Q2 2020 Tencent Holdings Ltd Earnings Call

Announcement conference call at this time.

Then in listen only mode.

HM.

<unk> session.

Ask question, we need to.

One.

They tried to catch in Q.

And now.

The question.

Okay. So your question please.

I must advise you that this conference is being recorded to date.

Now I'd like to handle conference.

What's that Amy.

From 10, saying he's got to hit me song.

Thank you.

Welcome to about 2020 tenant and each of these conference calls.

When you pull some tencent IR team.

Wendy Huang: I'm Wendy Huang from the Tencent IR team.

Before we started presentation, we would like to remind you that includes forward looking statement.

Wendy Huang: Before we start our presentation, we would like to remind all participants that you are

Wendy Huang: And I want to remind you that it includes four forward-looking statements, which are underpinned by a number of risks and uncertainties and may not be realized in the future, for which we are concerned.

Would you open the line number.

I wouldn't <unk>.

Not be realized in the future.

Wendy Huang: For various reasons.

Yes.

He will make up all the general market conditions, it's coming from all the whitetail close is outside of 10 cents.

Wendy Huang: Information about the general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unauthorized...

<unk> presentation also content.

Good.

Wendy Huang: It's non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the company's financial performance calculated in accordance with IFRS. Non-IFRS financial measures are intended to reflect our core...

Oh, I'm, sorry financial measures.

It should be considered in addition to but not as a substitute for measures on the Companys financial performance.

In accordance with it.

No I advise measures I continue to reflect our earnings by excluding certain onetime.

Wendy Huang: by excluding certain one-time and or non-cash items. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents in the IRS section of our website.

Okay.

Well a detailed discussion.

There's no I've always measures. Please refer to our disclosure documents are section of website.

Let me introduce a management team on the call Tonight.

Wendy Huang: Let me introduce the management team on call tonight. Our Chairman and CEO, Pauline Ma, will kick off with a short overview. President Martin Luther King, Jr.

Oh, it shouldn't be an appeal podium will kick off with a short overview.

I'd spent money knowing the Chief Security Officer, Jim Mitchell would provide opinion.

Tony: President Martin Lau and Chief Strategy Officer James Mitchell will provide a business overview, and Chief Financial Officer John Lo will conclude with a financial review before we open the floor for questions. I will now turn the call over to Tony.

We'll be.

Chief Financial Officer, Joe will conclude with financial review before we open up a little question.

I would note to look what we want to funny.

Okay. Thank you Wendy.

I mean.

Thanks.

Tony: Thank you everyone for joining us today. Since the beginning of this year, the COVID-19 pandemic has threatened the world, disrupting our daily work and life routines.

Okay.

Since the beginning this year, so colby lighting.

Throughout the world destructive Oh baby.

Sure.

Do you try and Chicago.

Tony: During this challenging time, we utilize our platforms and technologies to help users adapt to the new normal via online, to support enterprises in conducting digital upgrades, and to broadly contribute to economic recovery. Now, I will highlight the result we achieved in the second quarter. Total revenue was $150,000, a billion RMB, up 29% year-on-year and 6% quote-unquote. Gross profit was 53 billion RMB, up 36% year-on-year and 1% quarter-on-quarter. Our non-IFRS operating profit was 38 billion RMB, up 38% year-on-year and 6% quarter-on-quarter. Non-IFRS net profit attributable to equity holders was 30 billion RMB, up 28% year-on-year and 11% quarter-on-quarter.

Utilize our platforms.

To help you said that.

Yeah online.

To support enterprises.

So there's still upgrades and faulty contribute to economic recovery.

No I will highlight that resolved we achieved in the second quarter.

Well go without any was 15.

Thank you and 6%.

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At 1%.

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The 6% quote unquote.

No I have parse net profit attributable to equity holders.

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Okay.

Moving to our online.

Tony: Moving to our online platform, in social, the combined MAU of WeChat and WeSing increased 6% year-on-year to 1.21 billion. Just for those who may not be familiar with the distinction between WeChat and WeSing, they are two different products.

Yes.

Well I invite you all wishing you we chat.

6% 1.21 beat it.

Just for those who may not be offended.

Do you think that distinction.

Yeah, we chat.

The out to keep them.

We see such a true that's so you seem to me off try though.

Martin: WeSing is a chat tool that serves users in the mainland of China. Wireless WeChat is a sister product that serves users outside of the mainland, mainly offline. The Smart Devices MAU of QQ was 648 million. In games, we extend our leadership via the extended popularity of established franchises and success of new releases in both China and international markets. In media, video, and music subscriptions increased as we released the top tier content and added songs to the pay library.

Wow.

Okay. That's it.

So you just outside of the maybe all the China.

It's lumpy bites in New York.

Sounds good.

Neither.

Didn't games weeks, then I'll leave it should be extended.

Your job is a franchise.

Yes.

Okay.

International market.

The media review and music substances.

That's where do these the top tier content and so to that Hey library.

In Fintech commercial payment transaction.

Martin: In fintech, commercial payment transactions resume growth in our wealth management platform and extends its aggregate customer base. Leveraging our broad user base, we assist SMEs with digital upgrades and contribute to economic recovery. In cloud, we sign up large contracts in key verticals and capture opportunities in emerging sectors. In utilities, we maintain our leadership in mobile security, mobile browser, and Android apps in China. I will invite Martin and James to discuss the business review.

And our wealth management type on that.

Okay.

But you're all up all you do also faced assisted and digital upgrades and contribute to economic comedy.

In called we signed up.

Large contracts.

But schools and capture opportunities emerging sector.

You could use the evening King our industry.

For the T mobile blogs and [laughter].

[noise] by Martin Johnson.

Honestly view.

Thank you for <unk> and good evening and good morning to everybody on the cool.

Martin: Thank you, Pony, and good evening and good morning to everybody on the call for the second quarter of 2020. Our total revenue grew 29% year-on-year. Value-added services represented 57% of our total revenue, within which social networks were 23% and online games were 34%. Online advertising was 16% of total revenue.

For the second quarter of Twentytwenty.

Total revenue grew 29% year on year.

Value added services, who represented 57% about total revenue within which social networks was 23% and all I games was 34%.

Online advertising was 16% of total revenue.

Fintech and business services represented 26% of our total revenue.

Martin: Fintech and business services represented 26% of our total revenue. Moving into more granularity for value-added services, segment revenue was $65 billion RMB in the second quarter, up 35% year-on-year and 4% quarter-on-quarter.

Moving into more granularity or for value added services.

Segment revenue was 65 billion already being the second quarter up 35% year on year and 4% quite important.

Within value added services social networks revenue was 26.7 billion RMB, increasing 29% year on year, mainly driven by more subscriptions for animated series and music as well as in game items cells.

Martin: Within value-added services, the social network's revenue was 26.7 billion RMB, increasing 29% year-on-year, mainly driven by more subscriptions for animated series and music, as well as in-game item sales. The consolidation of FUYA contributed to both year-on-year and quarter-on-quarter revenue growth as well. Total Bass subscriptions increased 20% year-on-year to $203 million, and video subscriptions increased 18% year-on-year to $114 million, mainly due to the success of animated series and drama series, such as The Land of Warriors Season 3 and a new season of Candle in the Tomb, The Lost Carbon. Music subscriptions rose 52% year-on-year to $47 million as we included more songs in the Pate Library.

Consolidation of who we are contributed to both year on year and quarter on quarter revenue growth as well.

Total about subscriptions increased 20% year on year to 203 billion.

You do subscriptions increased 18% year on year 214 billion, mainly due to the success of animated series and drama series, such as the land warrior season, three and a new season kendo into to the most carbons.

Music subscriptions rose to 52% your and your to 47 million as we include it more songs.

In the paid library.

[noise] online games revenue grew 40% year on year, and 3% quote in quarter 238.3 billion RMB driven by maybe smartphone games.

Martin: Online games revenue grew 40% year-on-year and 3% quarter-on-quarter to R$38.3 billion, driven mainly by smartphone games. Total smartphone games revenue increased 62% year-on-year to $36 billion RMB. The strong performance primarily flowed from our key titles in China and international markets and the release of deferred revenue generated in previous periods, including the COVID lockdown period. The growth also benefited from the low base of Peacekeeper Elite in the same quarter last year, which was launched in May 2019, and from the financial consolidation of Supercell, which happened in October 2019.

Total smartphone games revenue increased 62% year on year to 36 billion RMB. The strong performance primarily flowed from in key titles in China and international markets and the release of deferred revenue generated in previous periods, including that's called it a long time period.

The growth also benefited from the low base apiece cheaper elite in the same quarter last year, which was launched in May 2019.

And from the financial consolidation of supercell, which happened October 2019.

PC client games revenue decreased 7% year on year to 10.9 billion RMB due to softer DNS and cross body performance offsetting increased revenue from lead imagines.

Martin: PC client games revenue decreased 7% year-on-year to 10.9 billion RMB due to soft DNF and cross-buy performance, offsetting increased revenue from League of Legends. Moving on to social networks, we released a June the quarter update for Weixin to enhance features and functionalities for communication content and services. For communication, users can virtually tap their friends via Tickle, which has enabled many creative expressions.

Moving onto social networks.

We released during the quarter uptick situation to enhance features and functionalities for communication content and services.

On communication users can virtually tell their friends via tickle, which hasn't <unk> board of many creative expressions.

Addition, up like broadcast functioning groups facilitates various vertical use cases, such as online education.

Martin: The addition of the live broadcast function in groups facilitates various vertical use cases such as online education. Daily messages grew both year-on-year and quarter-on-quarter. On content, we upgraded official accounts, video publishing capabilities, strengthened our Recommendation Algorithm, and released New Content Aggregation Tools. These initiatives enabled more efficient content delivery and revitalized content consumption in the official account. As a result, official account page views increased year-on-year during the first half of 2020, rebounding after three years of consecutive decline. As for services, we launched a free and easy-to-use toolkit to help SMEs, especially long-term merchants, build and operate mini-stores.

80 messages crew boats you on your end quote unquote it.

On content.

Upgraded official accounts, you publishing capabilities strengthening a recommendation algorithm and released new content aggregation tools.

These initiatives and able to more efficient content delivery and revitalized content consumption in the official accounts as a result official accounts page views increased.

During the first half with Twentytwenty.

Rebounding after three years off consecutive declines.

As for services, we launched a free and easy to use two kids to help smbs, especially long tail merchant build and operate munis tours.

Empowering them with solutions, such as order management after sell services like broadcast.

Martin: Empowering them with functions such as order management, after-sales services, and light work. In QQ, we added features for users to stay together online while they are physically apart. Users can initiate online parties and play AI-empowered social games in video chat environments to engage the expanding fan base for anime. Comics, Games, and Novel Content We rolled out customizable comic stickers within QQ chats and strengthened content offerings through popular ACGN-related mini programs. All these help us to make QQ continue to be front and center with young users. For games, during the quarter, play activity in China normalized downwards versus the first quarter as users returned to offices.

In Q Q, we hadn't reached the features for users to stay together online physically apart users can initiate on my part he simply I empowered to social games mbd, which at the moment.

Two engaged expanding fan base will add to me.

Comics games and mobile content, we wrote out customizable comic stickers within QQ chats and strengthened content offerings to popular a C.G. and related many programs all these.

Help us to make QQ continued to be front and center with the young.

Users.

For games during the quarter <unk> activity in China normalized dogwoods versus the first quarter S uses returns to offices. However, user time spent on smartphone games in China increased year on year, suggesting that the work from home pure it has structurally widen a few of playing games.

Martin: However, user time spent on smartphone games in China increased year on year, suggesting that the work-from-home period has structurally widened the appeal of playing games. Internationally, our MAU increased significantly as many users connected with their colleagues and classmates via online games during the stay-at-home period. Two new smartphone games and one new PC game have also contributed to our international MEU growth. Additionally, our flagship titles maintained a high cadence of quality content updates, including new game modes. Virtual Items and Graphics Upgrades.

Internationally are made you increase significantly as many use it's connected with their colleagues in class me to be online games doing to stay in holding period.

Two new smartphone games and when new PC games also contributed to our international EMEA your growth.

Our flagship title was maintained a high cadence quality content updates, including new game modes.

Two items and graphics upgrades, specifically on other kings motivator users to played on matches with extra rewards, which depends user engagement during its annual give me five festival.

Martin: Specifically, Honor of Kings motivated users to play more matches with extra rewards, which deepened user engagement during its annual Give Me Five Festival. We also released high-quality schemes for its well-known Three Kingdom Heroes. Peacekeeper Elite celebrated its first anniversary with new content and game modes to enhance the competitive game experience.

We also released high quality schemes, which well number three kingdom heroes.

Peacekeeper elite celebrated its first anniversary with new content than game modes to enhance the competitive game experience.

And a crossover promotion in July we launched appealing Tesla Brenda cost into the game, which gains why spreads popularity.

Martin: In a crossover promotion in July, we launched appealing Tesla-branded car skins in the game, which gained widespread popularity. For new releases, Supercell's Brawl Stars in China was especially well-received, as players enjoyed its easy-to-learn-yet-competitive gameplay. It topped the iOS China Download Chart in June, extending Brawl Stars' global leadership in the fast-paced 3-vs-3 mobile genre. In recent years, we have achieved significant success in game development. We continue to strengthen several key structural factors, which are critical for developing and operating highly successful games.

For new releases Supercell sports stars in China was especially well received as players enjoyed its easy to learn your competitive game play it topped the Io s. try to download tried in June extending brought stars global leadership into fast paced three versus three mobile genre.

In recent years, where the cheapest significance assessing game development well continued strength in several key structural factors, which are critical for developing an operating highly successful games.

Firstly, our home Grill and international flagship game Studios have proven track records in creating category, leading games, especially on smartphones.

Martin: Firstly, our homegrown and international flagship game studios have a proven track record of creating category-leading games, especially on smartphones. We have established 17 long-standing franchises, which have each individually exceeded 10 million daily active users in their operating history. Studios develop content with a high degree of autonomy while leveraging Tencent's publishing resources.

Established 17, longstanding franchises, which have each individually exceeded 10 million daily active users in their operating histories.

Studios develop content with a high degree of autonomy, while leveraging 10 cents publishing resources.

Their capabilities in innovating.

Martin: Their capabilities in innovating attractive core gameplay, creating immersive storylines, and releasing engaging updates are vital in sustaining long-term success. Secondly, our studios are early adopters of cutting-edge technologies. Tencent's backend infrastructure is designed to support a massive number of players concurrently. We deploy industry-leading game engines and AI-empowered tools to shorten development lead time and provide unique game experiences. For example, we applied our proprietary technology in honor of King's Wukong AI Challenge, which attracted over 50 million players to play against the AI.

Attracted poor gameplay, creating immersive storylines and releasing engagement updates abide all in sustaining long term success.

Secondly, our studios that early adopters of cutting edge technologies 10 cents backend infrastructure is designed to support a massive number players concurrently we deployed industry, leading game engine and <unk> empowered tools to shorten development lead time and provide unique game experiences.

For example, we applied a proprietary technology in honor of Kings, <unk>, I challenge, which attracted over 50 million players to play against <unk>.

Constantly upgrade anti cheese system to foster feared competition, which is crucial for gameplay and especially esports tournament.

Martin: We constantly upgrade our anti-cheat system to foster fair competition, which is crucial for gameplay and especially esports tournaments. And we collaborate with external IPs and nurture internal IPs to enrich content and enhance game longevity. We create popular narratives that tie into well-known literature, anime, and famous characters, such as Moonlight Blade, Naruto, and Pokemon's Pikachu.

And we collaborate with external IP and nurture internal I piece.

And rich content and hence can longevity.

We create popular narratives to tie in to well know literature enemy and famous characters such as more like blade, the ruto and booking ones be caught you.

Expend on IP, Influencers, who cross media Adaptational leveraging our.

James Gordon Mitchell: We expand on IP influence through cross-media adaptation, leveraging our..., large media platforms. Looking forward, we're committed to investing in talent, technologies, and IPs to strengthen our leadership in game development. Now, I will pass this on to James.

Large media platforms.

Looking forward, we're committed to investing in talent technologies and I piece to strengthen our leadership in game development.

No I pass on to James.

Thank you must in Chinese online advertising over on our AD revenue grew 17%.

James Gordon Mitchell: Thank you, Martin. Turning to online advertising, overall, our ad revenue grew 13% year on year, which we believe was an above-market rate to 18.6 billion renminbi. sequentially, revenue grew 5%, a little bit slower than our normal second quarter seasonal upturn because ads spent by the games and internet services categories normalized downward on less traffic during the second quarter after surging due to abnormally high traffic during the work from home period during the first quarter.

Which we believe was an above market. It's 18.6 billion renminbi sequentially revenue grew 5% little bit slower than I normally second quarter seasonal uptown because I've spent by the games Internet services categories normalized down, but less traffic during the second Florida office searching huge somebody high traffic and then.

During the first.

However, we diversified our <unk> industry is categories, such as E Commerce and education increased investment for that June 18th.

James Gordon Mitchell: However, we diversified our advertised industry breadth as categories such as e-commerce and education increased investment for their June 18th promotional campaigns, and some were, and categories such as automobile and consumer electronics marketed more aggressively with us during the recovery of consumption, to reinforce our long-term competitive advantage. We launched a new integrated ad platform enabling advertisers to more efficiently place ads across all of our inventories, including our mobile app.

Some of courses and categories, such as automobile in consumer electronics market more aggressively with us as consumption recovered.

So reinforce our long time competitiveness, we launched a new instructed dot com and anything appetite system more efficiently sites across.

James Gordon Mitchell: This new platform should also increase bidding efficiency and provide smarter targeting. Social and Other Advertising Weixin Properties, particularly Moments, saw rapid ad impressions, while our mobile advertising network experienced higher eCPMs as video advertising revenue contribution increased from a single digit percentage a year ago to over 40%. We believe the WeChat ecosystem is redefining China online advertising by enabling advertisers to effectively channel online social and offline traffic to their own private domains, such as official accounts and mini programs. With the result that our advertisers are effectively investing in long-term and loyal customer relationships, not just purchasing one-time transactions.

Greece, including on.

But.

This new platform should also increase bidding efficiency and provide smart ticketing for advertisers.

For such than others, not the type thing wishing properties sickie moments, so rocket AD impressions right.

Hi network experienced higher Cpms as video.

Advancements revenue contribution increased from a single digit for sense, you ever got a 40% yes.

We've been evaluation ecosystem is redefining China online advertising by anything appetizers atrophy channel online social and offline traffic to their own private domains, such a sufficient accounts and many programs with the results in our advertisers are effectively investing in longtime customer relationships not just touching.

Onetime transactions.

The immediate Rogers high sing revenue declined year on year due to weak demand from brand advertisers and to Tonight production release.

James Gordon Mitchell: For media advertising, revenue declined year on year due to weak demand from brand advertising and the late production and release of certain variety shows and dramas. However, subsequent to the quarter-end, and helped by the popular drama series Nothing But Thirty, Tencent Video's traffic has materially improved, which we think testifies to the resilience of our long-form video. Looking at FinTech and business services, segment revenue is 29.8 billion RMB, up 30% year-on-year and up 30% year-on-year, quarter-on-quarter.

Drama series during the site.

However, subsequent to quarter end and helps quite popular drama series nothing but.

<unk> videos traffic has materially improve which we think testifies to the resilience.

Uh huh.

Looking at things I can business services segment revenue was 29.8 billion renminbi up 30% year on year and I'll touch the same quarter on quarter.

We didn't fin Tech services revenue grew year on year on quarter on quarter, mainly driven by increasing user base business scale as consumption rebounds. It on people were Chinese that places a flux.

James Gordon Mitchell: Within FinTech services, revenue grew year-on-year and quarter-on-quarter, mainly driven by an increasing user base and business. Consumption rebounded on people returning to their places of work. Our service ecosystem, including payment solutions and business management, provides offline merchants an efficient path to digitally upgrade, access customers, and settle transactions via mobile phone.

Our service ecosystem, and kidding payment solutions and business management tools provide I'll find much insufficient pasta dishes the upgrade themselves into access customers.

Right.

Yes.

During the quarter much demand from payment solution stepped up especially from categories such as we talked in restaurants. As a result commercial type number of averaged 80 transactions and five you transaction each increased year on year rebounding robustly from the kind of at 19 in the first.

James Gordon Mitchell: During the quarter, much of the demand for our payment solutions stepped up, especially from categories such as return and revenue. As a result, our commercial payment number of average daily transactions and ValuPay transaction each increased by year. Rebounding robustly from COVID-19, for our Wealth Management Business, Aggregated Customer Assets, and a number of activities rose rapidly; more customers came to appreciate the convenience of managing their cash through our secure and well-curated platform within a business service.

For our wealth management business aggregated customer assets and number of active customers Rose rock.

As more customers came to appreciate the convenience of managing that cash through our secure and well curated.

Within business services revenue expanded by year on year on quarter on quarter as cloud services consumption by Internet companies in the public sector increased.

James Gordon Mitchell: Revenue expanded both year-on-year and quarter-on-quarter as cloud services by internet companies and the public sector increased. Although offline project deployment is not fully, pace reflecting the lingering impact, We have seen growing demand in industries including finance, Public Sector Healthcare, and Education. We've strengthened our back-end infrastructure capabilities by adopting more custom-made equipment, and we're building and expanding more of our own hyperscale, and I'll now pause.

Well that offline project deployment has not fully resumed normal pace, reflecting the lingering impact I think nine team, we have seen crank them onto industries, including financial services and public sector health and education.

We strengthened our backend infrastructure capabilities by adopting more custom made.

And with building, an expanding more vibrant hyperscale data centers.

I'll now pass to John Thank you Jay for the second quarter of 2020. So the revenue was 114 for another than remedy up 29% year on year and 6% quota quota gross profit was it was 53.2 billion rather than be up 36% year on year, Oh, what percent <unk> quarter.

Shek Hon Lo: For the second quarter of 2020, total revenue was $114.9 billion RMB, up 29% year-on-year and 6% quarter-on-quarter. Gross profit was $53.2 billion RMB, up 36% year-on-year or 1% quarter-on-quarter. Net other gains were 8.6% RMB, more than double year-on-year and quarter-on-quarter. (Inaudible] Such gains were partly offset by impairment provisions for goodwill at China Literature and against certain investments.

Other gains, but it seems rather than be more than doubled year on year and quarter to quarter.

Hi, I.

I have I, just don't items, including that in disposal said and invested in verticals such as you cover [noise].

That's what test services and online game, that's what that's embedded gains resulting from increased valuations of investing.

Such gains were partly offset by having that vision focus that China literature and against it and Investee companies.

Operating profit was for any 9.3 billion rather than be up 43% year on year, 6% core the quota.

Shek Hon Lo: Operating profit was 39.3 billion RMB, up 43% year-on-year and 6% quarter-on-quarter. Net finance costs were worth RMB2 billion, stable year-on-year and up 19% quarter-on-quarter. The quarter-on-quarter increase was primarily due to the recognition of foreign exchange losses for the second quarter of 2020 compared to for us staying in the first quarter. Partially offset by decreased interest expense due to a refinancing exercise, capturing the lower interest rate and buying. Share of losses of Associates and General Ventures was 295 million RMB compared to share of profits for the same quarter last year. Sequentially, share of losses more than exceeded by 5.

That's fine and caused whereas 2 billion rather than be stable year on year and up 19% quoted quota.

Quota quarterly increase was primarily due to the recognition of foreign exchange losses for the second quarter 2020, compared to the fourth gain in the first quarter.

Partially offset by the <unk> interest expense due to refinancing exercise capturing those all what interest rate environment.

She of losses up associates Angelica venture was 295 million renminbi compared to ship from that.

For the same quarter last year sequentially shields losses.

5% did well then mainly reflected the impact longer revenue, you Faro period, and great marketing spend and Shoals shade gain company.

Shek Hon Lo: The movement mainly reflected the impact of a longer revenue deferral period and greater marketing spend at an associate game company. On an iovirus basis, we record a share profit of $658 million for the second quarter of 2020. Income tax expense was $4.6 billion for Q2 2020, and the effective tax rate was 12.3% this month.

Well, it and I saw it <unk> virus basis really caught a shift from that of 658 million rather than before the same quarter 2020.

Income tax expense was.

<unk> the fourth quarter, two 2020, and the effective tax rate was 12.3% this quarter.

I have arent that brought the extra beautiful exactly who is what's for these people in what they didn't really to be up 37% year on year and 15% quota.

Shek Hon Lo: IFRF Net Profit Attributable to Equity Holders was 33.1 billion RMB, up 37% year-on-year and 15% quarter-on-quarter. Diluted EPS was 3.437 renminbi, up 36% year-on-year and 15% quarter-on-quarter. Let me walk you through our non-Iovirus financial numbers. For the second quarter, operating profit was $37.6 billion RMB, up 38% year-on-year and 6% quarter-on-quarter. Net profit after NCI was $30.2 billion RMB, up 28% year-on-year or 11% quarter-on-quarter. Diluted EPS was $3.13 billion RMB.

Diluted EPS was 3.437 renminbi up 56% year on year.

What a quota.

Let me walk you through I advise financial numbers for the second quarter operating profit was principally athletics and be a 30% year.

Your as existing quoted quota.

Cropping up at that Yeah, I was 31 to be then that'd be a 20%.

Or 11% quota.

He said he has whats frequent when street renminbi.

Oh, 27% year.

Shek Hon Lo: Up 27% year-on-year and 11% quarter-on-quarter. Turning to settlement growth margin, growth margin for VAS was 53.7%, up 1.1 percentage points year-on-year or down 5.3 percentage points quarter-on-quarter. The sequential decrease was primarily due to number one, Gritda, revenue mix of lower margin digital content services, including the live podcasts of Huya and music streaming services, and a higher mix of lower margin platform games versus PC games.

For second quarter quota.

Turning to segment gross margin gross margin for boss was 53.7% of 1.1 percentage point year on year or down right plus three percentage points quota.

The sequential decrease was primarily due to a number one the.

Revenue mix of lower margin digital content services, including the lot like because of yacht and music streaming services.

Too high a mix of lower lodges platform gains, whereas this PC games.

Gross margin for advertising was 51.4% up 2.8 percentage points year on year or 2.2 percentage points for the quota.

Shek Hon Lo: Growth margin for online advertising was 51.4%, up 2.8 percentage points year-on-year or 2.2 percentage points quarter-on-quarter. The industry-wide removal of cultural construction fees contributed to the year-on-year and quarter-on-quarter... Additionally, the improvement was also driven by a greater proportion of advertising revenue derived from high-margin waste. Gross Margin for Fintech and Business Services was 28.9%, up 4.9%-ish points year-on-year and a stable quarter. The year-on-year increase clearly reflected improved margin contributed by wealth management and payment-related setbacks.

Industrywide removal of cultural construction fees contributed to the year on year at quarter end.

Sequentially that improvement was also driven by a couple portion of advertising revenue you rifle.

We should moments.

Gross margin for Fintech and business services was 28, or 9% up 4.9 percentage points younger and stable quarter over quarter.

The year on year increase mean threats and improve mugging contributed by wealth management and payment related to.

Operating expenses.

Selling and marketing expenses were 7.8, but I'd, rather be 64% year on year temporarily put a quota bucketing spending increased year on year I'll take the the art on again, we issue as well as well.

Shek Hon Lo: [inaudible] Selling and marketing expenses were 7.8 billion renminbi, up 64% year-on-year or 10% quarter-on-quarter. Marketing spending increased year-on-year, particularly on online games such as Weixi, as well as Crowd and Sister Celebrity, which is a percentage of revenues. Sale and marketing expenses increased to 6.8% from 5.3% in Q2 2019. Consequently, greater marketing spend was primarily driven by online games, grout, and business services, as well as consolidation.

Services.

As a percentage of revenues so nothing expenses increased 6.8%.

<unk>.

For the 2019.

Sequentially Greta marketing spend was really driven by gains throughout this et cetera, that's was because they still yeah.

<unk> expenses was 60, plus I've been there rather than be a 51% or 17% quota what I mean do you agree they are against that of course within Ginny <unk> expenses were nicely I've been I'd, rather be really not the same young.

Shek Hon Lo: GNA expenses were $16.5 billion RMB, up 31% year-on-year and 17% quarter-on-quarter mainly due to Frida investment in R&D and fabric. Within GNA, I and D expenses were a 9.9 billion revenue be up 39% in the own, and 23% quota in order. GNA and R&D represent.

23% quota.

Yeah, and then I have you ever since it.

Seems like <unk> percent at 8.6% of revenues respectively.

Shek Hon Lo: 14.4% and 8.6% of revenues. As I quoted, we had approximately 71,000 employees, up 26% year-on-year and 10% quarter-on-year. For the second quarter of 2020, gross margin was 46.3%, up 2.2 percentage points year-on-year or down 2.6 percentage points quarter-on-quarter. Year-on-Year Increased Refracted Improved Gross Margin Across All Three Business Segments Sequentially, Margin Decreased Mainly Refracting Lower Gross Margin Above As Mentioned Before, Non-IRS Operating Margin was 32.8%, up 2.1%-ish points year-on-year, and largely stable quarter-on-quarter.

As a core that we had approximately 71000 at Boeing is up 26% year on year and 10% quoting quota.

For the second quarter. He doesn't play gross margin was 46.3%.

On two percentage points year on year or down 2.6 percentage points.

You on Yankee reflected.

Gross margin of course, all three business segments sequentially Mcginn decrease mainly reflecting lower gross margin of Bob had mentioned before.

No and I have our its operating budget was 32.8% up 2.1 percentage points year on year and Lucky slate.

They recorded accordingly.

No and I have virus that margin with 27.2% stable year on year.

Shek Hon Lo: Nonaia virus module, 27.2% stable year on year or up 1.3 percentage points quarterly. Finally, I will share with you some key financial metrics for the quarter. Total cap tax was 9.5 billion revenue, an increase of 117% year on year, or 54% quarter on quarter. Operating capex grew 120% year-on-year to 8.3 billion renminbi, mainly due to advanced procurement of servers to augment business growth. Non-operating capex decreased 96% year-on-year to 1.2 billion renminbi, primarily reflecting spending on data centers.

Three percentage points for the quarter.

Oh show you some key financial metrics for the quarter. So does that that's what that's one factor there be oh.

117% year on year, all 54% quota quota.

Operating habits.

And then you against you.

Rather than be menus.

Two ministers and business growth non operating kept that increased 96%.

You bet, the renminbi, primarily reflecting spending.

Construction.

At Cortez Freak, Hasbro was 28 months I've been there rather than be up 127% year on year or 27% quarter quota.

Shek Hon Lo: At quarter end, free cash flow was 28.5 billion renminbi, up 127% year-on-year or down 27% quarter-on-quarter. We reported a net cash position of 7.2 billion RMB, compared to net debt of 5.7 billion RMB last quarter. The effect of strong pre-cash flow generation and the consolidation of Huya's net cash balance was partially offset by payment for M&A initiatives. Fair value of our shareholding, enlisted, investing companies, and extruding subsidiaries was approximately 726 billion remandb or 103 billion U.S. dollars as at the end of the second quarter.

We reported net cash position that 7.2 billion rather than being close to that that last one says it's not.

Last quarter, which reflect strong free cash flow generation.

Issue.

That cash balance, partially offset by Hayden for M&A initiatives.

70 or by shielding.

Investee company Extruding.

It was a personality.

When they see the renminbi or 103 bid and let's call it.

As at the end of a.

Second quarter.

In closing my remarks, I'd like to mention that we have made us at the three announcement on the what politicians.

Shek Hon Lo: In closing my remarks, I would like to mention that we have made a statutory announcement on the White House issuance of the acceptance order relating to WeChat. WeChat and WeChat Messenger are two separate products, with WeChat serving our international users. Based on our initial reading and subsequent press reports, the Executive Order is focused on WeChat in the United States and not our other businesses in the U.S. We are in the process of seeking further clarification from Rattison parties in the U.S. Thank you, John. We should now open the floor for questions. However, as a company seeking clarification on the executive order, we will not be in a position to answer speculative or hypothetical questions.

No other relating to weak.

Reach at that wage two separate product.

We check serving international users.

In the show reading and subsequent press reports.

Executive order is focus on V. Jack in the United States and not all other businesses in the U.S.

During the process of seeking further clarification.

Rather than probably in the U.S.

Thank you gentlemen.

No.

Question as opposed to keep clarification on <unk>.

We would not be reputation.

I can be hypothetical question.

[noise] kitchenaid about our quarterly itself.

Operator: Let's move to the Q&A about our 7th quarter results. Thank you for your understanding. Operator, we will take one main question and up to one full-up question each time. Please ask the first question.

Thank him for your understanding.

Operator.

Operator: We have the first question, which comes from the line of...

My name Quench and up to one follow up question each time.

First question.

We have to first question's comes from.

Operator: A line from John Choi from Daiwa: please go ahead.

John <unk> from <unk>. Please go ahead.

Good evening I can't give for taking my question and congratulations great quarter, All my first.

Hyungwook Choi: Good evening, and thank you for taking my question, and congratulations on a great quarter. My first question is about your mobile games. I think if you look at this quarter, management did mention that we've seen a decline in sequentially new user time spent, but in terms of revenue, it has done very well. I think, you know, flagship titles did very well this quarter. So could management elaborate a bit more on what has driven this? Is it more the R-Pustadt or pay ratio?

Question is on your mobile games I think if you look at this quarter, our management didn't mention that you've seen a a declining sequentially in user hi spend but in terms of the revenue. It has done very well Amit I think you can fluctuate titles on did very well this quarter. So could you imagine elaborate a bit more what has driven this is it more on the ARPU start or pay rate.

Sure I guess some of the you promotion did help and I'm just a quick follow up I'm here like judging from the you know we do have some news on the recent delay on do you enough mobile so how should we what should we expect second half.

Hyungwook Choi: I guess some of the new promotions did help. And just a quick follow-up from here, like, you know, judging from this, we do have some news on the recent delay on DNF mobile. So how should we, what should we expect for the second half, you know, growth for mobile games? And just quickly, if you could touch base on your overseas revenue contribution from your online game, it would be very helpful. Thank you.

Growth for mobile games, and just quickly if you could touch based on your overseas our revenue contribution from you're all I gave will be very helpful. Thank you.

Hi, John Thanks for the questions and I try to capture what does that starting with the knocks on the.

James Gordon Mitchell: John, thank you for the questions. I'll try to catch all of them, but starting with the last one, the overseas contribution to our games revenue was actually similar to the fourth quarter last year. We have a number of successful new games launched overseas, but as you know, due to our relatively long amortization period, it will be a few quarters before those new games flow through from cash receipts into reported revenue and growth in the mobile games business. In the second quarter, we saw time spent normalizing downward to some extent versus the first quarter as people returned to work in China.

Overseas a contribution to our games revenue was actually similar to the full quota.

Yeah, we have a number of a successful new games launched overseas, but but I see you know acute heart, rather feeling amortization period, it'll be a few quarters before you games luxury from.

Cash receipts since you reported revenue.

Then in terms of the.

Right and the mobile games business in the second quarter.

We saw a time spent a normalized huge on which to some extent bus the fast food or is people overtime to walk in China. However on the positive side. We saw a time spent still increasing year on year in China, but as we think the <unk> audience. So some of these gains.

James Gordon Mitchell: However, on the positive side, we saw time spent still increasing year-on-year in China, whereas we think the audience for some of these games has structurally expanded, and we can see that in the data. And we saw uplifts in time spent as well as investment in our international games, which is helpful. I'd also say that while it would be hard to sort of understate the transformative impact of COVID disruption, the game industry continues to innovate, develop, and grow in ways that will continue to yield benefits long after COVID is gone.

So structurally sponsored and we see that into data.

And we saw an uptick in time spent as well as.

Investment in you not international games, which was.

Helpful.

I'd also say that.

While.

It would be hard to choose sort of understate the transformative impact to.

The country's disruption the game industry continues to to innovate and develop.

Grow in ways that you will continue to yield benefits long off to kind of it if you'd up for example, the quality of virtual items that were releasing now but the quality of action items that were released a 10.5 Fu even two yes, you got your into Pos.

James Gordon Mitchell: And if you look, for example, at the quality of virtual items that we're releasing now versus the quality of virtual items that were released 10 or 5 or even two years ago, then in the past, a virtual item might be a red pistol instead of a blue one. You know, today, if you look at... Thank you very much.

As much Tonight and might be a a red hes doing sentiment lupus.

Today, if you looked at.

The game.

Please keep it relieves a.

You used is how stupid achieved since you actually a customized that car into a tesla.

That's proven extremely popular and of course, when you're talking about customizing an entire coloradans customized kits.

James Gordon Mitchell: And that's proven extremely popular, and of course, when you're talking about customizing an entire car rather than just customizing a... That's a different price. Another example of the customization of guns itself is if you look at the game Valorant. There's a customization option called the Elder Flame, which basically transforms your guns into dragons, and the dragons eat ammunition with their jaws and then spit it out. It's amazing to look at, and I think that five or ten years ago, the technology didn't really exist for people.

Different price points. Another example on.

On the customizations guns itself is if you look at the game bout of rent.

That's a customized customization auction cool.

Which basically transforms you'll gone into into tracking and the Dragons.

I mean issue with that Georgeson men spit out.

Flames, and it's it's amazing to know cat and.

I think that five or 10 years ago technology ready access to a people to customize that causes testers and customize back onto the tracking.

James Gordon Mitchell: Customize Their Cars Into Teslas and Customize Their Guns Into Dragons And, you know, of course, these higher-tech virtual items come with higher price points, and, you know, many players choose to purchase those, but for the ones who do purchase, then they're unlocking something that is actually really cool for themselves to enjoy, really interesting for other players to see, and it helps fund the cost of continuing to make these bigger and better going forward.

And of course fees higher technology, I thought should items come with higher price points and I'm sure. Many past few snorts it touches stars, but once you did touch it then.

Got you something that is actually really cool for themselves to enjoy a pretty interesting other players to see.

Funds the cost of continuing to make these games, a bigger and better going forward.

James Gordon Mitchell: Then finally, on your question about the DNF mobile delay and the impact on the second half of this year, I think it's important to bear in mind that our game business growth in any period is driven by a multitude of games. So while, for example, Peacekeeper Elite monetization has certainly helped our mobile game revenue in the first half of the year, we also saw strong growth in Honor of Kings. We also saw successful new releases like Brawl Stars and so on and so forth.

Then finally on your question about the Cnf my thoughts today.

The impact on the second top.

I think it's important to bear in mind that game business.

In any period is driven by a multitude of games.

Well for example, peacekeeper need monetization.

Definitely helps.

My Buck in revenue in the first time, Yeah. We also saw strong product from on a rough tends to be successful new releases like most daus and so on and so forth.

Okay.

The rest of the yeah, we'll continue to introduce.

James Gordon Mitchell: And as we go through the rest of the year, we'll continue to introduce more value-added virtual items within our existing games. And we'll continue to release a multitude of other games. So while we expect to bring mobile DNF to market quite quickly, we think that, in reality, there are a number of growth drivers for our mobile game business beyond any single title. Thank you.

More.

Good.

And items within our existing games that we think will enjoy more residents and we'll continue to release a multitude of body games said, while we expect to bring my thought you an aftermarket quite quickly.

You think.

Honestly that does not drive.

I thought games is feeling any single title. Thank you.

Thank you.

Your next question comes from them.

Hyungwook Choi: The next question comes from the line of Han Jun Kim from Macquarie. Please go ahead. Great. Thank you for the chance to ask a question. I'll ask them one by one. The first one is really just a question about your M&A strategy, and perhaps I'm reading this pattern wrong, but I think in the past we've kind of seen you guys take a minority stake and kind of take it from an ecosystem approach.

Jason Kim from Macquarie. Please go ahead.

Great. Thank you for the chance to ask question I'll, let someone by one the first one it's really just a question about your M&A strategy.

Hyungwook Choi: I think more recently I feel like we've been seeing things that, you know, whether it's the OUYAS deal or the other branch, the IGE, and things like that, we're trying to absorb them a little bit more. So, am I reading this pattern wrong, or has there been a difference in kind of thought process about how we should be internalizing some of these assets that might be there?

Rob somebody was part of wrong, but I think in the past, we've kind of senior guys take a minority stake and and kind of ticket purchase ecosystem approach I think more recently I feel like within say anything, but whether it's actually a deal over the other French knowledge, he and things like that we're trying to absorb them a little bit form so.

Am I reading this patent law or is there anything different than kind of thought process about how we should be internalizing. Some of these assets that might be.

Credit more synergies if you went to the license or just kind of perspective on that from a great.

Martin: creating more synergies if we do internalize them, so just kind of a perspective on that would be great. Yeah, I think, you know, our M&A strategy has always been trying to invest in up and coming companies, which have great management, and who have innovative products. And at the same time, they have synergies with our existing platforms, and that has served us very well in the past. And we are actually very much sticking along with this strategy.

Yeah, I think you know our M&A strategy has always been.

Trying to invest in up and coming companies, which have a great management and who have innovative products and at the same time.

They have synergies with our existing platforms and that has served us very well in the past.

We are actually very.

Very much they came.

Along with this strategy and if you look at the overall a portfolio that we have we now have more than 700 companies and so by and large most of them. The vast majority of them I still.

Martin: And if you look at the overall portfolio that we have, we now have more than 700 companies. And by and large, most of them, the vast majority of them are still in the early stages of their existence, right? We are backing entrepreneurial teams to drive their companies forward, and at the same time, we try to figure out organic ways to work with them in a synergistic way. It just happens that, you know, when you have 700 companies, some of the companies may actually get to a stage where the entrepreneurs, the management, figure out maybe they want to seek an even tighter cooperation with Tencent. In some cases, they may want to retire.

Yeah existing in that motor idea. We we are backing entrepreneurial teams to drive that accompanies forward and at the same time, we tried to figure out organic ways to work with them in a synergistic way.

It just happens that deal when you have 700 companies than some of the company's me actually.

Get to a stage, where he did entrepreneurs to management and figure out what's maybe they want to see even tighter.

Cooperation with Tencent in some cases, they may want to retire in some cases, they actually want to enter into a new stage of working in some cases, there products can actually be.

Martin: In some cases, they actually want to enter into a new stage of working. In some cases, their products can actually be integrated as well as cooperate much more closely with our platforms. And that's the time when we may consider changing a different way of working with them and moving them into a more consolidated, And so this is not a change in our strategy; this is just within our strategy. There will be different life stages in the life cycle of the companies, and in some cases, there's another way for us to be working with these portfolio companies, and you're just seeing some of them happening during the course of this year. Thank you; that makes sense.

Integrated as well as cooperating a much more closely with our platforms and.

At the time, when we may consider a changing a different way up working with them and moving them into a more consolidated to.

A portfolio and.

So so this is not a change in our strategy. This is just within our strategy there would be a different life stages off a the lifecycle off the companies and and in some cases theres not a way for us to be working.

With these portfolio companies and you're just seeing something happening in the course of this year.

Got it got it. Thank you if that makes sense.

Martin: My second question is, and I think you partially touched upon this with the official accounts earlier, but there's a lot going on in WeChat, whether it's moments, or short videos, or channel growth, or whether it's mini-programs. So within all the activity that's been going on in WeChat, do we see kind of any cannibalization between traffic, or what kind of patterns do we see to the extent that, you know, can WeChat be inhibiting all sorts of, you know, broader sets of behavior, whether it's commerce, whether it's advertising, and all of that, just kind of how we think through as we add on incremental services, and how that Yeah, I think this is a good question.

My second question is when I go to partially touched upon this but the official accounts some earlier, but.

But there's a lot going on and Chad, whether its moments or the short video or channel going or whether its many programs. So that within all the activity that's been going on within reach.

Kind of any cannibalization between traffic all kind of pattern, it's too soon to.

It's themselves or.

So we get killed can be choppy and capacity all sorts of broader sense, if we had years or whether it's called nervous when it's all the time and all that just kind of how we said screw.

As a touch on incremental services.

That's that's kind of straight into traffic and time spent across the services.

Yeah I think this is a good question and and the way we look at we Chad.

Martin: And the way we look at WeChat and Weixin, particularly Weixin, it's really... From a user perspective, what are going to be useful for users? I think we're not trying to aggregate a lot of services just to increase the amount of user time. What we want to do is actually build these services one by one so that they can actually add value to solve some real-life problems and add utility to our users. So if you look at the history of Weixian, which has been quite long, we started off as a communication platform. Then we added a moment.

And we should know that particular wishing I know it's really.

From a user perspective right now what are going to be a useful for users I think we're not trying to sort of aggregate a lot of services just to increase the amount of user time, you know what what we want to do is actually we want to.

<unk> be served as this one by one right so that they actually can add value to solve some.

Real life problems and utility to our users so.

Yeah. If you look at the history of ways in which has been quite long we assign it ought to be a communication platform. Then we added a moment and that we have official it comes and then we have payment.

Martin: And then we have official accounts. And then we have payment. And over time, we add one service after another. But it's actually spread across a very long period of time.

And overtime, we add one service up in that area, but.

It's actually spread across a very long period of time and every time when she was a new service.

Martin: And every time we introduce a new service, it's with a lot of caution and thought and testing so that we want to make sure that it's not a cluttered experience for the users, and it actually helps to solve a particular user need in an elegant way. So I think that's the design approach and principle of Weixian, and we have always been following along with that.

It's with a lot of caution and thoughts and testing so that so we want to make sure that it's not a cluttered experience for users and say it actually helped to solve a particular user needs.

Elegant way. So so I think that's sort of design approach and principal wishing that we have always been falling along with that and a lot of cases, where actually tried to.

Martin: In a lot of cases, we actually try to send users away and not occupy them for too long. So in the case of payment, for example, we don't give them a lot of all kinds of different experiences. We actually try to get the payment done, and then off they go. In a lot of search experiences, we actually try to help the users find the content right away and then send them away to the content.

Try to actually send a weight that users and not to occupy them for too long time. So a indicates a payment for example, we don't give them a lot of all kinds of different experiences right you actually so try to get the payment done then and then up they go in a lot of search experiences, we actually sort of new tried to.

Helped it uses find that content right away and then send them away to the content. So a lot of these principles help us to make sure that while we actually are offering a lot of services within a wish in experiences not cluttering and it's not confusing and it's not sell cannibalizing 40.

Martin: So a lot of these principles help to make sure that while we actually are offering a lot of services within Weixin, the experience is not clogging, and it's not confusing, and it's not self-cannibalizing for the user. Thank you. The next question comes from the line...

Users.

Thank you next question comes from the line and XL from JP Morgan. Please go ahead.

Alex C. Yao: comes from the line of Alex Yao from J.P. Morgan. Please go ahead.

Oh, Thank you Matt mentioned for taking my question first question is are we talking.

Alex C. Yao: Thank you, Mitchell, for taking my question. The first question is regarding the... wrong way of the ad network business. So compared to WeChat ads, this is a less well understood business. So can you help us understand, for example, to what extent are media sites in China already joining the ad network? What is the typical ad load in the network, the potential for a pricing increase, format transition from banner to video, et cetera, et cetera, to the extent that you can share any metrics, any direction will be helpful. And then my follow-up question is regarding the video account. Can you give us an update in terms of the traffic time span and your initial thoughts on the monetization strategy? Thank you.

Wrong way <unk> networks business, so compared to the we try a.

This is a nice well on the students announcements.

Okay, just help us almost 10 for example to what extent Todd immediate fives in China already.

Joining the that's not work or what is the typical outflows in the network or the potential for pricing increase a format transition from better intermediary et cetera et cetera.

To the extent you can sure any metrics any directional will be helpful.

Then my follow up question regarding does Schopenhauer video accounts can you give us an updates in terms of.

Traffic trends and Youre.

And usually falls on the my vision strategy. Thank you.

Thanks, Ron so to start with the Iden network question Masimo took about and how that on a AD networks I think it's relatively easy to size the opportunity and that if you look at a internet advertising the rest of the wells than a Google AD network Facebook that network.

James Gordon Mitchell: Thank you, Alex. So to start with the ad network question, and Martin, we'll talk about shipping later. But on ad networks, I think it's relatively easy to, you know, size the opportunity in that if you look at internet advertising in the rest of the world, then Google ad network, Facebook ad network, very substantial businesses, you know, representing a double-digit percentage of total online ad spend. And, equally importantly, they enable a number of smaller sites and medium-sized sites. Sites which wouldn't be able to justify building out their own direct tax sales to generate revenue and fund themselves and create new content.

Very substantial business as you know representing a double digit percentage of total nine AD spend and equally importantly, they enable the number of smaller sites and medium sized sides, which I wouldn't be able to justify building out there on direct sales force to generate revenue and.

And create new content and we think that trend. It is also underway in China. When we see one more if the media sites for example, joining joining our out of network. So we think that that's you know when a intensive fee I know, it's and it's obviously on.

James Gordon Mitchell: And we think that, you know, that trend is also underway in China, and we see more and more media sites, for example, joining our ad networks. So we think that's, you know, we need... In terms of the ad loads, then it's obviously a function of... Site Owners Decision-Making Rather Than a Foundation, a Tencent-imposed directive. In terms of pricing, historically, when AdNetwork was predominantly a banner ad business, the typical ad pricing was correspondingly low in the mid-single digits effective revenue per thousand impressions range.

He side on its decision making.

No.

You know a 10 cents impose a direction.

In terms of the pricing than historically whatnot network was predominantly about Iraq business. The typical I pricing was corresponding b. Lowe and mid single digits effective revenue per thousand impressions range. However, as we mentioned the opening remarks today 42 cents to wrap.

James Gordon Mitchell: However, as we mentioned in the opening remarks, today over 40% of the revenue in AdNetwork is actually video format, and there is substantially higher to Hype. Renminbi eCPM. So as a result, the blended eCPM for ad networks in China is now moving up to high-speed digital. Low Double Digits, which is, once again, a good vote for us, but also, underlying property.

Do you not networks is actually video format on that pricing is substantially higher Oh since you up high teens.

Renminbi CTM, so ask yourself blended.

Cpms AD networks in China, as you know not moving up to high single digits.

Low double digits, which is once again, a good but for us but also most for the underlying property I don't know us. So network is an important business to us it's important.

James Gordon Mitchell: So, you know, Ad Network is an important business to us. It's very important. Financially, AdNetwork actually contributed more of our year-on-year advertising revenue growth than Wastion Moments, for example. And it's important as proof of our technological prowess. Tencent's strength as an advertising platform derives solely from the fact that Tencent, The Owned and Operated Properties and the Trust, and the other is the engagement in the owned and operated properties. But in reality, while those are very important, the fact that we're extremely competitive and extremely fast-growing in the ad network is a proof point that our ad technology is very class as well. Now, in terms of the Shepin-How dervation channels, I will make a few points.

Financially <unk> network not contributed more.

Advertising revenue for instance in waste in moments for example.

And you know its importance is pretty flat technology process I think that's a perception, sometimes a 10 cents a strength.

As an advertising top drives solely from from.

The Onton operated properties and the traffic a an engagement, Indiana and operated properties, but you in reality, while those are very important. The fact that were extremely competitive and extremely fast growing network. A it's a proof point that they're not technology is increasing the best in class as well.

No in terms of the ship you know the wishing channels I will make a few points.

First of all.

Martin: First of all, it actually flows from the Weixin design principle that I talked about earlier, which is that it actually comes from user insights and also the content creation community insights, right? You know, we can see there's a need for short-form video content, and we know that there are a lot of content providers who actually want to leverage Weixin to provide their users, their own fans, with short video content. So, that's sort of the starting point of Shipping Hao.

Yes, it actually flows from the.

I wish him design principles that I talked about earlier, which is a it actually comes from user insights and also the content creation community insights right. We can see there's a need for short form video content and we know that there are a lot of content providers, who actually want to leverage waste into.

Provide their users their own fans with a short video content. So that's sort of the starting point off or should be the power and I would say logical its can be considered as an extension of the way should not be shortcomings.

Martin: And I would say, logically, it can be considered an extension of the Weixin official accounts. Only in this case, we're actually changing the text and photo content into video content, and we're encouraging existing official accounts, content providers, as well as new content providers to provide short video content and sign-up fans within the Weixin ecosystem. Right now, I would say, it's still in beta test, so it's too early to talk about any user numbers, metrics, as well as even further into monetization. But I have to say, so far, during the beta test, it looks like it's well-received by the users, as well as the content production community.

Only in this case way I should changing.

The text and a photo content into video contents, and so with encouraging existing official accounts content providers as well as new content providers to provide a short video content and a sign of fans within the way shouldn't ecosystem.

Right now I would say, we it's still in beta test. So it's too early to talk about to any user numbers metrics as well as.

Even further into monetization, but I have to say.

So far during the beta test straight it looks like it's well received by the users as well as the content production community.

Thank you next question comes fund a lot of Alicia Yap from Cpk. Please go ahead.

Operator: Thank you. The next question comes from the line of Alicia Yupp from Citigroup. Let's go ahead.

Hi, good good evening management, Thanks for taking my questions and also congrats on the fly suddenly stopped all have two quick questions.

Alicia Yap: Hi, good evening, management. Thanks for taking my call.

Alicia Yap: and also congrats on the solid set of results. I have two quick questions. Number one is with the launch of the mini store and also you mentioned more established integration between the mini program and also the official account. Is there any chance that we could further broaden our visionary advertising ecosystem with in-app pay-for-performance product or service search in the coming future? And the follow-up is on the cloud business. You mentioned there are a few major contracts signed. So just roughly, what is the sense of your cloud revenue that is coming?

Martin: from the project base, the customized service versus the more general infrastructure service revenue. In terms of the mini store, I think it is a good addition to the overall Weishen mini program ecosystem in support of e-commerce and other retailers. I think overall, as we continue to improve our set of tools for retailers and e-commerce providers, then we will believe that the mini-program ecosystem will become even more prevalent for retailers, and the transaction ecosystem within Huaxin will improve.

Number one east we still Entresto mean install and also you mentioned I stopped.

Integration between the mainly program and also official comp is there any chance that we could Florida broaden our winking advertising ecosystem, a week scheme I pay for performance product will still be such in the coming future and the follow up if on the top basis you mention.

That's a Philadelphia major contract side, so just rafi Wadi system soft Oh your call ravioli that he's coming from the project phase the custom I sleep, what's the more general infrastructure Somebody's I don't know thank you.

In terms of the minions store I think it is a good addition suit the overall wish in media program.

Ecosystem in support of E Commerce and.

Other retailers.

Yeah, I think overall.

As we continue to improve.

Our our set of tools afford the retailers 40 ecommerce providers a than we were believed that the many programs ecosystem will become even more.

Prevalence to retailers and the transaction ecosystem within wasted would improve and when that happens then it's definitely kind of have spill over effect into our advertising business right because that it would be much more economical and.

Martin: And when that happens, then it's definitely going to have a spillover effect on our advertising business, right? Because then it will be much more economical and valuable for the retailers to put in advertising in our ecosystems, which should include moment ads as well as ads in the official accounts. So all these will have a synergistic impact on each other. In terms of cloud, I would say project-based revenue is actually a very small percentage of our total revenue. By and large, it's actually recurring revenue from the cloud service itself.

Martin: Thank you.

The both for.

The retailers to to put in advertising in our ecosystems, which should include moments ads as well as that adds.

In the official accounts. So all these will have a synergistic impact on each other.

In terms of clouds, I would say the project basis, it's actually a very small percentage of out total revenue Biden Lodge is actually the recurring.

Revenue from a.

From the cloud service itself.

Thank you.

Next question comes from the <unk> billion Petco and then.

William Henry Packer: The next question comes from the line of William Packer from SMPM.

William Henry Packer: and BNP Paribas. Please go ahead.

<unk>.

Please go ahead.

Hi, the Roes I will talk of rigs on many thanks, taking my questions and congrats on the strong cool so.

William Henry Packer: Hi there, it's Will Packer from Exxon. Understandably, there is significant uncertainty around the substantive content and enforcement of the WeChat order. So stepping away from that, could you help us think about your revenue exposure to the US? What percentage of video game revenue is generated in the US? What percentage of online advertising revenue in China is generated from the US? That's my first question. I'll just follow up.

Understandably beverage significant onsite round the substances constant enforcement of the we chat soda so stepping away from that could you help us think about revenue exposure to the U.S. and U.S. companies.

Since your video games is general video games revenue was generated in the U.S.

What percentage of online advertising revenue in China was generated from U.S. stuff. That's my first question I just as follow up.

I would now a little bit FA on from the post crisis.

James Gordon Mitchell: We're now a little bit further on from the COVID crisis. Please share some thoughts on the longer-lasting changes, behaviors, and how they impact your business, for example, Lasting Shifts in Gaming and Online Engagement. Thank you, Will.

Could you shed some folks on the longer lasting changes in consumer behavior and how they impact your business.

That's helpful last anxious and gaming and online engagement.

Digital payments cloud services. Thanks.

Hi, Thank you well so this is James.

James Gordon Mitchell: So this is James. So to answer your first question, the U.S. represents less than 2% of our global revenue, and within that, advertising in the U.S. should be less than 1%. (Inaudible) Thank you.

Your first question the U.S.

Represents less than 2%.

Can you within that.

Advertising in the U.S. would be less than one such as a total advertising revenue now I think you also asking about the percentage of advertising revenue in China from U.S. companies and our understanding is that's not a.

A relevant metrics for the discussion at this point in time, because if you to put the executive orders from on May 29, and then [noise] recently, the executive order a couple of days ago, Dan did they specify.

James Gordon Mitchell: [inaudible] kind of a relevant metric for the discussion at this point in time, because if you look at the Executive Orders from May 2019 and then recently the Executive Order a couple of days ago, then they specify very clearly that they cover U.S. jurisdiction, and consequently, we don't see an impact on companies. Right. I'll answer your second question.

Right clearly they caused a U.S. jurisdiction.

And consequently, we don't see any impact on.

Companies advertising on <unk>.

No.

Right I'll answer your second question, but before that just one pointing to add on own James answer is that.

Martin: But you know, before that, just one point to add on James' answer is that there are actually a lot of other advertisers, right, you know, so to some extent, once we have an advertising space and inventory, right, you know, then basically there are a lot of advertisers who are bidding for such, such an inventory at space. So, as long as the F space is there, I think the revenue is going to be there. So, that's in addition to James' answer.

There's actually a lot of.

Other advertising. So you know so to some extend once we have an advertising space and inventory right. Then basically there are a lot of advertises quit bidding for such.

Such a inventory out space so so.

As long as the F. spaces, there and I think the revenue is gonna be there.

So.

So that's in addition to James answer, though in terms of pose corporate right I think you.

Martin: Now, in terms of post-COVID, right, I think, you know, obviously, consumers have spent more time online, and after that, by and large, have gone back to work and gone back to school in China. In the rest of the world, it's not the same. It's a much longer period.

Obviously consumer.

Yes, no have spent more time online and and after that to the I Lodge have gone back to work and a going back to school in China in the rest of the world. It's not to say, it's a much longer period, but even within sort of you know that's more a period of time.

Martin: But even within sort of that small period of time, I would say consumer behavior has changed to the extent that more online behavior has been embraced, and be it online entertainment, online games, as well as online consumption. People are now more used to shopping for groceries online, and they probably sort of, you know, I'm more accustomed to be shopping online through many programs or by watching online broadcasts. And I think working online has also become more familiar to users, as well as for the youth. Right, you know, getting educated online is actually more familiar to them.

I would say a consumer behavior have changed too.

The extend that deal with the Oh more online behavior has been embraced and bid on my entertainment online games.

As well as online consumption you know people are now more used to shopping for groceries online.

And they probably sort of more accustomed to to be shopping online by through made many programs or by watching.

Oh line broadcast.

And I think.

A working on line has also become.

Most familiar rise with the users as well as for the youth right getting educated on line is actually a morphing Miller rise for them.

So these up behaviors I would say would.

Had the implication for a number of different industries.

Martin: So these behaviors, I would say, would have implications for a number of different industries, including online entertainment, retail, not just e-commerce, but also all retailers; they need to think about how to serve their customers online. And education companies will need to think about how to embrace online education. And I would say, you know, for businesses, right? More and more businesses are now embracing an online collaboration type of working mode.

Including the online entertainment.

The the retail not just you Congress, but also or retailers thing to think about how to.

Served their customers online and education companies will need to think about you know how to embrace online education.

And I would say.

For businesses radio a more and more businesses I'll now embracing.

And online collaboration type what chemo to it's not to say they would be.

Martin: It's not to say they would be seeing all their employees working from home, right? I don't think that is actually going to happen in China, but rather, there's going to be a much more... conducive environment for people to be collaborating online. A lot of times, some meetings, which otherwise in the past have to be done face-to-face, can now be conducted online, conferences can be conducted online, and companies, inter-com meetings can be conducted online.

See oil employees working from home run I don't think that is actually you're going to happen in China, but rather a there's going to be a much more.

Conducive environment for people to be collaborating on line a lot of times, some meetings, which otherwise in the past I have to be doesn't fit in face to face now can be conducting the line conferences can be conducted on line.

The company and companies into companies meetings can be conducting online and as a result, <unk> it would actually cut capitalize a move.

Martin: And as a result, it would actually catalyze a move of companies and enterprises into digitization. And I think, you know, that would be the biggest takeaway from COVID, right? We all know that consumers are already online. Now they're spending more time. Yes, you know, it's a quantitative, quantitative change, not a qualitative change.

Off companies and enterprises into Digitization and I didn't know that would be the biggest take away from called it drives we all know that consumers are already online now they're spending more time, yes, you know it's not.

It's a quantitative or qualitative or quantitative change not qualitative change, but for businesses weight when they now see their customers moving online when do you see the employees moving online when they see other companies for them online there's going to be a much higher in kinda as for them to be digitized and move on line.

Martin: But for businesses, right, when they now see their customers moving online, when they see their employees moving online, when they see other companies more than online, there's going to be a much higher impetus for them to be digitized and move online. And this is essentially the digitized future that we're embracing. And I think, you know, our services, and in particular our cloud services and our SaaS services, will be there to serve them in this large transition toward digitized working.

This is a essentially be digitized economy future that when bracing and I think.

Our our services.

And.

In particular cloud services, and our SaaS services that will be there to serve them.

In this lodge transition toward the digitized working mode.

Thank you.

Operator: Thank you. The next question comes from the line of Jerry Liu from UBS. Please go ahead.

Questions comes from the line of JV.

Yes. Please go ahead.

Hey, Thank you HM.

Charlene Liu: Hey, thank you. Yeah, I have two questions as well.

Two questions as well and the first one is back on mobile gaming.

James You mentioned earlier that you look at some of the virtual items, we have today like Tesla cars or are these tracking guns are they do really encourage more spending I'm interested when you look at the international gamers.

Charlene Liu: And the first one is back on mobile gaming. James, you mentioned earlier that when you look at some of the virtual items we have today, like Tesla cars or these dragon guns, they do really encourage more spending. I'm interested, when you look at international gamers, do you think, over time, they can spend close to the level of Chinese gamers in some of your high-quality mobile games? Thanks.

Do you think over time they can spend.

Got it close to the level of Chinese gamers in some of your a high quality mobile games. Thanks.

I think there what we see over time is the behavior is increasingly high conviction Rotten divergent, meaning that if you want.

James Gordon Mitchell: I think that what we see over time is that the behaviors are increasingly kind of convergent rather than divergent, meaning that if you went back 10 years ago, then, you know, in the Western world, the dominant monetization model was consumers paying $50 for the software. And in China and Korea, the dominant model was consumers consuming games for free. And then for a certain sort of narrow genre of historical role-playing games, paying large amounts of money for, you know, magic swords and, you know, you know, you know, you know, [inaudible] sports games, in shooter games, in modern-day games more generally, and at the same time in China and Korea, we've seen increasing uptake of those more kind of team-based action games as well.

10 years ago than in the Western World the dominant monetization model was consumers paying $50 software.

And in China and.

Korea, a dominant Moto was consumers consuming games, a free and then for a certain sort of narrow genre of historical role playing games paying a large amounts of money full.

Yeah and matching so whats.

Source responses in hours and things.

And you know over the last decade.

In happening is that in the west and in Japan increasingly that's being innovation around deploying factual items in sports games in shooter games and modern day games more generally.

And at the same time in China, and Korea with seen increasing uptake as more.

Team by Sachin games as well.

And as games become more and more importance and more and more hardisty.

James Gordon Mitchell: And as games become more and more important and more and more part of the millennial consumer mind space, then you begin to see really powerful crossovers. So I mentioned the crossover between Peacekeeper Elite and Tesla, but I think that Epic has done a phenomenal job with the crossovers with the DC and Marvel superhero characters. And once again, those are skins, but they also have game modes where the superheroes actually unlock their in-movie supercharacter superpowers.

Daniel consume a mine space than you begin to see ready powerful cross.

So I mentioned crossover between peacekeeper at each and tested.

I think epic has done a phenomenal job.

Across I was with the D.C.N. model Super Hero.

And once again, you know that does skins, but they also have game modes.

The superheroes actually.

With that in movies Supercar Super powers. So.

So what we see is.

James Gordon Mitchell: So what we see is that actually the willingness to purchase in-game items and the pricing of the in-game items on these modern-day shooter games, sports games, and so forth can catch up with or even overtake the... ancient history role-playing games which pioneered the virtual item model. So that's a really big change. It's a change that I think is good for the game industry globally, and it's particularly good for Tencent because we tend to be over-represented in team-based action games. Thank you. The next question comes from the line of Binnie Wong from HSBC. Please go ahead.

Actually the willingness to touches in game items and pricing in the endgame items on these modern day shooting sports games, <unk>, and so forth can catch up with or even if its height.

The history.

Ancient history role playing games, which you know pioneered system such an item model. So that's a really big change it's changed I think it's good for that the game industry globally in its 60, good for 10 cents, because we tend to be overrepresented toward a team.

She games.

Thank you next question's comes from the <unk>, meaning Wong from HSBC. Please go ahead.

Binnie Wong: Tony Wong from HHS. Thank you. Good evening, management and the IR team. Congratulations on a very strong quarter. I have two strategy-related questions. One is about the mini-program. So with the recent launch of the mini-stores, right, to help our long-tail merchants to build and operate their digital storefronts, and of course, all the way to after-sales customer service, can you share with us what are the key categories of merchants that you have been seeing and also been doing well? And also, second, based on your observation, how is Tencent Solutions more compelling to other e-commerce platforms? And I'll have a follow-up question. Thank you.

Oh, good evening measurement in the absolute congrats congratulations on a very strong quarter, Oh I have a two strategy where they have questions. One is on too many programs. So with the recent launch at the means thoughts right. Your how long how much is to build and operate that they could go softened and of course, all the way to office ask Seth It's kinda shale is awesome.

Martin: Well, I would say the mini stores have just been launched, so we don't have a lot of figures to share yet.

I think caterpillar <unk> merchant.

Ooh has also been doing well and also second is that based on the off station Hi Tech solutions more compelling to opt that ecommerce platforms I now have a follow up question. Thank you.

Well.

I would say diminished stores have just been launched so.

We don't have a lot of.

Figures to share yet but.

Yeah. This is.

Martin: You know, this is a set of tools which are mostly helping the long-tail merchants, right? So if you're thinking about, oh, how is it going to be compared to the other mini-program tool companies which have provided these tools in the past, then they're actually very different, right? You know, those companies are primarily providing tools to larger merchants, especially larger retailers. And it's intended to be this way so that, you know, we are differentiated from them.

A set of tools, which are mostly helping the loans held merchants right. So if you're thinking about Oh, how is gonna be.

Compared to the other.

[music].

Other mini program to was companies.

I would try to.

Providing these two was in the past than they actually very different and I know those companies are primarily providing tools to larger merchants, especially larger retailers and.

It's intended to be this way so that you know where differentiated from down or there are good partners and we continue to work with them to help the larger retailers who are once you have much more customization.

Martin: They are our good partners, and, you know, we continue to work with them to help the larger retailers who want to have much more customization to get their mini programs up and running. But at the same time, we know that there are a lot of neighborhood merchants who actually also want to have a relatively standard set of tools so that they can engage with their customers. And this is what the mini stores are intended for. Thank you. The next question comes from the line of Pish Mubayu from Goldman Sachs.

Two.

There are many programs up and running.

But at the same time, we know that there are a lot of long tail merchants, who actually also once you have a relatively standards set of tools. So that it can engage with their customers and this is what are the media stores are intended for.

Thank you.

Your next question comes from the fish mobile from Goldman Sachs. Please ask your question.

Operator: Please ask your questions. Thank you for taking the time to answer my questions.

Thank you for taking my question.

Pish Mubayu: Thank you for taking my question. I have a few questions about games. The first question is, when you launch or are at the cusp of the launch of a game like MobileDNF, how do you strategize the allocation of marketing dollars towards that? And how do you take into account the relative success of that game versus all of the other games to maximize overall revenue? That's my first question.

A few questions on games, but the first question is when you launch or other cost, but the launch of a game like mobile DNF.

How do you strategize the allocation of marketing dollars towards that.

And how do you take into account the relative success with that gave US is all of the other games.

To maximize overall revenue. That's my first question then second relate to too.

Pish Mubayu: And second, related to the points you made earlier, Martin, about the strength of your game platform and how well it's been growing, if you look at how successful you've been internationally, it does appear that there's a lot more legroom there for how and how much further you can grow. Would you hazard a guess as to what sort of market share we can expect, let's say three to five years down the line? Would it be anywhere near where you are in China at this point in time?

The point you made earlier Martin about the strength of your game platform and how whether it's been growing if you look at how successful you being internationally.

It does appear that there's a lot more leg room that for.

How much further you can growth would you hazard, a guess is where technology with IP game play and M&A, what sort of market shares. If we can expect let's say three to five years down the line would it be anywhere near where you ought in China at this point of time. Thank you.

Well in terms of looking at.

Martin: Well, in terms of looking at a particular title and how much marketing budget we're going to put in, I think the way we look at it is, we look at how big the addressable market is, how big the opportunity is, how big the IP is, and, you know, the potential user base is, and then we spend enough dollars, right, to reach those customers. And, you know, of course, because we have our own platform advantage.

A particular tied to it and how much marketing budget, we're going to put in I think.

The way we look at it is we will look at how big the addressable market is how big the opportunity is how big an IP and.

You know the potential a user bases and then we put.

[laughter] enough dollars radio to reach dose.

Customers and.

Yes of course, it because we have our own.

Martin: So typically, the amount of money that we spend is actually less than a standalone game company would normally spend, but we'll be spending enough dollars so that we can actually achieve the maximum success for a particular title. I think, you know, in your question, you also somewhat think about, you know, maybe a success for one game would actually eat into the success of another game. I think, you know, we don't look at it that way.

Platform advantage. So typically the amount of money that we spend is actually less than otherwise a stand alone. The game company, we'll be spending, but we'll be spending enough dollars. So that we can actually achieve to maximize maximum successful a particular title.

I think you know in your question you also cut.

So somewhat think about the or maybe a assess of a game would actually eat into this assessment not a game I think we don't look at it that way I think each game has his own appealed to the customers and and we we don't think games tend to cannibalize too much with each other right and it's it's a very long.

Martin: You know, I think, you know, each game has its own appeal to customers, and we don't think games tend to cannibalize too much with each other, right? You know, and it's a very large market out there with a lot of different titles. So each title should be given enough marketing dollars to maximize its own.

Each market out there with a lot of different titles. So each title, we should be given enough marketing dollars to maximize its own success.

In terms of international I think you know we definitely.

Martin: Um, in terms of international markets, I think, you know, we're definitely very focused on developing a long-term strategy to capture the opportunities in the international market. And in a way, I think, you know, China is a more developed market for mobile gaming compared to other markets. And as a result, we felt that, you know, the expertise and experience we have developed in China can actually help us to, you know, capture opportunities around the world. But I cannot give you a guess of the market share.

Very focused on developing a long term strategy.

You too.

Capture the opportunities in an international market.

And in a way.

I think your China.

Is more developed market for mobile gaming compared to other markets and as a result, which we felt that near the expertise.

So experience we have developed in China can actually help us too.

You know capture opportunities around the world.

I cannot give you a.

A gas off the market share, we'll try to do our best.

Martin: We'll try to do our best. But you know, in China, we do have innovation and QQ as a platform. So I think, you know, the franchise that we have is actually stronger in the world. We would not have such a strong franchise.

But.

In China, we too have no way Shannon QQ as a platform so I think the.

Franchise that we had is actually stronger out in the world.

We would not be having such a strong franchises. So I think you know that is a reality that we have to recognize.

Martin: So I think, you know, that is a reality that we have to recognize. But at the same time, you know, in the gaming industry, it's about talent, it's about game development capabilities, and it's about technology. And you know, we have these core competencies to help us to develop better and better games and also work with partners around the world so that we can bring games that are exciting to users. And hopefully, through that, we can actually capture some of the opportunities in the gaming market internationally. We do not believe it's just a zero-sum game, right?

But at the same time it didn't go into gaming industry is about talents, who spent with game development capabilities technology and.

We have decent core competencies to help us to develop better and better games and also work with partners around the world. So that we can bring.

Games that are exciting sort of users and hopefully through that we could actually capture some of the opportunities in the gave me market internationally. We do not believe is just.

A zero sum game radio the market actually has got a lot of opportunities go growth as well. So we were operating in an expanding market and we're excited about that.

Operator: The market actually has got a lot of opportunities for growth as well. So we are operating in an expanding market, and we're excited. Thank you. The next question comes from the line of Gary Yu from Morgan Stanley.

Thank you.

Your next question comes from the line of Scabby. He from Morgan Stanley. Please go ahead.

Gary Yu: Thank you from Morgan Stanley; please go ahead.

Thank you they'll protiviti dots question and congratulation on the strong settled yourself.

Gary Yu: Thank you for the opportunity to ask questions and congratulations on the strong set of results. I have two related questions regarding international strategy. Given the rising geopolitical tensions, how do you think it will change our international strategy? Do we intend to limit our overseas exposure to the less-sensitive gaming market, or do we have more ambition to tap into global opportunities? And a follow-up related question is, do we expect some of our competitors to redirect their focus and resources back to China as they also scale down their global exposure, and how should we tackle that? In terms of international markets, right, you know, we do have a long-term strategic goal of developing an international presence, and we are actually very patient about it. You know, we emphasize that it's long-term, right?

I have two related questions regarding a international strategy.

Good day rising geopolitically codes.

[noise] conditions.

How do you think he will change our international is tragedy differently or do we intend to kind of limit our overseas.

Exclusive to the low [laughter] gaming market for a we'd have more kind of in person to tap into cobalt opportunities.

And the follow up related question is do we expect some of our competitors.

Read directing the focus and resources back to China as they also scaled down.

It's kind of global exposure.

And how should we take on that thanks.

In terms of the international markets radio, we too have a long term.

Martin: And so far, we have made good progress around certain verticals, such as games. But we also anticipate that there will be challenges and obstacles. But, you know, we believe that, you know, all along the way, right, the way we develop our international strategy is by focusing on a number of principles. The first one is that we focus a lot on users and user experience and products. And that would include protecting the privacy as well as the security of data for our users.

Strategic go off developing international presence and.

And we are actually very.

Patient about it we emphasize its long term right and so far we have made a good progress around certain verticals such as games, but we also anticipate there will be challenges and obstacles.

But there are we.

The leap that all on the way it right the way would develop our international.

Martin: And secondly, we operate straightly in compliance with the laws and regulations in each one of the countries that we operate in. And thirdly, we actually rely on a lot of win-win partners, right? You know, in a lot of cases, we actually work with local partners in each one of the countries that we have a presence in, and we strive to create a win-win partnership with them. We respect their entrepreneurism and their independence.

Strategy is by focusing on US a number of principal was the first one is.

We focus a lot on on users and user experience and products.

That would include protecting the privacy as well as to security update afford our users and second one is we operate a strictly in compliance with the laws and regulations in each one of the country that we operated.

And thirdly, we actually rely on a lot a win win partners right. A lot of cases, we're actually work with local partners in each one of the countries that we have a presence in and we strive to.

Create a win win on issue with them, we respect to the Entrepreneurism, we respect their independence, but at the same time, we can actually bring in our expertise to help them to be more successful and we believe these principles radio would actually serve us well over the long run there may be countries, which may be challenging at one time or not.

Martin: But at the same time, we can actually bring in our expertise to help them to be more successful. And we believe these principles, right, you know, would actually serve us well over the long run. There may be countries which may be challenging at one time or another, but overall, we believe it's a very large international market. And there are a lot of countries, a lot of companies, a lot of products that we can be successful in if we are patient and if we continue to stick to these.

But overall, we believe it's a very large international market and there are a lot of countries a lot of companies a lot of.

Products that we can it be successful in if we have patient and he continued to stick to these principles.

Now in terms of.

Martin: Now, in terms of your second question, I think, to some extent, it's actually highly speculative. But you know what? You should have some comfort in knowing that no matter what the competitive dynamics are, Tencent continues to focus a lot on improving its own capabilities, as well as improving its product use experience and value proposition for our users, regardless of the competitive dynamics. So we are already working very hard, and we'll continue to work very hard to focus on these factors, which I think, you know, are much more intrinsic to the long-term success of the company rather than what other companies do. Thank you. We will be taking the last questions from the line of...

Your second question I think you know to some extent, it's actually the highly speculative, but what what you should have some.

[laughter] you should have some comfort is that no matter what the competitive dynamics are a 10 cents continues to focus a lot on.

You know improving our own capabilities as well as.

Improving our product user experience and value proposition for our users regardless of the competitive dynamics.

So we are already working very hard and we'll continue to work very hard to focus on these.

Factors, which I think you I'm much more intrinsic to the long term success of the company rather than what other companies would do.

Thank you.

I'll be taking the last questions from the lot of <unk> from Bank of America. Please go ahead.

Hi, Good evening guys on two questions. The first one is Oh, you will see impact and that this is a this is our second could you elaborate on together rather keep important see after a few factors behind improving gross margin trend up the settlement what Peter.

Operator: Leone from Good evening, guys.

Leone: questions. The first one is about your FinTech and business services. Could you elaborate on the relative importance of the few factors behind the improving gross margin trend of the segment and what could be the outlook for that? And then, secondly, regarding the integrated advertising platform for advertisers, obviously, you guys mentioned that it would help efficiency for the advertisers. But do we expect any potential influence?

Oh look for that and then my second the regarding any greater appetite to plop hopeful appetizers. Obviously, you guys mentioned that it would help I think deficiency faulty advertisers.

We expect any potential implications on they are spending all but checked out going forward. Thank you.

Leone: potential influence on their spending or budget going forward. Thank you.

So on Fintech right.

Martin: So on FinTech right now, I think, Well, part of it, if you compare year-on-year, is actually the fact that we actually start collecting some of the interest back from the deposit with the Central Bank. And I would say the fact that marketing expenses come down to a more rational level also helps, this is as part of the competitive dynamics becoming less cutthroat. And thirdly, is the fact that we continue to develop other non-payment fintech products, right?

I think.

Well part of it if you compare year on year is actually the fact that we actually started collecting some of the interest back from.

The deposit with with.

Central Bank.

And.

I would say the fact that marketing expenses come down into a more rational level also helps.

It is as part of the.

Competitive dynamics, becoming less cutthroat.

And 30 is.

The fact that.

As we continue to develop but the fin other non payment fintech products radio so be it a loan products or the wealth management products. These are products, which actually generates profit and as the scale with these products go up then the up the margin profile actually improves.

Martin: So, be it our loan products or the wealth management products, these are products that actually generate profit. And as the scale of these products goes up, then the margin profile actually improves. So with the advertising, I will pass this to James.

So with the advertising I want us to James.

Yeah with the integrated at platform and I'm not.

James Gordon Mitchell: Yeah, with the integrated ad platform, then naturally, we would hope that with More Attractive, More Powerful, More Simplified Ad Purchasing and Tracking and Performance, then we would inherently increase our share of... Advertiser Activity and Budgets. And you know, I think that if you look globally, there are many other internet companies that moved from sort of lagging to leading ad tech positions and, as they did so, captured Now, of course, there should be some sort of upper limit on how much ad spend one can capture, no matter how excellent one's technology is.

That's pretty we would hope that with.

More attractive more powerful more simplified.

Touches sitting and tracking and performance.

Solutions than we would inherently increase our share of.

Advertiser activity and budgets and I think that if he doesn't globally. There are many other internet companies move from.

Sort of locking to leading AD tech physicians and as they did so caption progressive de notch chefs about spends now of course.

It should be some sort of limit on how much I spent wanting caption no matter how excellent months technology is but for US I think that limit is still rather far away because I share of time spent in China.

James Gordon Mitchell: But for us, I think that the upper limit is still rather far away, our share of time spent on the Chinese Internet is around 40%, while our share of advertising spend on the Chinese Internet is under 14%. So I think that there's a very long growth runway for us as we continue. [inaudible] Integrated Ad Platforms to deliver long-term but sustained market share.

It's around 40% <unk> share of advertising spend in China range is on.

He said.

So I think that says a great long [laughter].

Correct.

So as we continue to.

Hi Tech through three solutions like you integrated platforms to.

Today, a longtime sustain a market share gains.

Thank you operator, we are closing the call now if you wish to check out the press release and other financial information page. They did the IR section of our company website at Www Dot Dot Com replay of this webcast will also be available. So thank you and.

Operator: Operator, we are closing the call now. If you wish to check out the press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webcast will also be available soon. Thank you, and see you next quarter. That does conclude our conference for today. Thank you for participating in Tencent Holdings Limited's 2020 second quarter and interim results announcement.

The next quarter.

This conference call today, Thank you for participating Tencent Holdings limited 2022nd quarter.

Operator: Thank you for participating in Tencent Holdings Limited's 2022nd Quarter and Interim Results Announcement Conference Call.

Announcement conference call you may now disconnect.

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