Sea Limited (NYSE: SE) Q2 2020 earnings call dated Aug. 18, 2020
Corporate Participants:
Yanjun Wang — Group Chief Corporate Officer
Forrest Li — Chairman and Group Chief Executive Officer
Tony Hou — Group Chief Financial Officer
Analysts:
Thomas Chong — Jefferies — Analyst
Miang Chuen Koh — Goldman Sachs — Analyst
Alicia Yap — Citigroup — Analyst
Piyush Choudhary — HSBC — Analyst
John Blackledge — Cowen — Analyst
Ranjan Sharma — J.P. Morgan — Analyst
Varun Ahuja — Credit Suisse — Analyst
Presentation:
Operator
Good morning and good evening. Welcome to the Sea Limited Second Quarter 2020 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Yanjun Wang. Please go ahead.
Yanjun Wang — Group Chief Corporate Officer
Thank you, operator. Good evening and good morning, everyone, and welcome to Sea’s 2020 second quarter earnings conference call. I am Yanjun Wang, Sea’s Group Chief Corporate Officer.
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 discussions of certain non-GAAP financial measures such as adjusted revenue, 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’ understandings of the actual cash flow 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 here with me Sea’s Chairman and Group Chief Executive Officer, Forrest Li; and Group Chief Financial Officer, Tony Hou. Forrest and Tony 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 — Chairman and Group Chief Executive Officer
Thank you, Yanjun. Hello, everyone, and thank you, as always, for joining today’s call. Over the last few months, our teams have continued to work hard to support local consumers and the small businesses during this challenging time. At every level of the business, our teams have strengthened their efforts to help our communities to benefit from the digitalization of the economy. We also focused on contributing to economic recovery across our markets through various local initiatives, as well as government-led efforts. Against this backdrop, I’m pleased to share that Sea is reporting very strong results for the second quarter. We also enjoyed accelerating growth across all three of the key pillars of our business.
As we noted last quarter, we have been witnessing a profound structural shift to digitalization across our markets. Even as movement restrictions are being loosened or lifted in many markets, we continue to see strong user growth and deepening of user engagement across our platforms. This is well aligned with our view that the structural shift to digitalization will be long-lasting. We further believe that we are very well positioned to capture the accelerated growth opportunities created by the rapid expansion of the digital economy. This is also reflected in our very strong results for the second quarter.
Let me highlight a few key performance metrics for the quarter. On a group level, I’m particularly pleased to note that we reported positive adjusted EBITDA of $7.7 million. Our quarterly adjusted revenue grew 93% year-on-year to reach $1.3 billion. Our gross profit grew by 106% year-on-year to reach $200.8 million. We believe the strong top line growth and continued bottom line improvement demonstrate our ability to deploy our capital in a highly effective and efficient manner. It also speaks to the fundamental strength of our business model, which allows us to fund our rapid growth, substantially through cash generated from operations.
Let me talk about each of our business lines, starting with digital entertainment. Garena had another excellent quarter and achieved several historical highs. We reached more people than ever before with close to 0.5 billion active users around the globe playing Garena games during the quarter. That represents an increase of 61% year-on-year. As we rolled out more new content than ever to entertain and engage our users, our paying user ratio improved further to hit 10%. Our quarterly paying user number grew at a very strong rate of 91% year-on-year to reach 49.9 million. As a result of the strong user and paying user growth, adjusted revenue for the quarter reached $716.2 million, up 62% year-over-year. Our adjusted EBITDA margin also reached a new record high of 61%.
I want to highlight in particular the very strong performance of Free Fire. It continues to set new records in user growth and engagement. Free Fire recently hit a new record high in terms of peak daily active users of more than 100 million. According to App Annie, in the second quarter, Free Fire continued to be the top grossing game in both Latin America and Southeast Asia across both iOS and Android. Thanks to Free Fire’s enduring global appeal, it also ranked as the third most downloaded game worldwide across iOS and Android in the quarter.
A key driver of Free Fire’s success is our ability to create captivating content that engage our global user community. For example, we have observed that users enjoy the unique creative themes and storyline we deploy for each of Free Fire’s Elite Pass seasons. One of the most popular Elite Pass content of the last few months was Rampage II: Uprising. This was a reboot of Rampage, one of the best received in-game campaigns of last year. For this year’s Rampage event, we introduced a new 4v4 strategy mode, which proved very popular with our users. We are excited to see the positive user sentiment around the return of Rampage. We believe that recurring events with new creative content such as this help to build user affinity with our game and sustain [Phonetic] long-term user engagement.
We are also partnering with other global IP holders to create memorable content experiences for our users. For example, in July, we announced a partnership Netflix for a special in-game crossover with its global hit show, Money Heist. For this, we have worked with Netflix to create a Money Heist-themed in-game takeover, which is expected to be launched in September. User will be able to enjoy a new game mode inspired by the plot of Money Heist and can purchase virtual skins modeled after the iconic outfits in the TV series.
To further enhance user engagement, we have successfully migrated our esports activity online over the last few months. For example, in recent months, we held large-scale esports events in both Asia and Latin America. In June, we held a Free Fire Asia All-Stars event featuring both professional players and popular online influencers from India, Indonesia, Thailand and Vietnam, competing across several tournaments. In early August, we hosted an online esports event in Latin America called Free Fire Gigantes, featuring the top teams from our Pro Leagues on the Brazil and the Latin America servers.
We continue to see strong momentum in user engagement entering into the third quarter, even as many of our markets eased their restrictions of movement recently. In fact, in July, Garena hit a new record high in monthly adjusted revenue. Free Fire also hit a new record in monthly paying users in the same month, which more than doubled year-on-year.
Looking ahead, we remain fully focused on bringing in awaited content and enjoyable experiences to our users. We are confident that high-quality and highly-engaging content will strengthen their engagement and affinity with our games. This will continue to be the key driver of Garena’s long-term success.
Now, let’s turn to Shopee. We recorded accelerated growth across key metrics and in each of our markets as more consumers and sellers turned to Shopee as their go-to shopping and selling destination. Last quarter, we spoke about the rapidly changing needs of consumers and sellers in our region, who are embracing e-commerce at an unprecedented pace. We also discussed the efforts we were making to quickly adapt and scale up our services to address these evolving needs.
Our very strong results for the second quarter further demonstrate the sustained deepening penetration of e-commerce and our ability to capture this growth. In the second quarter, we recorded accelerated growth in gross orders which increased by 150% year-on-year to reach $615.9 million compared to 111% in the first quarter. Moreover, gross order for Shopee Mall increased at an even faster pace of more than 210% year-on-year, as more and more global and local brands partnered with us to cater to their increasing and evolving demand for online solutions.
In Indonesia, our largest market, our year-on-year growth rate in terms of orders further accelerated. We recorded over 260 million orders for the market in the second quarter, or a daily average of over 2.8 million orders, an increase of over 130% year-on-year.
We also saw significantly accelerated year-on-year growth in GMV, which exceeded $8 billion. This represents a year-on-year growth rate of 110% compared to 74% in the first quarter.
According to App Annie, in the second quarter, Shopee continued to rank first across Southeast Asia by downloads, monthly active users and the total time in app on Android. In Indonesia, Shopee extended its lead and once again ranked first in the Shopping category by downloads, monthly active users and total time in app on Android.
In terms of monetization, adjusted revenue grew by 188% year-on-year to reach $510.6 million. I’m pleased to note that our monetization rates have largely recovered to pre-pandemic levels. Adjusted revenue as a percentage of the total GMV increased to 6.4% from 5.1% for the previous quarter. Adjusted marketplace revenue as a percentage of total GMV was 4.7% in the second quarter of 2020 compared to 3.8% in the fourth quarter. Meanwhile, we drove further improvement in operating efficiency, even as we significantly scaled up our operations. Adjusted EBITDA loss per order decreased by 51% year-on-year to $0.50 compared to $1.01 for the second quarter of 2019 and $0.60 [Phonetic] in the first quarter.
While we gradually ramped up monetization, we continued to provide strong support to our seller communities most affected by the pandemic through fee relief and other financial and operational assistance. In many of our markets, we have launched or scaled up support program for local SME sellers during the quarter, offering financial and marketing aid to help them reach new audiences. We have also devoted significant efforts to create more opportunities for local entrepreneurs and small businesses to grow their presence online.
In Thailand, for example, we have partnered with the government to develop and roll out training and support program targeting farmers. Our program aims to reach 1.5 million farmers in the coming years to enable them to start and scale their business on Shopee. Similarly, in Malaysia, we organized a special online sales festival for durian producers to ensure they could get their food to consumers while fresh. These are all part of our commitment to driving economic recovery in our local communities.
In terms of engagement with our consumers, in the second quarter, we continued to enhance the highly social user experience that Shopee is known for. Our livestreaming feature is growing in popularity, and we are expanding the types of content that we offer to our users. For example, in late June, we partnered with the organizers of KCON, the most popular festival of K-pop music, to stream their hugely popular annual concert series exclusively on Shopee. At the same time, we are expanding our ability to support the needs of sellers and brands across the region. In July, we partnered with Google to launch a new service called Google Ads with Shopee. This integration enables brands on Shopee to create Google shopping ads directly in the Shopee brand suite. We also enhanced our in-app Shopee Feed with a new feature called Shopee Stories. This allows brands and sellers to create and share short-form video content with their followers on Shopee Feed.
In summary, the very strong results for the second quarter are underpinned by two key drivers. First, e-commerce penetration continued to deepen across markets and demographies. This momentum continued into the third quarter, even as most of our markets have emerged from lockdown. Second, with our strong market leadership and our ability to adapt quickly and effectively, Shopee is capturing and we believe will continue to capture an outsized proportion of the growth opportunity. With that in mind, we will continue to focus on investing with efficiency in the long-term growth of Shopee to further strengthen our market leadership. We continue to firmly believe that this will lead to much greater return over the long run.
Finally, our digital financial services business, SeaMoney, also enjoyed further accelerated growth in the second quarter. Accelerating digitalization is driving increased need for quick and convenient online and contactless payment options, as well as other digital financial services. We further believe that SeaMoney is in an ideal position to capture a significant proportion of that growth opportunity. SeaMoney’s focus continues to be leveraging on Sea’s strategic leadership position in some of the largest use cases for digital payments in e-commerce and digital entertainment. We believe the impressive growth in the second quarter underlines the strength of this strategy.
Our mobile wallet total payment volume increased to more than $1.6 billion for the second quarter compared to more than $1 billion in the first quarter. Quarterly paying users for our mobile wallet services grew by about 50% quarter-on-quarter to more than 15 million. In particular, we are encouraged to see more Shopee users embracing the ease and convenience of our mobile wallet. In the month of July, in Indonesia, our mobile wallet services were used to pay for more than 45% of gross orders on the Shopee platform.
As we scale up the SeaMoney business, we are applying the same rigorous discipline and focus on efficiency that is the hallmark of this business. Even as we recorded a huge jump in user numbers and TPV for the quarter, our adjusted EBITDA loss for this segment remained relatively flat quarter-on-quarter. We see significant growth ahead in the digital payment and digital financial services segment, driven by the rapid expansion of the digital economy in our region. Our results for the quarter clearly demonstrate that SeaMoney is in a great position to address the needs of users across the region. We will continue to invest efficiently in scaling up the SeaMoney business to solidify our leadership position across our markets.
To conclude, we are moving into the second half of 2020 firing on all cylinders. Each of our businesses is successfully adapting to capture the immediate growth opportunity in front us. Each of them is also ideally positioned for the long term with a significant runway ahead. We saw sustained and growing user engagement across our platforms through the second quarter and beyond. And this gives us further confidence that the rapid shift to digital lifestyle is in fact a permanent and irreversible change that will drive significant growth opportunity for Sea over the long run. We are very focused on maximizing this opportunity, and we will continue to invest in products and services that will win the hearts and the minds of our users.
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 quarterly financial schedules, 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 key financial metrics.
For Sea overall, total adjusted revenue grew by 93% year-on-year to $1.3 billion, which was mainly driven by the growth of our digital entertainment business, especially our self-developed game, Free Fire, and our continued monetization efforts in our e-commerce business in the past quarters. The 62% year-on-year growth in digital entertainment adjusted revenue to $716.2 million was 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 $436.2 million, an increase of 65% year-on-year, mainly due to strong top line growth and our self-developed game accounting for an increased share of revenue.
Our e-commerce adjusted revenue of $510.6 million included adjusted marketplace revenue of $378.7 million, up 175% year-on-year, and adjusted product revenue of $131.9 million, up 233% year-on-year. The strong results demonstrated the deepening penetration of e-commerce and our ability to capture these accelerated growth opportunities created by the rapid expansion of the digital economy. E-commerce adjusted EBITDA loss was $305.5 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 by serving the users’ needs better in the long run.
Digital financial services adjusted revenue was $11.9 million, an increase of 328% year-on-year from $2.8 million in the second quarter of 2019. Adjusted EBITDA loss was $110.1 million in the second quarter of 2020 compared to a loss of $18.1 million in the same period of 2019. This was primarily due to our continued efforts to deepen the integration of our mobile wallet services with our Shopee platform across different markets. We have also been expanding the suite of online and offline third-party use cases and partnerships.
Returning to our consolidated numbers, we recognized a net non-operating income of $7.6 million in the second quarter of 2020, compared to a net non-operating loss of $29.2 million in the second quarter of 2019. Non-operating gain in the second quarter of 2020 was primarily due to a gain from the sale of a controlling equity stake and remeasurement of our remaining stake in an operating entity in our other services segment, partially offset by higher interest expenses. The revenue from the entity disposed of contributed to a large portion of the revenue of our other services segment in the past, and the entity is no longer consolidated following such disposal. Our non-operating loss in the second quarter of 2019 was primarily due to a fair value loss of $31.8 million arising from the fair value accounting treatment for the 2017 convertible notes.
We had a net income tax expense of $27.8 million in the second 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 the share-based compensation and changes in fair value of the 2017 convertible notes was $317.7 million in the second quarter of 2020 as compared to $215.1 million for the same period in 2019.
With that, let me turn the call back to Yanjun.
Yanjun Wang — Group Chief Corporate Officer
Thank you, Forrest and Tony. We’re now ready to open the call for questions.
Questions and Answers:
Operator
[Operator Instructions] The first question comes from Thomas Chong of Jefferies. Please go ahead.
Thomas Chong — Jefferies — Analyst
Hi, good evening. Thanks management for taking my questions and congratulations on a very strong set of result. My question is about our annual — or our full year outlook. Given the fact that our performance is so strong in the first half, how should we think about the full year online games revenue growth as well as the e-commerce revenue growth? And my second question is about our — how should — the competitive landscape in online shopping. Can you comment about any change in terms of the trend that we would anticipate in the second half and next year? Thank you.
Yanjun Wang — Group Chief Corporate Officer
Thank you, Thomas. In terms of our full year outlook on gaming side, as you can see from our past results, I think we’ve seen very strong momentum of growth in terms of active user, paid user and also time spent on games, and with ARPPU at $14.4. So we continue to see such growth across our different regions in Southeast Asia, Latin America, as well as other frontier market where we have a strong footprint in. And that goes true for our active user base as well as paying user base with sustained ARPPU. Therefore, we believe we will continue to benefit from the tailwind in terms of the deepening digitization as well as people looking for entertainment online during the social distancing requirements in the middle of the pandemic. And the situation is still evolving. We continue to observe. And at this stage, it’s hard for us to pinpoint the exact number in terms of full year guidance yet. But we are very confident of our performance. That one is for sure. But in terms of the exact number, we will look to report back later when we have more information. As we mentioned, for July, our paid user for Free Fire has doubled again year-on-year, and July also is a historical high in terms of adjusted revenue for our game business. Therefore, the trend still is quite positive, and we will continue to observe how it goes.
In terms of the e-commerce segment, again, we are seeing very strong tailwind as we expand our market leadership in each market we are in, in terms of growth in — year-on-year growth in GMV, in order, active user, time spent, frequency, all the metrics, we’ve seen very high growth rates. And this is continuing into the third quarter. As you know, in most of our markets, the social distancing or strict lockdown has been lifted in the middle of the second quarter. Despite the lifting of such movement restrictions, we continue to see very strong momentum in e-commerce adoption, and that is true also for, for example, in terms of brand moving online. We mentioned we have more than 200% year-on-year growth in orders from our Shopee Mall. And we also see other professional sellers increasing their sales online and increasing move their entire sales onto our platform as we are the go-to platform for sellers as well buyers in our region. And that also goes to the competitive landscape in our markets. I think it’s been quite clear from the past performance and that we are fast gaining market share. And while the deepening of penetration is ongoing, at the markets where we are market leader, we’re taking a disproportionate share of the market growth. And this also manifests in our ability to further deepening monetization during this period of time. As we mentioned before that we will continue to gradually ramp up monetization over time. And we’d be doing this — at the same time, we’re giving relief to our sellers and helping new sellers onboard our platform, etc. So therefore, you can see from the past results that we are gaining market share in terms of both our growth, also our pricing power.
Thomas Chong — Jefferies — Analyst
Thank you.
Operator
[Operator Instructions] The next question comes from Miang Chuen Koh of Goldman Sachs. Please go ahead.
Miang Chuen Koh — Goldman Sachs — Analyst
Congrats on the results. Firstly, on gaming, can management provide some color on Free Fire’s contribution to total revenues and also what is the latest traction in India for second quarter, alongside any comments or data points you can share on new games such as Fantasy Word [Phonetic], which was launched very recently? And secondly, on e-commerce, you talked about GMV growth remaining strong in the quarter. Can you elaborate a little bit more? Surely there must be some deceleration in growth as offline is gradually coming back. Is that sort of fair to say? And is it possible to break down the take rates for us in the second quarter? How much was from value-added services, commissions, advertising, etc.? Thank you.
Yanjun Wang — Group Chief Corporate Officer
Thank you. We definitely see very strong growth on Free Fire. And I think that the very strong growth of the gaming segment overall is largely driven by Free Fire across various markets. We don’t give a specific breakdown. But overall, we continue to see Free Fire being the biggest game in our portfolio.
In terms of Fantasy Town, it is a casual farming simulation game we recently licensed. This really is an effort by our game to expand our portfolio into some of the casual genres as well. It’s very preliminary. So we don’t have too much to share. I think it’s always a good sign as we continue to diversify our portfolio.
In terms of the Shopee growth, I think if you look at our markets in a market by market analysis, I think as I shared in Q1 before, we — it depends on — in some markets where it’s more affected by social distancing rules or strict lockdown or longer period of strict lockdown, you’ll see more accelerated growth compared to markets that are less affected. So for example, some of our markets like the Philippines, where you see a resurgence of cases, a reimposition of stricter lockdown, we’ll even see further accelerated growth going into Q3 compared to Q2. In some other markets, we see sustained high growth that is at much higher level compared to Q1 — sorry, pre-COVID period. That actually applies to most of our markets. And in markets like Taiwan and Vietnam, where so far, there haven’t been many cases or they imposed very short period and very limited lockdown, the impact has always been more moderated. But even in the markets like Taiwan, where there were never lots of cases and was never a lockdown, this year, we see heightened growth, meaningfully heightened growth compared to last year. Again, it speaks to: A, our ability and operational strength, organizational strength in navigating a pandemic situation and capturing the growth that comes with the lockdown, and at same time, shows that in markets where it’s less affected by lockdown, given our market leadership, we continue to enjoy accelerated growth well ahead of the general market growth rates and capturing further market share. This goes back to the strength of our business model as well.
Miang Chuen Koh — Goldman Sachs — Analyst
Yeah. Any comments on take rate?
Yanjun Wang — Group Chief Corporate Officer
In terms of take rate breakdown in Q2, I think it’s consistent with our past quarters that most of our take rate or adjusted revenue came from the high-margin streams of revenue, including commission, handling fees, as well as advertisement.
Miang Chuen Koh — Goldman Sachs — Analyst
Got it. Thank you.
Yanjun Wang — Group Chief Corporate Officer
Thank you.
Operator
The next question is from Alicia Yap of Citigroup. Please go ahead.
Alicia Yap — Citigroup — Analyst
Hi, thank you. Good evening, Forrest, Tony, Yanjun and management team. Congratulations on the strong set of results and thanks for taking my questions. I have a question on the Shopee business. So I wonder if management, if you wanted to highlight two to three key points that you have learned, the most changes in terms of user behavior on the purchasing category frequency or even the merchants’ attitude, and also the category mix in terms of the GMV contribution this year post COVID versus previously you anticipated in terms of the mix. And then second question, I wanted to ask about the change of the accounting reporting matter that you highlight in the press release. So can you elaborate a little bit the reasons for the change and also the timing? Why don’t we wait a little bit until the end of the 2020 and the full year results and we have a change? And also is that implying the full year revenue guidance that you previously provided, which is on the adjusted revenue basis, that is no longer valid that we should not be referenced to? Thank you.
Yanjun Wang — Group Chief Corporate Officer
Thank you, Alicia. In terms of the Shopee user behavior, I think we see very strong momentum on all fronts. One is active buyer number, active seller number and buy frequency and time spent have been increasing. For example, in terms of buy frequency, before we reported more than four times, and this — we’re seeing more than five times a month on average in some of the markets like Indonesia, getting close to six times a month. And this is sustaining into even after the lockdown period.
In terms of category mix, we reported before in Q1 that we saw strong surge [Phonetic] in terms of hygiene-related products as well as home and living up, which is also related to working from home requirements. We continue to see that in large part of Q2. And as life gets a bit back to normal in Q3 with easing of certain movement restrictions, we’ll start to see fashion to pick up again. So therefore, I think in terms of category growth has been quite strong across different core categories that we have.
In terms of adjusted revenue reporting, the reason we’re making this change is that in connection with its ordinary course review of SEC of filers and reports, we received two questions from SEC. One is relating to the MD&A section of the annual report to add a little more color on operating cash flow differences and — which we have provided supplemental information to the SEC, and the other one is regarding the reporting of adjusted revenue in our earnings release. We have also, as we mentioned in the earnings release, determined that we will not be reporting adjusted revenue for the gaming segment. Instead, we’ll be using bookings, which is again GAAP revenue plus changes in deferred revenue, as the operating metric going forward. So, that shouldn’t change the guidance that we gave before for the gaming sector segment. And in terms of e-commerce and other segments, we will also not report adjusted revenue. And instead, we’ll just be reporting GAAP revenue. For the full year guidance, for e-commerce, we will continue to provide the sales incentives net-off so that we can use that to add back to the GAAP revenue for e-commerce and other segments — sorry, for e-commerce segment to compare against the full-year guidance on adjusted revenue we previously gave. With one round of response to SEC, SEC already feel very satisfied and closed their case. The response letter and the correspondence with the SEC will come out in about a month’s time. So, we should expect to see it in September.
Operator
The next question is from Piyush Choudhary of HSBC. Please go ahead.
Piyush Choudhary — HSBC — Analyst
Congratulations to the management [Technical Issues] questions. Firstly, your adjusted marketplace revenue as a percentage of GMV has increased to 4.7% this quarter. Can you elaborate what drove the increase and the medium-term outlook for the same? And secondly, on the logistics, is third-party logistics a bottleneck for growth and what’s your long-term strategy over here? Is Shopee looking to invest in its own managed logistics fleet? Thank you.
Yanjun Wang — Group Chief Corporate Officer
Thank you for the questions. In terms of adjusted revenue growth, it’s again mainly driven by our commission as well as advertisement and also the product revenue, which are the three main components of the marketplace adjusted revenues.
In terms of commission also, given the recovery of first quarter size as well as the increased demand from Shopee Mall with more brands joining us, we continue to see positive trends. And we, in fact, also see more users — more sellers using our advertisement programs and Fulfilled By Shopee programs to serve their buyers better during this pandemic. And so, that also helped to drive the growth rate higher — take rate higher, sorry. And so, as we mentioned, we’ll continue to gradually ramp up monetization over time.
In terms of 3PL, I think given the pandemic situation, so far we’ve seen very strong performance by our 3PL partners across different markets. They made a huge effort in close collaboration with us to deliver as many packages as possible to our users, as shown in the heightened growth of our order volume in Q2 and enduring into the Q3. And I think this is basically a demonstration of our strength of the relationship with them. And in terms of operational network with 3PL, we continue to work across different top 3PLs in different markets, as well as supplementing the capacity with our own express delivery team. So, we will continue to provide good services to our buyers despite the movement restrictions being imposed.
Operator
The next question is from John Blackledge of Cowen. Please go ahead.
John Blackledge — Cowen — Analyst
Great. Thanks. Two questions. First on Shopee, despite the huge accelerating growth this quarter, you still showed negative 17% incremental EBITDA margins, albeit it was much less than the 2Q ’19 negative EBITDA incremental margins. Just curious what are the key investments driving the negative leverage? And then, on SeaMoney, can you frame the longer-term opportunity for the SeaMoney business? And the mobile wallet users rose 50% year-over-year. Just discuss how you’re driving the strong user growth. Thank you.
Yanjun Wang — Group Chief Corporate Officer
Sure. In terms of e-commerce, we continue to invest in its growth. And if you look at our EBITDA loss per order, it’s been fast dropping from $1 a year ago to $0.60 last quarter and to $0.50 per order this quarter. Therefore, we think we are gaining efficiency — continue to gain efficiency as we invest in the rapid growth of Shopee. At the same time, we see deepening monetization over time. As we’ve always said, we believe the business model is very clear and has proven by all major marketplace e-commerce players in the world that profitability model for marketplace e-commerce is very strong, and especially for a strong market leader. And therefore, we are investing in the long-term growth of this segment to continue to strengthen our market leadership, to build deeper competitive moats, as well as to maximize our long-term profitability down the road.
In terms of SeaMoney, as we mentioned, it’s showing very strong growth during this period as well. And we have the largest online use cases. And natural use cases allow us to not only build a mobile wallet with efficiency, but also to drive other digital financial services across the different markets with strong user affinity data and the sophistication of the use cases we have. I think this is a very strong synergy between — across our three core businesses that we’re enjoying, and therefore, it’s driving very fast adoption of SeaMoney wallet, as well as in terms of growth of paying users we are seeing. We will continue to drive the growth of SeaMoney primarily through our own large and sophisticated use cases that in terms of long-term potential we think is definitely very big, given that there’s demand for digital payments and digital financial services. It’s huge in our markets, given the under-banking population and under-penetration of traditional financial services. What we can do, we have a clear ability in doing is use technology to promote the financial services segments to serve more population in our markets, and there is a very natural demand for it. The current pandemic just further accelerated the penetration of digital financial services and the mobile wallet for everybody as people all look for alternative ways of paying for things online, as well as contactless payment methods.
Operator
The next question is from Ranjan Sharma of J.P. Morgan. Please go ahead.
Ranjan Sharma — J.P. Morgan — Analyst
Hi, good evening, and thank you for the presentation and congratulations on the results. Two questions from my side. Firstly, on e-commerce, talking about the competitive environment, what we understand is that some of the — some of your peers might not be on a strong footing in terms of raising capital or competing in the market. So, if you can share thoughts around potential M&A in the space and how you would approach any potential opportunities. Secondly, you shared a bit about SeaMoney. Maybe you can also compare to other fintech companies, especially offerings from other super apps in the region and how you differ. Just a sense like what is going to drive adoption for SeaMoney over the other apps. And are we going to see extended periods of sales and marketing and losses for SeaMoney? Thank you.
Yanjun Wang — Group Chief Corporate Officer
Sure. In terms of competitive landscape, I think we’re in a very strong position that, A, we’re growing “fast and faster.” And we are also further strengthening our market leadership position. And as we have demonstrated we’re self-funding our growth in e-commerce. Now, if you look at certain other competitors who are both losing money and therefore dependent on external funding for it and losing market share, I can see why it could be very difficult to fundraise. So, I think this has put us in an even stronger competitive position. While we’re open minded about all possibilities, we continue to assess the competitive landscape carefully and focus on strengthening our own operations and serving our sellers and buyers better. I think this is the best focus long term for us in growing our marketplace.
And in terms of the digital financial services, SeaMoney, I think what really give us strength or I would say competitive strength in the sense that we had very large and perhaps the largest online use case, which is the e-commerce as well as digital entertainment. Especially on the e-commerce sites, this is not only big, but it’s also closest to people’s wallet and purchase behavior. That allows us to have the right amount of data to build more financial services on top of digital payments. We think that e-wallet is not [Indecipherable] kind of services. We would like to provide a comprehensive suite of services to our users to offer them more options online, and this is a strength we have in building that. And second, we are able to again self-fund our growth in SeaMoney. As you can see, we have been very focused on investment efficiency and scaling with the right amount of investment at the right time with the right market conditions and maximizing the leverage we have of our own cases. I think this really sets us apart.
Super app as a concept — it’s a concept people talk about, but I think there are a lot of executional details. It’s not about lumping everything together in one app and just hoping that users will somehow use all of those. You need to make sure from a user experience, operational, business model perspective, everything makes sense together and can ask [Phonetic] each other and create synergies across different functionalities. And that’s what we are very much focused on.
Operator
The next question is from of Varun Ahuja of Credit Suisse. Please go ahead.
Varun Ahuja — Credit Suisse — Analyst
Hi, thanks for the opportunity and congrats on a good set of numbers. Two questions for me. First, if you can give some color on the sales and marketing spend that you’ve been doing this quarter in terms of how the qualitative trend has been on the shipping subsidies, how much is still on brand promotion and discretionary spending, that will be helpful. Secondly, on digital financial services, if you look at — you mentioned that the total payment transaction is $1.6 billion, which is around 20% of the full e-commerce GMV for this quarter. And it looks like mostly it is in Indonesia. So, if you look at the genesis of payment business, it was pretty much strong in Thailand and Vietnam. So, just wanted to understand how the take up of payment has been because infrastructure-wise that was one of the early markets for you to — doing well, but looks like Indonesia has kind of taken over. So, just wanted to understand how you’re looking at this segment. And lastly, if I can sneak in on category mix, if you can give more color on how much is grocery now versus some of the other categories which have been stronger, fashion or health and beauty, will be helpful. Thank you.
Yanjun Wang — Group Chief Corporate Officer
Sure. Thank you. In terms of sales marketing spend for e-commerce, discretionary brand spending is already the biggest component for Q2. And in fact, we’ve been increasingly efficient on shipping subsidies. While our buyer continue to enjoy that, it is increasingly being funded by free shipping and other programs we have with sellers, as well as rebates from 3PL. But we also did take advantage of the airtime during the social lockdown where more users are watching TV or spending time online to do more of brand marketing, and this is also in line with the Ramadan season in Indonesia and Malaysia. And therefore, you see more of that from the brand — discretionary brand spending. Again, this could — this is highly discretionary and could vary from period to period.
In terms of DFS, so I think Indonesia being the first country where we rolled it out and in terms of the integration with the Shopee platform. And we also have been working on Thailand, Vietnam, as well as other markets. We see, over time, strong adoption in the other markets as well. I think the strategy as well as operational approach needs to be tailored for each market. And we’ve demonstrated in terms of our — in running our e-commerce business, this is actually one of our strengths is to hyper-localize our operations, as well as the design of the product for each market. And we will continue to do that and we continue to see strong growth contribution from the other markets as well in addition to Indonesia.
In terms of category mix for the quarter, as mentioned earlier, we’ve seen stronger demand for home and living and hygiene products as well as FMCG products during the quarter, which is probably explained by the social distancing and lockdown rules. At the same time, we saw fashion and health and beauty start to reaccelerate going into the third quarter as many of the lockdown rules have been eased, with continued strength in other categories as well. So, FMCG still remains a very small part of our category mix. Our main category mix hasn’t really changed that much.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Yanjun Wang for closing remarks.
Yanjun Wang — Group Chief Corporate Officer
Thank you, everyone, for joining today’s call. We look forward to speaking to you all again next quarter. Please take care.
Operator
[Operator Closing Remarks]