Garena Free Fire

An overview on Sea's Garena Free Fire

1. Garena
Free Fire
James Yeh –July 2020

2. [email protected] | @yuinausicaa
Read Me
Read Me…
The content of this report is for intellectual
exercise only.
Most of the data in this report are hand-
collected from company filings, earnings
call transcripts and third-party analytics
website. It’s recommended to double check
with your databases and original
documents.
No warranty, expressed or implied, is given
on merchantability, accuracy, reliability and
correctness of the content in this report.
This report is NOT an advice for making
any commercial or investment decisions.
Risk-Reward Background Resources
Theexposurepath:SeaLimited->Garena->FreeFire.The
impactonSea.USofchangesinFreeFirebusinessperformance
andprospectisprimarilythroughGarenabacktoSea’sSOTP.
Garena,reportedasSea’sDigitalEntertainmentsegment,now
canbeviewedasacombinationofthreebusinesses:FreeFire,
gamedevelopment,andgamepublishing.It’sestimatedthatFree
Firecontributed65%+ofadjustedrevenueofDigital
Entertainmentin1Q20.
Gamedevelopmentadoptsanexperimentapproachsooptically
Garenahasn’testablishedapipelinesincethelaunchofFreeFire.
It’sreportedthatgamedevelopmentsplitsstudiocapacityevenly
betweenFreeFireandothergamedevelopment.
ThenewlyacquiredPhoenixLabsprovidesFreeFirean
opportunitytoenterconsoleorPCgamingspace.
Reminder
Financials and metrics of Sea’s Digital
Entertainment can be found in Sea’s
filings at their investor relation.
Information from earnings call transcripts
can be found on financial analysis
websites such as atom.financeor tikr.com.
Metrics of other mobile games can be
found at sensortower.com/blog.
Dataset for charts in this report and other
resources are collected at
yuinausicaa.com/freefireand Notion page.
20200724v1

3. Contents
Free Fire -Product Snapshots
Fundamentals –From Game to Live Game
1
2
3Free Fire –Conceptual Roadmap & Business
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3

4. GarenaFree Fire
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4
Battle
Royale
$1B+
LT. Adj. Rev.
Since 2018
80M
Peak DAU
In 1Q20
Emerging
Markets
Localized
Content
90M+
Views
Tournaments
in 1Q20
Esports
Launched in 4Q17, Monetized since 1Q18
Crossover, Esports & Community Building
Content, Events & Localization

5. Free Fire’s Product Market Fit
Product Design & Development
Battle Royale Genre Evolving: keep exploring playability and features
Platform Mobile first: Android / iOS
Hardware Specs Less demanding for lower-end smartphones
Trajectory Towards premium game with graphic quality improving
Gameplay Less players per session, smaller map→ shorter session
Content Highly localized
Feature
Community feedback
Social / Community / Live streaming…
Benchmarking Similar genre games
Monetization Subscription + Microtransaction + …
Busines Model
Transition
A Mobile Game →A Social Platform
Southeast Asia
Other Emerging
Regions
Developed Regions
Market: Geographic Expansion
Younger, Higher Growth, Lower ARPU, Similar KSFs
Lower Growth, Higher ARPU
1 2
3
Game experience was
originally optimized for
SEA gamers
~200
~300
~400
4Q17 2Q19 2Q20
No. of Developers in Shanghai Studio
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5

6. TAM Expansion –Market, Segment, and Platform
Low-end Mobile
High-end Mobile
Console
PC
Hardware Specs
Mobile
Mobile &
Console
Cross-
platform
(Max)
...
Device-agnostic
Cloud
SEA
LATAM, MENA, IN,
RU
NA, EU, NEA
CN
Mobile-First:
Optimized Experience
Relatively Easy to Get Adopted
in Other Emerging Markets
SEA Other EMs
FF Max for New
Segment
Developed Markets
FF for Other
Platforms
Free Fire
Low ARPU
High ARPU
•Market: similar markets like LATAM, India; markets with higher ARPU like NA
•Segment: originally optimized for lower-end smartphones; now catering to audience with higher-end devices with new version
•Platform: Phoenix Labs might enable Free Fire expand into PC/console space
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6

7. Competing Battle Royale Games in Mobile Space
Franchise
GarenaFree Fire
(Free Fire)
PlayerUnknown'sBattlegrounds
(PUBG)
Fortnite
Battle Royale
Call of Duty Knives Out
App
Version
Free Fire / Free Fire
Max
1
PUBG Mobile / PUBG Mobile Lite Fortnite Call of Duty Mobile Knives Out
Platform Android, iOS
Android, iOS / Android /
Google’s Stadia
Cross-Platform Android, iOS Android, iOS
Engine Unity Unreal Engine 4 Unreal Engine 4 Unity Messiah
Publisher Garena Tencent Epic Games / Tencent
Activision / Tencent /
Garena
NetEase
Developer
Garena’s111 Dots
Studio
Tencent’s Lightspeed & Quantum
Studios Group and Krafton(Bluehole)
Epic Games Tencent’s TiMiStudios NetEase
Primary
Markets
2
SEA and Other
Emerging Markets
China, U.S., Japan U.S., UK, SwitzerlandU.S., Japan, Brazil Japan & China
Expansion
Direction
3
Emerging to
Developed
Developed to Emerging Deepening
Developed &
Emerging
Deepening
High Level
4
Social Platform Metaverse
Note: 1) Reported in development; 2) Based on third party lifetime revenue breakdown at various point of time; 3) My opinion;4)The strategy / direction is disclosed / reported for Free Fire / Fortnite; 5)
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7

8. Competitive Landscape & Dynamics
Knives Out
Mobile PC/Console
High ARPU Markets / High-Specs
Low ARPU Markets / Low-Specs
Fortnite & PUBG
Free Fire
•Initial state lock-in, path-dependency, and organization behavior dictate dynamics in TAM expansion for each franchise.
•Tendency: low-specs to high-specs, low ARPU to high ARPU.
•Difficult to enter a market: competitor with established network, different core competency, or tendency?
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•Started from PC and Mobile
•Core market: JP, CN with high
ARPU
•Deepening core market
•Mobile first, optimized for low-specs smartphones
•Started from SEA with low ARPU
•Land grapping in other emerging markets with low ARPU
•(Max) in development catering to high-ARPU segment in mobile
•(Max) is an access point for developed markets w/ high ARPU
•Both started from PC/Console
•Both entered mobile while PUBG
Mobile has a Lite version
•Core markets with high ARPU
•Deepening core market
Low to High ARPU Mkts
High to Low ARPU Mkts

9. Contents
Free Fire -Product Snapshots
Fundamentals –From Game to Live Game
1
2
3Free Fire –Conceptual Roadmap & Business
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9

10. Game Monetization
Monetization
Market
Product
Free-to-Play
Free-to-Start
Purchase $
Subscription /
Season Pass
Premium
1
Add-on / DLC
Microtransaction
License
…
2
Upfront
On-going
(Live Game / GaaS)
Game Operation
Marketing &
Distribution
Gameplay Genre
•A game can have various monetization methods, but the monetization needs to take product and market into consideration.
•While most of the mobile games are designed with on-going component and aim to become a live game, most of them have
lifecycle with lifespan depending on genre.
Game Game Platform Game as a Social Platform
IP/Content
Note: 1) The premium part of freemium model. The premium can come from more features that improve game experience or annoyingfrictions. 2) Depending on design of gameplay and game economy
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10

11. Game User Unit Economics
M1M2M3M4M5M6M7M8M9M10M11M12M13M14M15M16M17M18
SubscriptionMTX-A MTX-B Season Pass
M1M2M3M4M5M6M7M8M9M10M11M12M13M14M15
SubscriptionMTX-A
Paying UserUser Churned
Conversion
UserLifetime Lifetime Value = Lifetime Rev. x Contribution Margin -CAC
F2P Monetization
Paying User
User
F2P Monetization –Lifetime Revenue Expansion
•Generally, only a fraction of active user base will convert into paying users and it takes some time for the conversion.
•Depending on how the game monetizes its users, revenue contribution from a standard paying user follows certain pattern
before it gets churned.
•To expand paying user lifetime revenue, the game can add more content, add more monetization methods, or actively engage
users so that they stay longer (expands user lifetime). Expanded unit lifetime revenue might boost game lifetime margin as well.
Churned
Reactivated?
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11
%

12. Game User Base
•User base pattern is determined by user acquisition, retention and staged launch for different markets.
•While user base might stabilize at certain level, that scale might be not enough to generate a return above hurdle.
M1M2M3M4M5M6M7M8M9M10M11M12M13M14M15
MAU-A MAU-B MAU-C MAU-D MAU-E MAU-F
Game MAU
Core Region Non-Core Region
Churn / Retention / Reactivation
Penetration /
Adoption
Segment
Expansion
M1 left
M2 new adds
M2 Cohort
Game MAU Growth
Penetration
Expansion
Churn
Reactivation
Retention
•Startfromcoremarketswithhighadoptionpotentialandthen
penetratemarketsthroughfurthermarketing,referralandword
ofmouth.
•Entermarketswithhigheruncertainty.Go-to-marketmightbe
differentbecauseofcultureandmarketenvironmentleadingto
differentCAC.Itneedsinsightandlocalizationtoturnanon-
coremarketintocoremarket.
•Dependingonthegenre,gameplayandIP,eachgamewould
sufferfromdifferentextentofuserchurn.Fastiteration,active
userengagement,incorporatingfeedbackfromcommunitymight
reducechurnrate.AsCACgraduallyincreases,churnreduction
caneffectivelyhelpMAUgrow.
•Whilemostmobilegamearedesignedaslivegame,notmany
ofthemcansustainauserbasethatgenerateattractivereturn
foralongperiodoftimeduetocompetitionfromothergamesor
otherentertainmentformsandchangeofgamertaste.
Segment /
Cohort
•Userbasecanbesegmentedbydifferentattributes.Thetime
intervalthatusersareacquiredisthedeterminantofauser
cohort.Generally,userbehaviormetricsarebetterinlater
cohortsbecauseofproductiterationandoperationfine-tuning.
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12

13. Game Market Expansion and Metrics
M1M2M3M4M5M6M7M8M9M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24
Core Markets BillingNon-core Markets Billing
Core Non-Core
User Base
•Generally, Core markets have better metrics while the aggregate size of Non-core markets might be much larger in terms of user
base. The result is that the blended ARPU goes down when entering new markets.
•Non-core markets have long-tail and power law applies. Top Non-core markets deserve attention and resources.
Metrics Difference between Core & Non-Core Markets Monetization Metrics Pattern
Core Non-Core
ARPU
Core Non-Core
Conversion
Core Non-Core
Churn
M1M2M3M4M5M6M7M8M9M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24
Blended ARPU
Hurdle
Conversion / Monetization
Ramp-up
•Expand to Non-core Markets w/
lower ARPU
Game Lifecycle
Many factors determine ARPU pattern
•New markets bringing down
ARPU not necessary a bad sign
•The size of Non-Core markets might be like
core market or even larger depending on the
positioning of the game.
•The pattern is still determined by
marketing, adoption and game operation.
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13

14. Live Game and Its Pattern
M1M2M3M4M5M6M7M8M9M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24
MAU
•The basic idea for live game is that it has long runway for sustainable growth and durability after stabilization (terminal growth rate).
•With on-going operation and product iteration, a live game has much longer “lifespan” and more optionality than typical game does.
Live Game Illustration Reference
1
: what are drivers and characteristics behind these patterns
M1M2M3M4M5M6M7M8M9M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24
Billing
Stabilized
Long-term trajectory
The scale of user base after drawdown is
large enough to have an attractive return
A Hit
Improving Conversion & ARPU
Ramp-up MAU Drawdown
832
589
816
894
2016 2017 2018 2019
Pokemon GO User Spending
46
179
335
544
2016 2017 2018 2019
Roblox Mobile Player Spending
1,600
1,800
1,100
757
572
722
201420152016201720182019
Clash of Clans Player Spending
20
66
91
150
354
537
505
675
621
2Q18 4Q18 2Q19 4Q19 2Q20
PUBG Mobile Gross Revenue
US$M
China version ‘Game
for Peace’ launched
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14
Note: 1) Data collected from Sensor Tower’s blog

15. Contents
Free Fire -Product Snapshots
Fundamentals –From Game to Live Game
1
2
3Free Fire –Conceptual Roadmap & Business
[email protected] | @yuinausicaa
15

16. Conceptual Roadmap
Multiplayer
In-game Marketplace
UGC
“Graphs”
Consumer Creator
Social Interest
Buyer Seller
Community
IP Crossover / Ext.
Online / Offline Event
Game Platform Game Ecosystem Game as a Social Platform
1
Use Cases
3P Developer / API
Adjacent Markets
Game Platform
Messaging
Private Social
Networks
Public Social
Networks
Enterprise Social
Platforms
Commmunties
…
Platform of Platforms
Payment
Marketplace
Social
Game
TAM Expansion at Platform Level and Above –Come for the Game, Stay for the Network, Services, or Infrastructure…?
•Basically, any multiplayer game is a one-sided platform with direct network effect kicking in once the user base has reached
critical mass. Various graphs can be mapped based on user information.
•Depending on the design of gameplay and game economy, user base can be further split, creating two or multi-sided platform with
indirect network effect (cross-sided).
•Game platform can bring in elements from ecosystem to make the game more vibrant and stickier leading to a real live game.
Aging Chain and Transition of Cohorts
… Other Established Networks …
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Note: 1) Categorization based on versionone’sUnderstanding Social Platforms

17. Offline to Online to Localized Virtual
Market A
Market B
Physical Event Virtual Event
Content…
Localization…
Localization…
…
…
…
Local
Hyperlocal
Offline Online
User Engagement, Community Building & Dev-Ops-User Feedback Loop
•Offline is constrained by border or hyperlocal while a physical events can break the boundary.
•Online doesn’t have physical boundary but users still cluster based on culture, language and other attributes.
•Content can be localized based on those virtual clusters. There are IP crossover, collaboration… opportunities in each “market”.
Esports…
IP Crossover, Collaboration… in each Market
x
x
x
x
x
x
Universe
National
boundary
Attributes combination
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17

18. Esports & Community Drive User Engagement
. . . 130 markets .
.
.
Global AudienceChannels & Networks
. . .
Events
. . . and more .
.
.
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18

20. Financial & Operational Metrics
142 146 139 145 231 393 443 451 480 512
43% 43% 43% 43%
41%
51%
59%
64% 66%
61%
37% 38%
35%
37%
45%
57%
60%
59%
56%
58%
4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
Adj. Rev. ($M) Gross Margin (%) Adj. EBITDA Margin (%)
88
127
161 176
216
272
311 321
355
402
7
7
7 7 12 21 26 29 33 36
8.2%
5.7%
4.1% 4.1%
5.5%
7.6%
8.4%
9.1% 9.4% 8.9%
QAU (M) QPU (M) Conversion (%)
Sea’s Digital Entertainment Metrics
1.6
1.2
0.9 0.8
1.1
1.4 1.4 1.4 1.4 1.3
19.7 20.3 21.1
20.1 19.4 19.0
17.0
15.4
14.4 14.4
4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
Adj. ARpU ($) Adj. ARpPU ($)
7 14 32
103
216
266 282
312
346
142 139 125 113
128
177
177 169
168
167
0%
5.0%
10.0%
22.0%
44.5%
55.0%
60.0%
62.5%
65.0%
67.5%
4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
FF Adj. Rev. Est. ($M) Other Adj. Rev. Est. ($M) Free Fire (%)
6
13 16
27
40
50
60
80
DAU (M) Peak DAU (M)
0.00
0.56
0.87
1.18
2.57
4.33
5.20
4.32
4Q19 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
Avg. Adj. Rev. per DAU / Peak DAU ($)
Free Fire Metrics within Sea’s Digital Entertainment
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20

21. Free Fire as a Business
2016 2017 2018 2019
PokemonGO
2016 2017 2018 2019
Roblox Mobile
201420152016201720182019
Clash of Clans
2Q184Q182Q194Q192Q20
PUBG Mobile
Spending Pattern Reference
•Genre
•New Dist.
•TAM
•Est. IP
•Genre
•UGC
•New Dist.
•TAM
< Historical > < Projection >
Runway >>>
Growth Trajectory Drivers
TAM Penetration / Expansion
Effective User Acquisition
Managing Churn
Improving Conversion
Deepening Monetization
Genre-Product Development
Experimenting Revenue Model
Adjacent Markets / Use Cases
Exploring Business Model
What’s the implied
trajectory in consensus?
Any consensus
revision potential?
Where’s asymptote?
Stacking S-curves?
Stabilized or?
Dead or?
Free Fire‘s Adj. Rev. Trajectory
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21

22. Thank You!
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