Alicia Yap: Thank you.
Operator: Our next question comes from Navin Killa from UBS. Your line is now open.
Navin Killa: Hi, thank you for the opportunity. Actually, I had three questions. The first one is a bit more long-term. I guess looking at all the new entrants across several of your markets, how would you describe Shopee’s competitive advantage against them? And why do you think that advantage is sustainable in the long-term? The second question I had was with regards to the comments that you made about investments in logistics. How should we think about the quantum of those investments, I guess, both as it goes into your CapEx, but presumably also, I guess, as your lease payments, so I guess, cash outflow below EBITDA? And the last very quick question, the right of first refusal with Tencent, the new renewal, how long does this stay before the next renewal comes in?
Tony Hou: Let me start with the first question you mentioned. In our businesses, there’s always competition. It’s very hard to be the only one offering e-commerce solution in the market. However, we do see the intensive competition might vary across our market, varies across the times. But as we shared in the Q3, we observed that even with — even in the market with the higher competition, we are able to gain market shares. The key is investment efficiencies. This is what allows us to gain market share while having better economics, unit economics than our peers, competitors in our market. The key for that is our competitive advantage we have built over the past many years. I think number one, if you think about this, will be scale.
As a clear market leader, we have a bigger scale that translate to a much better monetization capabilities and also better cost efficiencies, of course. Number two is the local leadership and operations teams. We have a deep understanding of our market with a strong localized execution across very diverse markets in our region. Our core team are many global talent, mostly home grown, so with us in the past many years, compared to our regional competitors with many expat leaderships in most — in almost all the markets. It does make a huge difference when we come into the nuanced decisions we are making to the market on the — for example, in my previous answers on the very detailed design making on where to invest exactly, which user to deprioritize, we user to prioritize, which time of order to prioritize, which kind of order to deprioritize.
These are all detailed decisions we have to make by our local operation team. And the quality does make a difference as time goes, which translate to a better efficiency of the investment. The third thing is the e-commerce infrastructure we have built over time. In the past many years. It’s not a one-year work, we’ve been doing this for many years. I think one of this is really mentioned on the logistics. We are seeing very meaningful improvement in the cost per order in the past years on logistics, and drive the cost to serve down for our users so we can translate the savings to our buyers and sellers. Not only that, if you look at our payment, ShopeePay has been able to reduce the friction of payment in all our markets. The — besides that, ShopeePay later, which is a great offerings that we offer to our buyers in the platform, this has been improving the purchase conversion quite a lot as we observed.
Like, for example, I met some buyers last week, the week before actually, that — who used to have the problem of not having enough cash to pay for CODs, etcetera, or pay for the services they want to, the product they want to buy on time. As pay later will opt them to buy things on time rather than minutes. If they’re not able to use past Pay Later, they will not be able to buy it on time. And all these things help us to build a competitive advantage for long term. And all the three elements are not easily built. It’s something that has been done in the past almost 10 years, not only for Shopee but for our entire Sea Group to help us to have a better efficiencies on the investment compared to our competitors. The logistic investment, I think the — it’s not a short-term, I guess, investment we are taking.
It’s something we’ve been investing over the years for quite a long time. But the degree of investment, it’s probably not as huge as most people think. I think it’s — a lot of this is investing in the networks of the people that we have built over time. Part of the CapEx, you can imagine, is the hubs we put into place. But this is a general kind of improvement of the rent that we put, where we don’t have — we didn’t buy the land, we typically rent the land, but we need to just convert it to the proper hub. And this is a relatively small investment in terms of CapEx. Another type of investment is the sorting centers. We do have a few investment put into place to — for the automatic sorting machines so we can automate the sorting rather than doing it manually.
