top ranking in downloads and total time spent and second in MAU just two years after entering the market, we have also achieved more than 140 million of quarterly gross orders with $170 million revenue in the market. As we also shared for that kind of -- when we enter into the market, we focus first on user growth and then order growth and then market leadership and positive unit economics over time with scale. We have repeated that playbook seven times in seven highly distinct markets in Southeast Asia and Taiwan.

And we are saying that we are already seeing strong user traction, strong order growth and success to market leadership and also improving -- fast-improving UE, unit economics, in that market while pointing to another potential market that could essentially double our total addressable market for e-commerce with a highly proven profitability.  Now when you look at Southeast Asia and Taiwan, we're probably the first large e-commerce player to show profitability in this market, in this region. But in Lat Am, all the existing major players are quite profitable. So the profitability model for the market is highly proven. Therefore, we are very encouraged by the results of our e-commerce and its outlook into a global platform.  In terms of the other markets that we shared before, these are highly nascent markets where we might test the waters in from time to time.

So our asset from funds again shows while we are open minded, we're also very disciplined in our pilot exercise. So we'll remain disciplined and open-minded with all our markets. Again, the focus will be on the existing core Southeast Asia and Taiwan market and our new growth market in Brazil.

Operator

Our next question comes from Piyush Mubayi from Goldman Sachs. Please go ahead. Hello, is your line on mute?

Piyush Mubayi -- Goldman Sachs -- Analyst

Thanks for taking my question. Can you hear me?

Operator

Yes, we can hear you.

Piyush Mubayi -- Goldman Sachs -- Analyst

Thank you. Sorry about that. If I could just ask about what is built into your game forecast for 2022 for bookings that you shared with us. And how does that potentially change if India was to come back on track as an earlier than expected date potentially.

So if you could just share with us how you're thinking through that, we will be grateful.  And the second is if it is at all possible in the gaming business to talk about how quickly you can build up a portfolio of games and move in to be the stage of some of those games, that would be fantastic to understand how we can expect that trajectory to potentially proceed through the growth of 2022 quarter-by-quarter and then into 2023.  And third, this is a general question on the e-commerce business, where we noticed how the momentum is very positive, both from the standpoint of rate on account of take rate progression, as well as a progression toward free cash flow and profitability. I wonder if you could just take a step back and give us a feel for how much further this business can be accelerated into 2022 versus where the guide is. Thank you.

Yanjun Wang -- Group Chief Corporate Officer

OK. Thank you, Piyush. So the voice quality wasn't very good, I'll try to answer your question, if it's not clear, please let me now. In terms of the game guidance, as we shared in the earnings that given the opening of our markets and the trends we're seeing and also some unexpected government action we are facing, we have taken into -- this into consideration.

And therefore, we, at this point, believe our 2022 game bookings will probably be close to the level of 2020. That means we are getting back some of the gains we made during -- partially during the COVID. And also, with some additional discounts to reflect the situation in India, which is highly uncertain. Again, I think at this point, given the uncertainties we are facing, this is probably more art than science for us.  In terms of the game portfolio, we are very focused on diversifying our game genres.

As we shared before, we are looking into different genres such as sandbox, RPG and other more casual games to supplement our existing offerings. Now, I think these will still be early stage games. And also, given the size of Free Fire, which is the largest and highest growth in global games in history, it is probably hard to come up immediately with other games that can match the size of Free Fire. However, everything we're doing is to a, diversify our portfolio and capability; and b, at the same time, will prepare for the long run while we already have such a big platform of Free Fire that we can incorporate different types of game modes and IP into and leverage that platform to introduce more content and more types of games and more IP to our user base, which still remains probably one of the largest user bases in the world.

So while we have some earnings headwinds on the game side, our focus is really on the long run to make sure that we stand ready to capture the next wave of major opportunities that might come.  If you look at our track record, so far, it's been quite strong. We captured the mobile league, for example, on the PC side with the rise of League of Legends, and we are the exclusive publisher that took us to where we initially were at the time of IPO as a gatekeeper of Southeast Asia and Taiwan in terms of game publishing. And then, we also captured the next mobile wave with the publishing of Arena of Valor, development of Free Fire by ourselves, which expanded our TAM of Southeast Asia-focused market to a global platform. And then, we also captured the battle royale wave with the rise of Free Fire and that significantly enhanced our game side, the business side of the business and also the overall strength of the business.

I think our track record speaks for itself. So what we are doing now is continue to get us ready and strengthen our capabilities to capture the next major wave that might come our way.  In terms of the take rates, so we are -- as we shared before, we believe a high single, low double-digit rate is achievable in the longer run. We still believe that. And as you can see, we are progressing well toward that rate in most of the markets.

We're already getting a high single-digit rate and we believe this will continue to rise, although we think a gradual and well-managed progression will be adapted for our business in the long run.  And also, for the newer markets such as Brazil, as you can see, the prevailing rate in the market are more at 15% to 18% charged by some of the leading players. So it is a very high take rate market also. So we're not particularly worried about the e-commerce take rates.  And in terms of profitability, as we shared, we believe Southeast Asia and Taiwan will achieve positive adjusted EBITDA before HQ costs allocation by this year. That means more and more markets will break even on that term over time this year and maybe going into next year.

So that will give us also a strong footing in further growing our other new growth markets, as I shared before, where profitability has long been proven.

Operator

Our next question comes from Jiong Shao from Barclays. Please go ahead.

Unknown speaker

Hi. Can you hear me?

Operator

Yes, I can hear you.

Unknown speaker

Hi. This is Roger on behalf of Jiong. So I have two quick questions. First of all is, can management talk a little bit about your view on the 2022 GMV growth? And the second is, can the management help to sort of break down the rough mix of Asia and new markets in terms of EBITDA loss this quarter? Thank you.

Yanjun Wang -- Group Chief Corporate Officer

Yes. So we don't give guidance on GMV, but we did give guidance on GAAP revenue for e-commerce. We believe that it reflects our view about the potential growth rate. And I also mentioned that in terms of the take rate increase, there will be -- while we will continue to increase take rate, the pace will be moderated and well measured.  We don't also do the -- give the breakdown in terms of the EBITDA, but we have given the order number for fourth quarter on Brazil and also the EBITDA loss previous allocation per order in Brazil.

So I think you can roughly do the math.

Operator

Our next question comes from Piyush Choudhary from HSBC Singapore. Please go ahead.

Piyush Choudhary -- HSBC -- Analyst

Hi. Thanks for the opportunity. Two questions. Firstly, on e-commerce, your guidance to achieve positive adjusted EBITDA in your core markets, this would be driven by what key factors? Is it higher take rate or lower sales and marketing? And any color over there would be helpful.

And if you can throw some light on the competitive landscape in core markets?  Secondly, your cash and cash equivalents went down by $1.6 billion quarter on quarter to $10.2 billion. Can you highlight what factors drove that decline? Is there any other investments? Thank you.

Yanjun Wang -- Group Chief Corporate Officer

Sure. In terms of our e-commerce cost of EBITDA in Southeast Asia and Taiwan, this is as a result of both the higher take rates and also cost efficiency as we scale. As we always mentioned, the platform, the marketplace model that we are pursuing enjoys a strong silo effect and the economy of scale as we continue to grow our business, the unit economics just keeps improving. And then, naturally, it comes to a breakeven point.  And at the same time, as you can see, we have been rapidly ramping up the take rate, especially on the margin take rate in terms of transaction-based revenue, as well as advertisement.

We are broadly charging more types of sellers and gradually raising the take rate each type of sellers might pay. And at the same time, more importantly, voluntary sellers are adopting more of our free shipping program, advertisement program and they're actually paying more as our business and their business stay on our platform to facilitate further growth of their business.  So as the marketplace model, its profitability is actually quite proven. But it takes certain investment and time to get there. We believe we probably will be one of the first to get there as a major e-commerce player in this region, but we are very happy that at the same time, we're still growing at a very strong rate despite the tough comp against the COVID period and also extending our market leadership vis-a-vis all our peers.  I'd like to invite Tony to address the second question.

Tony Hou -- Group Chief Financial Officer

Yes, sure. About the cash position, we are trying to optimize the cash yield by investing into a shortened time deposit, some of which are over the period of three months, and by GAAP, is categorized as structured investments. And that amounts to a quite significant $800 million to $900 million. So if you add that back, actually, the cash position is over $10 billion.

Yanjun Wang -- Group Chief Corporate Officer

Yes. So this is just to say that the cash isn't gone. It's just paying to us some savings by us.

Operator

The next question comes from Ranjan Sharma from J.P. Morgan. Please go ahead.

Ranjan Sharma -- J.P. Morgan -- Analyst

Hi. Good evening and thank you for the opportunity. Two questions from my side. Firstly, if you can talk about new game development, we know there's a lot of talent available in China now.

Are you changing your hiring strategies to accelerate new game development? And second question, I know it's a bit sensitive, but is there a process to get the ban revoked in India on Free Fire? Thank you.

Yanjun Wang -- Group Chief Corporate Officer

In terms of new game development, I think our strategy has been quite consistent. We have studios globally in the States and also in Singapore, Asia and Korea and other parts of Asia. So we are focused on income development. And at the same time, we have been investing globally into strong development teams and IT with partnership agreements tied to such investments that also augments our organic pipeline.  And of course, there's the publishing side that we continue to work with, and we'll discuss partnerships with the global game developers to bring top IP to our region.  And in terms of Free Fire in India, we're still working on it.

Other than what's been publicly disclosed, we don't have much more to share at this point. Thank you.

Operator

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

Minju Song

Thank you. Thank you all for joining today. We look forward to speaking to all of you again next quarter. Much appreciated.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Minju Song

Forrest Li -- Chairman and Group Chief Executive Officer

Tony Hou -- Group Chief Financial Officer

Alicia Yap -- Citi -- Analyst

Yanjun Wang -- Group Chief Corporate Officer

Piyush Mubayi -- Goldman Sachs -- Analyst

Unknown speaker

Piyush Choudhary -- HSBC -- Analyst

Ranjan Sharma -- J.P. Morgan -- Analyst

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