Q2 2021 Tencent Holdings Ltd Earnings Call

August 18, 2021

[music].

Operator: Good day, and thank you for standing by. Welcome to Tencent Holdings Limited's 2021 second quarter results announcement conference call.

Good day and thank you for standing by welcome to Tencent Holdings Limited 2021 second quarter results announcement conference call.

Operator: At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. Please be advised that today's conference is

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to answer questions. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.

Operator: is being recorded. If you require any further assistance, please press star zero. And now I would like to turn the call over to Ms. Wendy Huang from Tencent.

And now I would like to turn call over to MS. Wendy Huang from Tencent IR team. Thank you. Please go ahead.

Wendy Huang: Wendy Huang from the Tencent RR team. Thank you. Please go ahead. Thank you. Good evening, everyone. Welcome to our

Wendy Huang: Thank you. Good evening, everyone.

Thank you good evening, everyone welcome to our 2021 second quarter results Conference call.

Before we start our presentation, we would like to remind you that it includes forward looking statements.

Which are underlined by a number of risks and uncertainties and it may not be realized in the future for various reasons.

Information about general market conditions is coming from a variety of sources outside of Tencent.

This presentation also contains some audited non <unk> financial measures that should be considered in addition to but not as a substitute for measures of the company's financial performance propelled you accordance with ISR.

Well I've detailed discussion of the risk factors in it now as ours measures. Please refer to our disclosure documents on the IR section of our website.

Now, let me introduce the management team on the call Tonight.

Wendy Huang: process outside of Tencent. This presentation also contains some unaudited

Our chairman and CEO Pony MA will kick off with a short overview.

Then Martin will discuss strategy review Chief strategy Officer, James Mitchell will speak to business review and Chief Financial Officer, Joe will conclude with financial discussion before we open the floor for questions.

Wendy Huang: In addition to, but not as a substitute for, measures of the company's financial performance presented in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documentation.

I will now turn the call over to Pony.

Thank you Wendy.

Wendy Huang: Please refer to our disclosure documents in the IR section.

Good evening, thanks, everyone for joining us.

In the second quarter when they have all of our services and achieved healthy growth across our businesses, particularly picked up new services and advertising, while all a cam revenue benefited blodgett convection deal close.

Now let me go through the headline number finishing number for the quarter.

Total revenue was.

Hey, Pete at RMB up 10, 2% and 2% quarter on quarter.

Gross profit was 63 beta on be up 18% year on year and stable quarter on quarter.

Non-GAAP operating profit was 43 billion RMB up 14% and staples.

Non-GAAP net profit attributable to equity holders would put defaulted on beef up 14% and 3% quarter on quarter.

For our <unk> services, we generally do pay all our effort to pay position in active.

It is including.

So short and long form video.

<unk> music literature payment and mobile utilities and.

And we believe we gained market share in cloud services.

Combined and you always hear Wechat was 1.25 beat it.

Mobile devices and May you off QQ was 591 need it.

Lockheed Janssen will discuss our strategy to help real economy and society.

That's progress across different businesses.

Wendy Huang: Our Chairman and CEO Pony Ma will kick off with a short overview, while President Martin Lau will discuss the strategy review.

Now I will hand over to Martin for the strategy overview.

Wendy Huang: to Business Review, and Chief Financial Officer Joan Loh will conclude with a financial discussion.

Thank you Pony and good evening and good morning to everybody.

Wendy Huang: Financial Discussion Before we open the floor for questions, I will now turn the call over to Pony.

Huateng Ma: Good evening. Thanks, everyone, for joining us. In the second quarter, we enhanced our services and achieved healthy growth across our businesses, particularly business services and advertising, while our game revenue benefited from international growth. Now, let me go through the headline number, the financial number for the quarter. Total revenue was 138 billion RMB, up 20% year-on-year and 2% quarter-on-quarter. Gross profit was 63 billion RMB, up 18% year-on-year and stable quarter-on-quarter. Non-IFRS operating profit was 43 billion RMB, up 14% year-on-year and stable quotas.

Today, I would like to share with you the encouraging progress of our communication and productivity of SaaS products, which are generating user and social value. Despite contributing very little revenue to us for now.

Huateng Ma: Non-IFRS net profit attributable to equity holders worth 34 billion RMB, up 13% year-on-year and 3% quarter-on-quarter. For our key services, we generally retain our first place positions in activities including social, games, long-form video, news, music, literature, payment, and mobile utilities. And we believe we can gain market share in cloud services. The combined MAU of WeChat and WeChat Pay was $1.25 billion. Mobile devices MAU of QQ was 591 million. Martin and James will discuss our strategy to help the real economy and society, as well as progress across different businesses. Now I will hand over to Martin for the strategic view. Thank you, Pony, and good evening and good morning to everybody.

Martin Lau: Today, I would like to share with you the encouraging progress of our communication and productivity SaaS, which are generating user and social value despite contributing very little revenue to us for now. Since the outbreak of COVID-19, we've seen accelerated demand for digitization across industries. Our communication and productivity SaaS product suite, namely Wecom, Tencent Meeting, and Tencent Docs, assisted this digitization process and contributed to the growth of real, We achieved this by leveraging a number of our capabilities developed over the years. First, our advanced technologies and domains such as AI, real-time communications, and security.

Since the outbreak of Covid, 19, which seem to accelerated demand for digitization across industries.

Communication and productivity SaaS product suite, mainly become Tencent meeting in terms of dogs assisted this digitization process and contribute to the growth of the economy.

We achieved this by leveraging a number of capabilities developed over the years first to our advanced technologies in domains, such as AI real time communications and security.

Martin Lau: Second, a proven experience in operating large-scale internet services with robust performance and reliability. Third, our ubiquitous coverage and deep engagement with consumers via Weixin and QQ, which facilitates industries building direct connections with their users. And fourth, vertical solutions for providing business services, including cloud services, to key industries through our own product innovation and partnership. By helping industries digitize, we believe we deliver critical benefits to different stakeholders. For SMEs, we have significantly lowered the barrier to technology adoption.

Our proven experience in operating large scale Internet services with robust performance and reliability.

Third our ubiquitous coverage and deep engagement with consumers via <unk>, and QQ, which facilitates industries building direct connections with their users and Ford.

Our vertical solutions for providing business services, including cloud services to key industries through our own product innovation and partnerships.

Helping industries Fisher size, we believe with deliberate critical benefits to different stakeholders.

For Smes, we have significantly lowered the barrier for technology adoption.

Martin Lau: We can leverage our products to increase customer engagement, as well as to enhance cost efficiency without making significant IT investments on their own for public services when they enable real-time and direct connection with citizens and enterprises. We also facilitate productivity enhancements through improving their workflows and increasing their collaboration efficiency. For individual users, we help reduce their traveling burden and enhance convenience.

I wish our products to increase customer engagement themselves.

And hence cost efficiency without making significant investments on their own.

<unk> services when it enables real time and direct connection with citizens enterprises will also facilitate productivity enhancements through improving their workflows and increasing their collaboration efficiency.

For individual users, we help reduce their traveling burden and enhance convenience. We also enable instant access to and sharing of information.

Martin Lau: We also enable instant access to and sharing of vital information, going through the different products. We come to enable better connections within enterprises and with consumers externally. Wecom offers collaboration tools for enterprises to enhance management efficiency. It is deeply integrated with Bayesian chats, mini-programs, and WeChat payments. Enterprises can use Veeam as a back end to communicate with and serve customers on WeChat, enabling convenient and efficient customer management on one single platform. All customer relationships will be retained by enterprises and will be preserved even after the front line staff's departure.

Going through the different products, we come enables better connections within enterprises and with consumers externally.

We can offer as collaboration tools for enterprises, and hence management efficiency. It is deeply integrated with Asian chats mini programs and we shouldn't payment.

Prices can use me as a backend to communicate with and serve customers on ration, enabling convenient and efficient customer management on one single platform.

Customer relationship will be retained by enterprises.

She served even after a different mine stops departure.

Martin Lau: Examples of how we can assist digitization include for the government, We come support the seventh National Population Cancer Census, the first digitized census in China's history. We come enabled around 7 million census tickers to submit a massive amount of data online in a secure and reliable way, and facilitated the efficient management and coordination of this large and mobile work in the Public Education Sector. Wecom has been increasingly adopted as a software for enhancing communications and operations management of schools. Wecom enables real-time and direct communications between teachers and parents, where teachers can benefit from WECOM's CRM functionality, while parents can interact with teachers using their own regularization accounts and apps.

Examples of how we come assists Digitization include for the government. We come supported the seventh national population tons put sensors. The first digitize census in China's history, we come enabled around 7 million sensus tickers to submit the massive amount of data online.

In a secure and reliable way and facilitated the efficient management and coordination of this large and mobile workforce.

In the public education sector.

<unk> Com has been increasingly adopted as a software for enhancing communications and operations management of schools.

We come enables real time and direct communications between teachers and parents, where teachers can benefit from weakened CRM functionality, while parents can interact with teachers using the parents owned reclamation accounts and out.

Martin Lau: WECOM also provides tools for education bureaus and schools to manage their day-to-day operations more efficiently. In the business sector, we have been upgrading tools, and we are coming to enhance the private domain operations of retailers and brands, as we improve their resources. We believe these tools can help retailers and brands increase sales and improve cost efficiency. Now, turning to Tencent Meeting, the most used standalone cloud conferencing app in China. Tencent Meeting achieved double-digit growth in both MAU and time spent per user in June 2021, compared with December 2020.

We can also provides tools for education bureaus and schools to manage their day to day operations more efficiently.

And the business sector, we have been upgrading tools and we come to and hence the private domain operations of retailers and brands as we improve their resources management.

We believe these tools can help retailers and brands increased sales and improved cost efficiency.

Now turning to Tencent meeting the most used standalone cloud conferencing app in China.

Since the meeting has achieved double digit growth in both MH and time spent per user in June 2021, compared with December 2020.

Martin Lau: We're increasing its penetration in the medical and public education sectors, leveraging our vertical solutions and expanding industry partnerships. To enrich our solutions for meeting rooms, Tencent Meeting supports a wide range of hardware from around 30 partner vendors. We upgraded voice quality by launching a self-developed voice solution, Tencent Ethereal Audio. With enhanced AI-based noise cancellation, our solution enables speech capture from up to 12 meters away in standard meeting rooms.

We're increasing its penetration of medical and public education sectors, leveraging our vertical solutions and expanding industry partnerships.

So enrich our solutions for meeting rooms, Tencent meeting supports a wide range of hardware from around 30 partner vendors we.

We upgrade our voice quality by launching our self developed voice solution Tencent piece the real audio.

With enhanced AI based noise cancellation, our solution enables speech capture from up to 12 meters away instead that meeting rooms.

Martin Lau: Examples of how Tencent Meetings assists digitization include large enterprises, for example, such as State-Grid Corporation of China and China Communications Construction Company. We customize solutions compatible with their existing IT and equipment for efficient collaboration. This illustrates our capabilities in supporting enterprises with vast operations, and Sophisticated Recruitment for large-scale conferences, which deliver secure, reliable, and high-performance solutions, among which we have supported the China Import and Export Fair, or known as the Canton Fair, for three consecutive events since April 2020.

Examples of how it tends to have meetings assist digitization includes.

For large enterprises for example, such as.

State Grid Corporation of China, and China Communications construction company with customized solutions compatible with their existing it systems.

And equipment for efficient collaboration.

This illustrates our capabilities are supporting enterprises with vast operations and sophisticated requirements.

For large scale conferences with deliver secure reliable and high performance solutions, among which would have supported to China import and export fair or known as the canton fair for three.

Consecutive events.

Since April 2020.

Martin Lau: Finally, Tencent Jobs is now the leading cloud-based productivity suite in China, with spreadsheet, word processing, and slide deck applications. It also allows easy sharing of files via WeChat and QQ, building on its initial success in the education sector. Tencent Docs is gaining popularity in traditional sectors such as finance, media, and legal. This reflects the increasing functionality of the service as well as its unique user experience for collaborative data collection and sharing. In July 2021, student volunteers used Tencent Docs as a real-time collaborative tool for helping the rescue of people trapped in the Henan floods via data collection, editing, and sharing.

I know the Tencent dogs.

Is now the leading cloud based productivity suite in China, with spreadsheet, where processing and slide deck applications. It also allows you sharing of ours.

<unk> and QQ.

Building on its initial success in education sector Tencent dogs is gaining popularity in traditional sectors, such as finance media and legal.

This reflects increasing the functionality of the service as well as its unique he was experienced who collaborate if data collection and sharing.

In July 2021 student volunteers. It used 10 set of dogs as a real time collaboration tool for helping rescue people trapped in Hunan floods via data collection editing and sharing.

Martin Lau: Our infrastructure and operations supported Tencent Docs to deliver reliable performance in such an extreme situation, with the documents edited over 300,000 times and accessed over 2.5 million times within 24 hours, and in that process, saved many lives. Now, with that, I will pass to James to talk about our business. Thank you, Martin.

Our infrastructure and operations support at Tencent docs to deliver reliable performance and such an extreme situation with the documents edited over 300000 times and access to over $2.5 million times within 24 hours and in that process saved many lives.

Now with that I will.

I'll pass to James to talk about our business review.

James Gordon Mitchell: For the second quarter of 2021, our revenue grew 20% year on year. BAS represented 52% of our revenue, within which the GameStop segment was up 30%, and the social network sub-segment. Online Advertising was 17%, and FinTech and Business Services reached 30% of our total. The value-added service's segment revenue was R72 billion for the quarter, up 11% year-on-year and stable quarter-on-quarter. Social network sub-segment revenue increased 9% year-on-year to R29 billion, reflecting moderate growth of digital content subscriptions and in-game item sales.

Thank you Martin for the second quarter of 2021, our revenue grew 20% year on year. He asks represented 52% of our revenue within which the Gamestop segment. The stats he bumped the sense.

And the social networks Subsegment, 21% online advertising was 17% and Fintech and business services reached studying sounds about right.

Revenue.

So value added services segment revenue was 72 billion renminbi for the quarter after that 1% year on year and stable quarter on quarter.

Social networks Subsegment revenue increased 9% year on year to 29 billion renminbi, reflecting moderate credits are digital content subscriptions and in game item sales.

James Gordon Mitchell: Total VAS subscriptions grew 13% year-on-year to $229 million, and video subscriptions increased 9% to $125 million, benefiting from our diversified content across sports, animated series, drama series, and television. For example, our animated series, Land of Warriors, as well as Battle Through the Heavens Season 4, attracted a wide audience.

Total V. I S subscriptions grew 13% year on year to 229 million video subscriptions increased 9% to 125 million benefiting from our diversified content across sports animated series drama series and movies for example animated series not afforded to us by this battle through the heavens system for <unk>.

Market wide audience spaces mute.

Music subscriptions expanded 40 bumps to $66 million driven by Cme's effective marketing and by increased consumer willingness to subscribe for music services.

James Gordon Mitchell: Music Subscriptions expanded 41% Game sub-segment revenue increased 12% year-on-year to $43 billion. Our international games revenue grew 29% to R11 billion, or 37% in constant currency. Mobile games VAS revenue increased 13% year-on-year to R41 billion, higher off through a paying user ratio. Revenue growth was primarily driven by Honor of Kings and Moonlight Blade Mobile in China and by PUBG Mobile and Clash of Clans. C-Client Game Revenue increased 1% year-on-year to 11 billion RMB as international growth from Valorant and Warframe offset domestic softness from Dungeon and Fighter.

GAAP sub segment revenue increased 12% year on year to 43 billion renminbi or international games revenue grew 29% so it hasn't been in renminbi.

7% in constant currency terms.

Games revenue increased 13% year on year to 40 bumping in renminbi its higher off to an end user ratios revenue growth was primarily driven by honour of kings and Moonlight blade in China, and bypass T mobile and clash of clans internationally.

PC client game revenue increased 1% year on yet, but that's 1 billion renminbi as international prices. The other engines will frame offset domestic softness from dungeon <unk> fighter.

James Gordon Mitchell: Turning to Weixin, Miniprogram's GMV more than doubled year-on-year as our decentralized commerce environment helps businesses thrive with their own channels and their own user relationships, while also enabling them to achieve higher profit margins than on other channels. Summarizing how the WeishenYi...

Turning to Asian mini programs and <unk> more than doubled year on year as our decentralized commerce environment helps businesses thrive with their own channels and their own user relationships, while also enabling them to achieve higher profit margins than on all that.

Channels.

Summarizing how the way she ecosystem instead of a success for our partners brands and merchants can acquire customers for that many programs offline QR codes in violation.

James Gordon Mitchell: Thanks for watching. This is a production of the Center for International Development and the World Economic Forum. This interview was recorded on September 20, 2021. Brands and merchants can acquire customers for their mini-programs offline via QR codes and via WeChat Pay. They can create and distribute content via their own offices, Inc., engaging their users and driving repeat visits to many programs. Powerful shopping functionalities, such as single merchant membership rewards, many programs can convert visits into transactions, and we're also developing video accounts and live streaming as additional touch points.

Create and distribute content.

I'll find accounts inflation routes.

Engaging that uses and driving repeat visits to many programs with top of shopping functionality such as single much in membership rewards mini programs can convert visits into transactions and we're also developing video accounts and live streaming as additional touch points to deepening user connectivity.

James Gordon Mitchell: For QQ, we enhanced the camera capabilities so as to provide a better augmented reality experience, user-generated content production, and video chat. We also automated the in-app video editing process, encouraging users to generate and share more appealing videos. Turning to games, we reinforced the IP value of our leading... We adapted Honor of Kings into a drama series, You Are My Glory, which is now the most-watched drama series on Tencent Video by video views per episode year-to-day. Honor of Kings also released a series of popular skins.

For Q2, we enhanced the camera capabilities, so as to provide better augmented reality experiences and use.

User generated content production and video chat, we automated the in App video editing process encouraging users to generate and share more appealing video content.

Turning to games, we reinforced VIP body about eating titles.

That honour of Kings into a drama series you are Mike Lawrie, which is now the most watched drama series from Tencent.

So yes, a date honour.

King has also released a series of popular skins.

James Gordon Mitchell: PUBG Mobile collaborated with the movie Godzilla vs. Kong to create Crossfire. We revamped PUBG Mobile's battlefield design and combat features in July, increasing our, For Clash of Clans, we released a major content upgrade in April and launched the 9th anniversary event. Supercell is developing three new games based on the Clash IP, including the turn-based strategy game Clash Quest, which has begun beta testing. Valorant achieved 14 million monthly active users on its first day, benefiting from the game's competitive gameplay, robust technology, and eSports apps. Right, we do not have to do a mobile version of that around here.

T mobile collaborated with the movie set up vessels columns create cross sell.

And we revamped our PMO boss battlefield designed to combat features in July increasing average user time spent.

The clash of clans, we released a major content upgrade in April and launched the ninth anniversary event in August Super set is developing three new games based on the cash IP, including the Tam based strategy game cash quest, which has begun beta testing in Scandinavia.

The other EMS achieved 14 million monthly active users on its first anniversary benefiting from the games competitive gameplay robust technology and esports activities, Ryan just amount of intermodal.

Yeah.

James Gordon Mitchell: We're also extending our presence in newly-emerging games. Alchemy Stars, developed by our Tordog Studio, was the most downloaded tactical RPG in Japan in July, benefiting from its anime art style, unique tile-connecting gameplay, and narrative created by a reputable Japanese script writer. Lights and Nights, developed by our Aurora studio, became China's top-dating simulation game by DAU in July, with particular popularity among female players due to its story-telling. Our first survival open world crafting game, Undawn, developed by Lightspeed and Quantum Studios, has accumulated over 30 million pre-registrations in China to date ahead of its release on mobile.

We're also extending our presence in Utah matching games genres Alkermes stars develops by our total studio. It was the most downloaded tactical RPG in Japan in July benefiting from its anime style unique Hal kinetic gameplay and narrative created by reputable Japanese script writer.

Lights nights developed by our Aurora studio became China's top dating simulation game by <unk> in July with particular popularity among female players choose storyline.

Our first survival open block crossing game on Dawn developed by the Lightspeed in clumps and studios has accumulated over 30 million pre registrations in China to date ahead of its release on mobile.

James Gordon Mitchell: As a leader in the game industry, we have for many years sought to foster a healthy game-playing environment. We believe playing appropriate games in moderation can provide players with experiences such as teamwork, leadership, and skill mastery, enhance their familiarity and facility with software, and, in some cases, represent a first step toward coding skills.

Yes.

It's a leader in the game industry, we have for many years sorts of foster a healthy gameplay environment, we believe playing appropriate games in moderation can provide clients with experiences such as teamwork leadership skills market.

Enhance that familiarity and facility with software and in some cases represents a first step toward acquiring coding skills and.

James Gordon Mitchell: In 2017, we pioneered a system helping parents manage minors' game apps. In 2018, we introduced the strictest in-game measures in the Chinese industry, with mandatory real name verification and stringent game time spending. Earlier this month, we further tightened our game time and spending limits beyond regulatory requirements, initially for Honor of Kings and Peacekeeper Elite and, in future, for our other games. We reduced the time limit for minors to one hour per day on non-statutory holidays and two hours per day on statutory holidays.

In 2017, we pioneered a system, helping parents manage minus game activity in 2018, we introduce the strictest in game measures in the China industry with mandatory Rio named verification and stringent game time and spending limits.

Earlier this month, we further tightened our game time and spending limits beyond regulatory requirements initiative honour of Kings Peacekeeper elite and future for our other games, we've reduced the time limit from minus to one hour a day on non statutory holiday since two hours a day on statutory holidays, and we prevented in game spending by plants, aged under 12.

James Gordon Mitchell: And we've prevented in-game spending by players aged under 12. We're also cracking down on minors misusing adult accounts, transactions of that out of accounts from third parties, to fully implement a healthy game play environment in China. We've advocated industry-wide coordinated discussion on regulating minors' total time spent across games, further researching age-based game classification, and or potentially restricting under 12 year olds from playing games altogether.

We're also cracking down on minus misusing out accounts and transactions without accounts on third party platforms.

So fully implemented a healthy gameplay environment in China. They have advocated industrywide coordinated discussion around regulating minus total time spent across games further researching H base gained classification systems and or potentially restricting onto 12 P. Rales from playing games altogether during.

James Gordon Mitchell: During the second quarter, under-16-year-olds accounted for 2.6% of our China Game gross income, and under 12-year-olds accounted for 0.3%. Moving to online advertising, total revenue was $23 billion in the second quarter, up 23% year-on-year, as growth in internet services, consumer staples, and automobile sectors outweighed weakness in education. Since May, the China online advertising industry has been impacted by the sharp decline of ad spend from K-9 up to $1 billion, tuition service, and to a lesser extent by regulation of launch screen advertisements. Conversely, Apple's IDFA changes appear to have had less impact in China than widely expected.

During the second quarter under 16 year olds accounted for two 6% of our China and gross receipts and 12 year olds accounts CRM <unk>, 3%.

Moving to online advertising total revenue was 20 treatment in renminbi in the second quarter up 23% year on year.

In Internet services, consumer staples, and automobile sectors outweighed weakness in education.

Since may the China online advertising industry has been impacted by the sharp decline of AD spend from canine SKU tuition services and to a lesser extent by regulation of launch screen advertisement. Conversely, Atlas <unk> changed dissipate it had less impact from China, and what you expected.

James Gordon Mitchell: We expanded our overall advertiser base by enhancing industry solutions, enabling merchants to better manage their private domain operations within WeChat. During the Tokyo 2020 Olympic Games, we provided integrated marketing solutions across Weixin, QQ, Tencent Video, Tencent Sports, and Tencent News. Leveraging our strengths in social, long-form, and short-form video distribution, as well as in content management, we believe we have outperformed other online platforms. Video Reviews and User Sharing Activities

We expanded our advertiser base by enhancing industry solutions, enabling much as to better manage their operations.

Operations inflation.

During the Tokyo 2020 Olympic Games, we provided integrated marketing solutions across <unk>, QQ, Tencent video Tencent sports and Tencent news leveraging our strengths in social long form and short form video distribution as well as in content management, we believe we outperformed other online platforms.

<unk> use a sharing activity.

Our social and others advertising revenue increased 28% year on year to 20 billion renminbi, primarily driven by ration properties in particular mini programs as well as on my by that network.

Moments advertising more advertisers adopted many programs landing pages due to higher sales conversion and thus revenue growth video AD inventories contributed close to half moments revenue add.

James Gordon Mitchell: Ad revenue inside mini-programs also doubled year-on-year following the growth in mini-programs GMV. Official Accounts Revenue Group, the release of inventories in notification feeds, and increasing recognition of official accounts' role in generating sales. Our media advertising revenue is stable year-on-year with increased monetization of our music, offset by witnessing advertising on our news.

AD revenue inside many programs also doubled year on year following the growth in mini programs TMT.

Efficient accounts revenue breach at the release of inventories and notification fees and increasing recognition of official accounts rone and generating sales leads.

Media advertising revenue was stable year on year was increased monetization about music apps offset weakness in advertising on our news app.

James Gordon Mitchell: Looking at FinTech and business services, segment revenue was 42% within RevenueBee, up 40% year-on-year and 7% quarter-on-quarter, with business services growing at a relatively rapid rate. Within FinTech, year-on-year revenue growth was mainly driven by mobile payment volume growth. The number of consumers using our payment services and the number of payment transactions per consumer each year. We believe SMEs play a valuable role in enriching our payments and Generating Payment User Engagement, and we, in turn, seek to help SMEs benefit from greater mobile payment acceptance, by charting very low or even zero payment take rates in certain cases, and by our commitment of resources.

Looking at Fintech and business services segment revenue was 42 billion renminbi up 40% year on year, and 7% quarter on quarter with fitness services growing at a notably rapid rate within Fintech year on year revenue growth was mainly driven by mobile payment in 14 right.

The number of consumers using our payment services in the number of payment transactions per consumer each increased we believe Smes play a valuable role in enriching our payments ecosystem and generating payment user engagement and we intend to seek help sme's benefit from greater mobile payments acceptance by charging very narrow or even zero payment take rates in certain cases.

And by our commitment of resources and services to support SME scrubbed.

James Gordon Mitchell: [inaudible] We're also researching new opportunities in the payment industry, such as participating as a pilot in the Digital Yuan project, where we're supporting WeBank in developing... Interface within the PBO system, digital, you're on ERM, application. For business services, our revenue grew at a rapid rate year-on-year as we helped in the digitalization of public services. Traditional Industry. We experienced an increasing number of customers adopting our platform and software. Security, AI, and Datron

We're also researching new opportunities in the payment industry, such as participating as a pilot in the digital you and project that we're supporting we bank and developing and testing new interface within the <unk>.

Digital E R M B a application.

<unk> services revenue.

Rapid rate year on year, as we help the citrus realization of public services and trends traditional industries we.

We experienced an increasing number of customers adopting our platform and software services, such as security AI and data analytics.

James Gordon Mitchell: Video cloud solutions are an important and rapidly growing platform as a service, and according to IDC, we rank first in China in terms of video cloud solutions. During the course, we integrated our real-time communication, instant messaging, and CDN infrastructures into a unified solution called RT1 Network. For developers, RT1 enhances their efficiency by providing a one-stop software development kit for audio and video path solutions.

Video cloud solutions are an important and rapidly growing platform as a service segment and according to IDC. We ranked first in China in terms of video cloud solution revenues during the quarter, we integrated our real time communication instant messaging and CDN infrastructure into a unified solution called us He wanted network.

So developers Archie one enhances their efficiency by providing a one stop software development kit audio and video solutions for Tencent Cloud Atilano response cross selling opportunities and increasing cost efficiency.

James Gordon Mitchell: Tencent Cloud, RPY expands cross-selling opportunities and increases cost efficiency. With that, I'll pass it to John to discuss the financial review. Thank you, James. Hello, everyone.

With that I'll pass to John to discuss the financials.

Shek Hon Lo: For the second quarter of 2021, total revenue was $138.3 billion RMB, up 20% year-on-year or 2% quarter-on-quarter. Gross profit was $62.7 billion RMB, up 18% year-on-year or stable quarter-on-quarter. Net other gains were $20.8 billion RMB, up 141% year-on-year or 6% quarter-on-quarter. This mainly included non-IFRS adjustments relating to our investing companies. Number one, net fair value gains reflecting increased valuations of investees, in particular, in the sectors of transportation services, FinTech services, and local services. Number two, net gains on dim disposal and disposals of certain investing companies. These were partially offset by fair value losses or impairment against certain investments.

Thank you James Hello, everyone for the second quarter of 2021 total revenue was $138.3 billion renminbi up 20% year on year or 2% quarter on quarter gross profit was $62.7 billion renminbi up 18% year on year or stable quarter on quarter net other gains were $20.8 billion renminbi.

141% year on year or 6% quarter on quarter.

Meaning who didn't know novartis adjustments relating to our investing companies number one net fair value gains, reflecting increased valuations of investees in particular in the sectors of transportation services Fintech surfaces and local services.

<unk> net gains on disposal and disposes of certain invested companies.

This was partially offset by fair value losses and impairment against certain investees.

Shek Hon Lo: Operating profit was RMB52.5 billion, up 34% year-on-year or down 7% quarter-on-quarter. Net finance costs were RMB1.9 billion, down 3% year-on-year or up 42% quarter-on-quarter. The 3% year-on-year decrease was the result of lower Forex losses, partly offset by higher interest expenses due to higher amounts of indebtedness.

Operating profit was $52.5 billion renminbi up 34% year on year or down 7% quarter on quarter.

Net finance costs were $1.9 billion renminbi down, 3% year on year or up 42% quarter on quarter.

3% year on year decrease was a result of lower Forex losses, partly offset higher interest expenses due to higher amount of indebtedness.

Shek Hon Lo: The Q on Q increase reflected forest losses in the second quarter versus forest gains in the last quarter. The share of losses of associates and joint ventures was 3.9 billion RMB compared to 295 million RMB a year ago. This resulted from non-IFRS adjustments of certain associates and increased investments in community group buying initiatives by certain associates, as well as losses recognized from certain associates. On a non-nine-hour basis, we shared losses of $449 million RMB this quarter compared to share profit of $658 million RMB a year ago. Interest tax at income tax expense was $3.7 billion this quarter.

Two increased refractive forex losses in the second quarter worse than as Forex gains last quarter.

Share of losses of associates and joint Ventures was <unk> 9 billion renminbi compared to 295 minute, then Randy a year ago.

This resulted from when I virus adjustments of certain associates and increased investment in community group buying initiatives by certain associates.

As well as losses recognized from southern Associates.

On a non I've hours basis free ship losses of 449 million renminbi this quarter compared to share of profit of 658 million renminbi a year ago.

Interest income.

Income tax expense was $3.7 billion this quarter effective tax rate for the quarter was seven 9%.

I have RF net profit attributable to shareholders was $42.6 billion renminbi up 29% year on year or down 11% quarter on quarter.

Diluted EPS was $4.387, renminbi up 28% year on year or down 11% quarter on quarter.

Shek Hon Lo: The effective tax rate for the quarter was $7.9 billion. IFRF's net profit attributable to shareholders was $42.6 billion RMB, up 29% year-on-year or down 11% quarter-on-quarter. The listed EPS was 4.387 RMB, up 28% year-on-year or down 11% quarter-on-quarter. Now, I'll share our non-Iovirus financials. For the second quarter, operating profit was $42.8 billion RMB, up 14% year-on-year or largely stable quarter-on-quarter. Net profit after NCI was $34 billion RMB, up 13% year-on-year or 3% quarter-on-quarter. Diluted EPS was $3.504 RMB, up 12% year-on-year or 3% quarter-on-quarter.

Now I'll share our non.

<unk> financials.

For the second quarter operating profit was $42.8 billion renminbi up 14% year on year, or lastly, stable quarter on quarter net profit. After NCI was 34 billion renminbi up 13% year on year or 3% quarter on quarter diluted EPS was $3 five zero for renminbi up 12.

<unk> percent year on year or 3% quarter on quarter move.

Shek Hon Lo: Moving on to gross margin, the overall gross margin was 45.4%, down 0.9 percentage points both year-on-year and quarter-on-quarter. Gross margin for VAS was 52.9%, down 0.8% point year-on-year and 2.2% points quarter-on-quarter. The year-on-year decline was mainly due to lower contribution from privilege, subscriptions, and PZ gains, which carry relatively higher margins. The sequential decline was also due to lower revenue contributions from PC games and a higher revenue mix of lower-margin digital content services with increased content costs. Gross margin for online advertising was 48.8%, down 2.6 percentage points year-on-year, or up 3.7 percentage points quarter-on-quarter. The year-on-year decrease was mainly due to increased bandwidth and server costs.

Moving onto gross margin. The overall gross margin was 45, 4% <unk>.

So Europe, one nine percentage points, both year on year and quarter on quarter.

Segment gross margin for Bath was 52, 9% <unk> zero bond eight percentage point year on year, and 2.2 percentage points quarter on quarter. The year on year decline was mainly due to lower contribution from privileged subscriptions at PZ gains, which carry relatively higher margins.

<unk> decline was also due to lower revenue contribution from PC games, and higher revenue mix of lower margin digital content services with increased content costs.

Gross margin for online advertising was 48, 8% down two six percentage points year on year or up three seven percentage points quarter on quarter.

Year on year decrease was mainly due to increased bandwidth and server cost sequential increase mainly benefited from mix shift to higher margin owned and operated inventory.

Shek Hon Lo: The sequential increase mainly benefited from a shift to higher-margin owned and operated inventories. Gross margin for fintech and business services was 32%, up 3.1 percentage points year-on-year or stable quarter-on-quarter. The year-on-year increase reflected improvement in gross margin of business services and mixed shares within fintech services on Operating Expense. Selling and marketing expenses were a 10 billion liability, up 29% year-on-year or 17% quarter-on-quarter. Both the year-on-year and quarter-on-quarter increase mainly reflected increased market spending on business services, digital content services, and games, including marketing spend associated with subsidiaries we consolidated over the past year, as a percentage of revenue.

Gross margin for Fintech and business services was 32% up three one percentage points year on year or stable quarter on quarter. The year on year increase reflected improvement in gross margin of the services and mix shifts within Fintech services.

On operating expenses, selling and marketing presence with 10 billion renminbi up 29% year on year or 17% quarter on quarter, both year on year and quarter on quarter increase mainly reflected increased market spending on business emphasis digital contents emphasis and game, including marketing.

And associated with subsidiaries, we consolidated over the past year.

As a percentage of revenues and then expenses plus 7% of revenues broadly stable compared to the second quarter of 2020.

Shek Hon Lo: S&M expenses were 7% of revenues, broadly stable compared to the second quarter of 2020. R&D expenses were $12.8 billion of revenues, up 30% year-on-year or 14% quarter-on-quarter. R&D expenses represented 9% of revenue. G&A expenses excluding R&D were $9.8 billion RMB, up 48% year-on-year or 28% quarter-on-quarter. Both year-on-year and quarter-on-quarter increases reflected retail staff costs. Excluding share-based compensation, it increased by 37% year-on-year or 10% quarter-on-quarter. At quarter end, we had approximately 94,000 employees, up 33% year-on-year or 6% quarter-on-quarter.

R&D expenses were $12.8 billion renminbi up 30% year on year or 14% quarter on quarter.

<unk> expenses represented 9% of revenues.

G&A expenses, excluding R&D were $9.8 billion renminbi up 48% year on year or 28% quarter on quarter, both year on year and quarter on quarter increase reflected greater staff course XT.

<unk> share based compensation increased by 37% year on year or 10% quarter on quarter.

At quarter end, we had approximately 94000 employees up 33% year on year or 6% quarter over quarter.

Shek Hon Lo: Let's take a look at the operating and margin ratios. For the second quarter, the net non-IFRS operating margin was 31%, down 1.8 percentage points year-on-year and 0.6 percentage points quarter-on-quarter. The non-AIDS virus net margin was 25.4%, down 1.8 percentage points year-on-year or largely stable quarter-on-quarter. Finally, I will share some key financial metrics for the quarter. Total capex was $6.9 billion RMB, down 27% year-on-year or 10% quarter-on-quarter, within which operating capex was $5.9 billion RMB, down 29% from the high base in the second quarter of 2020 as we advanced procurement amid the pandemic at that time.

Let's take a look at the operating margin ratios for the second quarter.

Non <unk> operating margin was 31%.

One eight percentage points year on year, and 0.6 percentage point quarter on quarter.

Oh, no virus that margin was 25, 4% down one eight percentage points year on year or largely stable quarter on quarter.

Finally, I'll share some key financial metrics for the quarter.

Those capex was $6.9 billion renminbi down 27% year on year or 10% quarter on quarter within which operating Capex was $5.9 billion renminbi down 29% from the high base in the second quarter of 2020, as we advance procurement and amid the pandemic at that time.

Shek Hon Lo: Non-operating capex decreased 11% year-on-year to 1.1 billion RMB, reflecting lower spending on land use rights and data standards construction. The free cash flow for the quarter was... 17.3 billion renminbi, down 39% year-on-year or 48% quarter-on-quarter. The net debt position was $21 billion RMB compared to net cash of $5.6 billion RMB last quarter, mainly due to a net cash outflow for M&A activities and 2020 dividends of $12.5 billion RMB, partly offset by free cash flow generation. The fair value of our shareholdings in listed investing companies excluding subsidiaries was approximately $1.45 trillion, or $224 billion at the end of the second quarter. Thank you. We shall now open the floor to questions.

Nonoperating Capex increased 11% year on year to $1.1 billion renminbi, reflecting lower spending on land use rights and data center construction.

Free cash flow for the quarter was.

17, 3 billion renminbi downgrade, the 9% year on year or 48% quarter on quarter.

That position was 21 billion renminbi compared to net cash of five 6% in renminbi last quarter, mainly due to a net cash outflow for M&A activities and 2020 dividends of 12 months after the renminbi, partly offset by free cash flow generation.

The fair value of our shareholdings in listed investment companies. Excluding subsidiaries was approximately $1.45 driven revenue.

$224 billion at the end of the second quarter. Thank.

Thank you Michelle I'll now open the floor for questions.

Operator: Operator, we will take one question and up to one follow-up question each time. Please ask the first question.

Operator, we will take one question Q1 follow up question each time.

The first question.

Operator: Thank you. May we ask the first question from Hanjin, sorry, from Alicia?

Thank you we invite the first question from Hanjin, sorry from Alicia Yap from Citigroup. Please go ahead.

Operator: from Alicia Yap from CT Group. Please go ahead.

Alicia Yap: Hi, good evening management. Thanks for taking my questions. My first question is related to advertising. So how should we think about that?

Hi, Good evening management. Thanks for taking my questions. My first question is related to the advertising. So how should we think about these overall AD revenue growth in the second half of this year given their more advertiser adopting the mini program as a landing patrons.

Alicia Yap: Should we think about overall ad revenue growth in the second half of this year, given there are more advertisers adopting the mini program as the landing pages, which will help moments advertising that leads to higher revenue opportunities? But in the meantime, there are regulatory headwinds on limiting these launch screen ads and also overall macro weakness that might lead to some cautious ad spending.

Each will help moments advertising that lead to higher revenue opportunity, but in the meantime, their regulatory headwinds on limiting the launch of screen.

And also overall macro weakness that might lead to some cautious spending so any colors on the near term revenue growth outlook and also the longer term.

Alicia Yap: So any color on the near-term ad revenue growth outlook and also the longer-term ad revenue opportunity given further integrations of these video accounts and moments that you're going to have within your mini program ecosystem? The second question very quickly is, you mentioned that you're deploying more of your technology and expertise to help the SME, the public service, and also enterprises with Tencent Docs and all these cloud-based productivity solutions. How should we think about any complementary service that could evolve and develop around this software that could translate into future business opportunities? Thank you.

Revenue opportunity given a flood of integrations of DCP deal account in moments that you're going to have reading your mini program ecosystem.

Second question very quickly.

You mentioned about deploying Mafia technology and expertise to help the SME the public service in North, Florida, and the enterprises are Wisconsin box or not it's cloud based productivity solution how.

How should we think about beef comment.

A complementary service that could evolve and develop around this software that could translate to future business opportunity. Thank you.

James Gordon Mitchell: So Alicia, on your first question around advertising, I think you summarized the puts and takes fairly well. Taking a long-term strategic view, we're very happy with our position and how it's evolving, particularly in a couple of areas, one being, as you alluded to, the increasing adoption of mini-programs by enterprises within Weixin, which helps us in a number of ways. First, it means that advertising within Weixin has more of a performance component, more akin to a search environment or a marketplace environment rather than a media environment, which is beneficial for advertising activity within Weixin Moments, within Weixin official accounts, and elsewhere.

So it is showing a fast cutting out advertising I think you summarized the puts and takes are fairly well.

<unk>.

Taking a long term strategic view, we're very happy with our position and how it's evolving particularly in a couple of areas.

One being as you related to the increasing adoption of mini programs by enterprises with inflation, which helps us a number of ways first it means that our advertising with emulation as more of a performance component more akin to two such environment or a marketplace environment rather than media room.

Varmint, which is beneficial.

Advertising activity within moments within <unk> efficient accounts and elsewhere and then secondly, the mini programs themselves constitute advertising inventories that we mentioned that.

James Gordon Mitchell: And then secondly, the mini-programs themselves constitute advertising inventory. So we mentioned that the advertising revenue within the mini-programs themselves, which is quite substantial, more than doubled year-on-year during the second quarter. And overall, you can see that our advertising gross margins improved somewhat from the first quarter to the second quarter due to a mixed shift from our lower-margin ad network business toward our higher-margin Weix

The advertising revenue within the mini programs themselves, which is quite substantial more than doubled year on year at doing this.

Second quarter and overall, you can see that our advertising gross margins improved somewhat from the first quarter to the second quarter due to a mix shift from a low in March and AD network business toward our higher margin relation properties. Then secondly from a inventory perspective, we're seeing good growth in video accounts Ah <unk>.

James Gordon Mitchell: Then secondly, from an inventory perspective, we're seeing good growth in video accounts, DAU, and time spent, and that growth has benefited from the addition of high-quality content such as the Olympics in recent weeks. And over the longer term, when we monetize that video inventory, then we know that both the ad loads and the CPMs can be attractive relative to other advertising properties. So those are, you know, two structural drivers over the longer term: the mini-program adoption and the video account inventory creation.

<unk> spent.

And you know that price is benefited from the addition of high quality content such as the Olympics in recent weeks.

And over the longer term when we monetize.

Video accounts inventory.

So the other short video services.

But the AD loads on the CPM can be attractive relative to other advertising properties.

So those two structural drivers over the longer term the mini program adoption in the video accounts inventory creation in the near term.

James Gordon Mitchell: In the near term, you know, our expectation is the overall online ad industry will experience slower growth in the third quarter than in the second quarter, and that is partly because of the full quarter impact of a very sharp reduction in advertising by K-9 after-school tuition services, to a lesser extent, the negative effect on the supply side from the flash screen advertising regulation changes, and then potentially a deceleration in overall consumer activity as well. So that's on the appetizing side.

Our expectation is there for the online AD industry will experience a slower growth in the third quarter in the second quarter.

And that is partly because of the full quarter impact of a very sharp reduction in advertising by our canine after school tuition services.

To a lesser extent.

The negative effect on the supply side from the flash screen advertising regulation changes and then potentially.

Deceleration in overall consumer activity as well.

So that's on the advertising side.

James Gordon Mitchell: Now, in terms of the productivity software side, I think these are services which we don't monetize directly at this point in time, but we believe they carry a lot of value to customers, and over time, they will be valuable commercial products as well. But more immediately, a lot of these solutions, when they are deployed by enterprise customers, actually help us to open the door, and as a result, they can help us to sell our cloud services as well as our app services to these companies. That's the immediate benefit.

Now in terms of the productivity software side I think.

These are.

Our citizens, which we don't monetize directly at this point in time, but we believe the category.

A lot of value to the customers and overtime, they would be valuable commercial products as well.

But more immediately right.

Lot of these solutions when they are.

I've deployed by enterprise customers it actually help us to open the door and as a result can help us to sell our cloud services as well as our App services to these companies.

James Gordon Mitchell: And then over time, if you look at the U.S. market, each one of the products that we have actually got a very successful commercial product in the U.S. For example, Tencent Meeting, the counterpart is Zoom. And if you look at Wecom, it's partly Salesforce, partly Shopify. And Tencent Docs, it's... Google Docs, and Microsoft Office.

The image the immediate benefits and then overtime if you look.

The U S market revenue each one of the product that we have actually has got a very successful commercial.

Commercial product.

In the U S. For example, Tencent meeting kind of pocket zoom.

And if you look at <unk>.

Partners Salesforce coffee shop, five tenths and docks.

Hum.

Political Google Docs, and Microsoft Office, and these services all have their own monetization and business models I think overtime, while we don't charge at this point in time at the time, we may develop value added services and for certain customers, who wanted to use these value added services there will be some kind of a <unk>.

James Gordon Mitchell: And these services all have their own monetization and business models. And I think over time, while we don't charge at this point in time, over time, we may develop value-added services. And for certain customers who want to use these value-added services, there will be some kind of commercial solution. Looking further into the future, these solutions also help to build an ecosystem for SaaS software. So there will be other SaaS software companies who can actually rely on our productivity to provide their services to the enterprise customers, and we can actually derive some value from there as well. So all in all, we believe that at this point in time, it's a very valuable suite of services from a user value perspective. Over time, they would help us to generate commercial value.

<unk> solution.

And.

Looking further into the future. These solutions also helped to build an ecosystem of.

Of our SaaS offering so there will be other SaaS software, who can actually rely on our productivity to end.

And provide their services to.

The enterprise customers and we can actually drive some value from there as well so all in all we believe that at this point in time.

Very valuable suite of service from.

User value perspective over time, they would help us to.

Generate commercial value as well.

Operator, thank you.

Operator: Thank you. Certainly. The next question comes from Hyunjin Kim from Macquarie. Please ask your question.

Certainly our next question comes from Hudson Kim from Macquarie. Please ask your question.

Great. Thank you for your time today management. The first question really goes to kind of there's been a lot of regulatory developments in the market.

Hyungwook Choi: Management. The first question really goes to kind of, there's been a lot of regulatory developments in the market. Are there any in particular that you want to call out as things that might have been different from the way that you were envisioning them a few months or a few quarters ago? And how that might impact our strategic initiatives or priorities and so forth. So if you just kind of call out one or two of them, that'd be great.

Are there any in particular that you would want to call out as things that might have been different from the way that you were envisioning it a few months or few quarters ago.

And how that might impact.

Our strategic initiatives or priorities and so forth. So if you.

Just kind of call out one or two of them that would be great.

That dovetails into my second question, which is around.

Hyungwook Choi: And that dovetails into my second question, which is around professional taxation that I think the industry has been benefiting from over the years. And I think some of your peers in the market have indicated that perhaps some of this professional treatment might be flowing away. So I just wanted to get some impressions of how your conversations with the regulators have been about the idea that you redeploy your capital into investing for the benefit of society and whether you think that's still valid and that the professional tax treatment should remain for us on an ongoing basis. Thank you.

Professional tax, but I think the industry has been benefiting from over the years and I think some of your peers in the market.

The Kid that perhaps some of those perpetual for you it might be slowing to ebb away. So I just wanted to get some impression from how your conversations with the regulators have been about.

Yeah that you redeploy our capital into reinvesting them for the benefit of the subsiding and whether you think thats still valid and that the provincial tax free rent should remain for us.

Ongoing basis. Thank you.

Martin Lau: I think if you want to identify a regulatory action, it's probably sort of around the afterschool children, which is actually a pretty big advertiser group in our advertising across the industry, and we're seeing part of the impact this quarter, impact, full quarter impact, next quarter. And that essentially took away a big. Fire on our platform. The inventory is still there, so over time, we'll be able to fill up the inventory with other advertisers, but you know, there will be an impact initially.

Yeah.

I mean, if you want to identify a reckless.

The regulatory action.

Action, it's probably sort of around the after school tutoring, which is actually impacting our pretty big Advertiser group.

Group on our advertising across industry, and we are seeing part of the impact this quarter and we're gonna be seeing.

The entire impact from Covid impact next quarter.

That essentially took away a big.

Buyer of advertisements.

On our platforms and the inventories are still there so over time, we'll be able to fill it up inventory with them with other advertisers, but there will be an impact.

Martin Lau: So I think that's the most direct impact. But I think there's going to be a lot of questions with respect to regulation. So I might as well just sort of answer the more systemic view. I think that the point we want to make is that, number one, we felt that regulation on the internet is a global trend, and it's not just limited to China. It's actually happening in the US and Europe.

So I think that's the most direct impact, but I think theres going to be a lot of questions with respect to regulation, So I might as well just sort of your answer the more systemic view.

The point, we want to make is that the number one.

We felt that regulation of Internet is a global trend and it's not just limited to China, it's actually happening in the U S and Europe.

Martin Lau: But China, you know, it's a bit ahead in terms of the execution of a more structural regulatory framework. And I think this should be expected because regulation has actually been quite loose over an industry like the internet, considering its size and importance. Now, secondly, I would like to say in terms of the regulators. The regulators are very focused on identifying and rectifying industry misbehaviors and also establishing regulations that emphasize compliance, social responsibility, as well as fair and proper behavior.

China.

In terms of the execution of the more structural.

Regulation framework.

And I think this should be expected because.

Regulation has been actually quite lose over an industry like the internet considering its size and importance.

Now secondly, I would like to say in terms of the regulators.

The regulators are very focused on identifying and rectifying industry Miss a teenage years and also establishing regulations emphasized complains social responsibility as well as fair and proper behavior and we should expect.

Martin Lau: And we should expect in the future, in the near future, more regulation. Thirdly, what are the goals? The goal, from our understanding, is that the government actually wants to foster long-term sustainable development. The government does recognize the importance, on the economic and social sides of the internet industry, and also the contribution of the internet industry to the global economy. So that's why it does want to foster a long-term healthy and prosperous economy.

In the future in the near future more regulation should be coming.

Therapy, what are they go it was ready to go from our understanding is that the government actually wants to foster a long term sustainable development of the Internet industry.

Government does recognize the importance on the economic side and as social side of the Internet industry and also the contribution of the industry to global competitiveness. So that's why it doesn't want to foster a long term healthy environments.

Martin Lau: Fourthly, I would say our attitude during this wave of... reclamation is that we want to embrace this new environment fully, and we want to establish ourselves as fully. And we feel that this is actually going to be good for us and for the entire industry over the long term. And on a relative basis, we feel we are also quite well positioned to embrace the regulatory environment because we have been fully compliant with all regulations.

Fourthly I'd say our attitude during this this wave of.

Regulation is that we.

Want to embrace this new environment fully and we want to establish ourselves as truly a complaint.

And we felt that this is actually going to be good for us and for the entire industry over the long run.

And on a relative basis that we felt we also.

Well positioned to embrace that.

The regulatory environment because.

Martin Lau: This has always been our operating, and our strategy has always been trying to create value for users. And we have always been quite self-restrained in terms of monetization. We have run our platforms so that we establish open platforms to support individual enterprises and entities. And we have also, all along the way, quite emphasized social responsibility and emphasized that we want to use our tech for good.

We have been fully compliant with all regulation and this has always been our operating philosophy.

And our strategy has always been trying to create value for users and we have always been a quite self restraint in terms of monetization.

We have run our platforms. So that we finish open platforms to support individual enterprises entities.

And would've also all along the way quite emphasize social responsibility and emphasized we want to use our tech for good. So given all these factors I would say there will be a short term uncertainties.

Martin Lau: So given all these factors, right, I would say there will be short-term uncertainties, and there are a lot of new regulations that will be coming, but we are pretty confident that we can be completely. And over the long run, it would actually position the industry for healthy growth, and we will be beneficial. In relation to tax, you know. I think the tax repair has been generally reducing over time by implementing more detailed categorization of e-software enterprises. Beforehand, the group had about four to five companies which were qualified for key software enterprises.

Uncertainties and there are a lot of your regulation that will be coming but we are pretty confident that we can be compliant and over the long run it would actually position the industry for healthy growth and we will be a beneficiary of that.

Yeah.

In relation to tax you know.

I think the tax repair has been reducing generally over time by implementing more detailed categorization of key software enterprise.

Beforehand. The group has about four to five companies, which would qualify for key software enterprise for last year, we still had but the number reduced by quite a lot.

Martin Lau: While for last year, we still had, but the number reduced by quite a lot. We only accrued tax at a preferential rate of 1000% when we were sure that we could get it normally in the subsequent year. We also accrued holding tax when we generated profits as opposed to some of our peers which accrued when they needed to remit money. As you can see, the effective tax rate for 2020 was about 11%, and the first half of 2021 was about... 11% as well.

Only accrued taxes prevention of a rate of 10% when we assure that we can get it normally in the subsequent year.

We also accrued withholding tax when we generated profit as opposed to some of our peers, which accrued when they need to remit money.

Martin Lau: We expect that the effective tax rate for the entire year will be a similar level. On the face of it, the tax seems to be very low, taking into account a lot of non-IFRS adjustments, such as non-taxable book profits on deemed disposal or other valuation gains on investment. If we take out all the non-IR virus adjustments that are the noises and withholding tax as well, the effective tax rate would have been approximately low teens for 2020 and mid-teens for 2021. All in all, the total tax rate differential would be around 3%.

As you can see the effective tax rate for 2020 was about 11% in the first half of 2021 was about.

11% as well, we expect that the effective tax rate for the entire year will be a similar level on the face of it.

Seemingly as Randall to Kinsey into account of a lot of non <unk> suggest funds such as non taxable book profit some deemed disposal disposal or other valley way valuation gains on investment.

We took out all of this all of the non I virus adjustment that wiped out our the noises and withholding tax as well your effective tax rate would have been approximately low teens for 2020.

And mid teens for 2021, Oh, you know what the total tax rate differential would be around 3%.

Let's move to the next one.

Operator: Thank you. Our next question comes from Gary Yu from Morgenstern.

Thank you. The next question comes from Gary You from Morgan Stanley. Please ask your question.

Operator: Morgan Stanley. Please ask a question.

Gary Yu: Hi, thank you for the opportunity to ask questions. I have one follow-up on regulation. I appreciate the fact that, you know, management has been proactive in kind of talking to the regulator and self-regulating some of the practices in the market. Based on our conversation with the regulator, do we see the risk of more kind of drastic measures that the regulator may impose on the gaming industry? So, for example, when we try to limit, you know, restriction on time for minors or below 12, is there any discussion about, you know, teenagers above 18 years old in terms of, you know, time spent on games? So that's my question about regulation. Thank you.

Alright, Thank you for the opportunity to ask questions I have.

One follow up on regulation.

I appreciate the fact that management has been proactive in kind of talking to directly later and south directly some of the practices in the market.

Based on the competition with Iraq later do we see the result, more kind of drastic measures that the regulator may impose on the gaming industry. So for example, when we try to limit restriction on time for minors below 12.

Any discussion on teenagers about 18 years old in terms of.

Time spent on games.

My question on regulation. Thank you.

Yeah.

Martin Lau: On games, I think that the key issue at this point in time is still the amount of time and the amount of money that miners spend on games. And this is an area that we are very focused on. And as a result, as you can see in our latest pronouncements, we have put in a number of different measures that James has already talked about.

Games I think that the key issue at this point in time is to.

The amount of time and empty amount of money that are miners spend point games and this is an area that we are very focused on and as a result, as you can see it in our latest pronouncements.

Pronouncements, we have put in a number of different measures that James has already talked about but there is one issue, which I think we are proactively taking.

Martin Lau: But there is one issue which I think we proactively need to address, up to the regulators, which is about the total amount of time and money that miners spend on games. Because right now, I think a lot of the regulations are actually around each game. But if you look across the industry, and most people are, when they have concerns, they're concerned over miners spending too much time on games as a category.

Go to the <unk>.

Regulators, which is about the total amount of time and money that minor spend on games because right now I think a lot of the recognitions and actually around each game, but if you look at across the industry.

And most of the people are.

When they have concerns they're concerned over minor spending too much time on games as a category. So.

If we can actually find a way to regulate our.

The total amount of time.

Spend across different games.

That would address the problem and it actually require it's a complicated issue of requiring a consensus of the regulator and as long as the industry.

Martin Lau: So if we can actually find a way to regulate the total amount of time that's been across different games, that would address the problem. It actually requires, it's a complicated issue requiring, consensus of the regulator as well as the industry. Regulation, and also requires a system to police it. But from the practicality perspective, it's actually doable. So this is one thing that we felt we would want to take out to the industry and the regulator. And if that can be achieved, then I think, you know, most of the criticism of the gaming industry will be.

Acquired or.

Regulation and also requires the system to produce it.

But.

From the practicality perspective is actually doable. So this is one thing that we felt we would want to to go to the industry and the regulator to discuss and if that can be achieved.

Most of the criticism on the gaming industry it will be resolved.

Yeah.

Operator: Thank you. Our next question comes from Robin Zhu from Bernstein. Please ask a question.

Thank you. Our next question comes from Robin Zhu from Bernstein. Please ask your question.

Robin Zhu: Thanks, management. Thanks for the opportunity to ask a question. I have a couple of questions, please. The first one is, there have been a lot of reports about the opening up of ecosystems between yourselves and peers in the industry. Can management just talk a little bit about, you know, the impacts, or, first of all, whether this is happening, whether there's a timeline for it to happen, and subsequently the likely impact that you think will happen for Tencent's business, or the opportunities that might open up.

Thanks management.

Thanks for the opportunity to ask a question.

A couple of questions. Please the first one is there's been a lot of reports about the opening up of ecosystem was between yourselves and peers in the industry can management talk a little bit about.

The impacts or first of all.

Whether business happening, whether if there's a timeline for example.

Subsequently the likely impact when you go out to them.

Or the <unk> business, what are the opportunities what might open.

Robin Zhu: The other one is that, you know, just to focus on video accounts, I think James mentioned that PAUs and time spent have been going up. Could you just share some thoughts on the monetization strategy here? You know, at what point in the development of video accounts do you think the prerequisites for monetization of video accounts to happen? Where are you on content depth and creative depth, and so on? Thank you.

The other one.

As you know.

Just to focus on video accounts I think James mentioned.

He was in time spent.

Then going out.

Could you just share some thoughts on the monetization strategy here.

At what point in the development of video accounts or where are the prerequisites for monetization of video accounts to help them where are you on.

Content wins.

So thank you.

Martin Lau: Yeah, in terms of the ecosystem, I think, you know, our ecosystem is fundamentally open, and the priority of our ecosystem is actually helping the smaller companies, and SMEs, and brands, and merchants to be successful. Now, if you look at our ecosystem right now, it's fundamentally open; links are not blocked; no links are blocked. Users can always copy and paste. However, some links are not particularly enhanced with rich presentation.

Yeah in terms of the ecosystem I think our ecosystem is fundamentally open and the priority of our ecosystem is actually helping smaller.

Companies and Smes.

<unk> brands and merchants to be successful now if you look at our our ecosystem. It's fundamentally open links are not.

Most things are blocked users can always copy and paste.

Some things are not particularly enhanced with rich presentation.

And.

Martin Lau: And why is that the case, right? You know, the ecosystem, if you look at our Waysian ecosystem, is really built on the principle that it allows individuals, SMEs, brands, and merchants to engage with their users directly and in unfettered ways. When... And we have actually always upheld that principle, and we have built a lot of different tools, and we've put in place a lot of guidelines and rules of operation in order to support the vision. Now, when platforms actually interact with platforms, different questions arise. It becomes becomes much more complicated.

Why is that the case right now the ecosystem. If you look at our <unk> ecosystem is really built on the principle that it allows individuals Smes brands and merchants to engage with their users directly and an unfettered way.

When.

And we have actually always uphold that principle and deal with a lot of different tools and.

They put in a lot of guidelines and rules of operation in order to support the vision now when when platforms actually interact with platforms.

<unk> questions arose it become much more complicated.

Martin Lau: Platforms do not offer individual services. They actually have got a lot of other merchants behind them. In some cases, there are millions or tens of millions of merchants behind these very large and dominant platforms, and their rules are very different from ours. So that actually raises a lot of complicated questions, such as will users be spammed, especially when other platforms with a lot of resources can offer subsidies? How do we deal with counterfeits and content piracy?

Platforms do not offer individual services, they actually sort of you have got a lot of other.

Merchants don't put behind them right you know a lot of cases in some cases, there are millions or tens of millions of merchants behind these very large and dominant platforms.

And the platform rules are very different from ours.

So that actually raised a lot of complicated questions such as Uber users spend, especially when other platforms.

With a lot of.

Resources can offer subsidies.

How do we deal with accounting for fees and a.

Content piracy.

Martin Lau: How do we deal with commercial policies that are completely different? For example, we don't charge anything great for our merchants and brands, but other platforms do. So how do we reconcile?

How do we deal with commercial policies, which are completely different for example, we don't charge any take rate on our merchants.

So the brands did with other platforms, how do we reconcile that so we felt these are very complicated questions and needs to be discussed and resolved over time, and it's really not the most important priority for our vision.

Martin Lau: So we felt these were very complicated questions and needed to be discussed and resolved over time. And it's really not the most important priority for our vision. And if these questions are not handled well, then it will be bad for our users. It will be bad for the brands and merchants on our platforms. So we want to handle these questions in a very cautious way.

And if these questions and not handled well then it would be bad for all users it will be bad for the brands and merchants.

On our platforms. So we want to handle these questions in a very cautious way.

Martin Lau: Now, in terms of video accounts, I would say video accounts have been growing quite nicely and are healthy in terms of DAU and time spent per DAU, as well as the number of content contributors. The Olympics content was also positive for video accounts. Right now, we are very focused on increasing content, improving the content ecosystem, including increasing high-quality content as well as enhancing our core capabilities such as our recommendation engine.

Now in terms of video accounts.

I would say video accounts has been growing quite nicely and healthy in terms of <unk> and time spent for <unk> as well as the number of content contributors.

Olympics content with also a positive for video accounts right now, we're very focused on increasing the content improved content ecosystem, including increasing the high quality content as well as enhancing our core capabilities such as our recommendation engine monetization is not a.

Martin Lau: Monetization is not a focus for now. We know that at some point in time there will be monetization because the monetization mechanism is actually well established in that industry, but for now, our focus is not on monetization.

Focusing now we know that at some point in time, there will be amount of inflation because of monetization mechanism is actually well established in that industry, but for now.

Our focus is not on monetization.

Operator: Thank you. As a reminder, ladies and gentlemen, to ask a question, please press star one on your telephone. And the next question comes from John Choi from Daiwa Capital Markets. Please ask a question.

Thank you as a reminder, ladies and gentlemen to ask a question. Please press star one on your telephone. Our next question comes from John Choi from Daiwa capital markets. Please ask your question.

Hyungwook Choi: Good evening, management. Thank you for taking my question.

Good evening management and thank you for taking my question.

Hyungwook Choi: I have a question on your online games and then another follow-up on the regulation. So on online games, I think you guys mentioned earlier that the Chinese market was about 8%. I understand last year was also a pretty high base, but you know as we go into the second half of this year with the more tighter regulatory environment targeting minors, now how should we think about the future of gaming?

<unk> on your online games and then another follow up on the regulation. So online games I think you guys mentioned earlier that in the China market was about 8% I understand last year was also a pretty high base, but you know as we go into the second half this year with the more tighter regulatory environment pardon me in the minors now.

How should we think about the gaming growth, particularly for the domestic market.

Yeah.

I do understand that we do have a few games in the pipeline, but it seems like the pipeline could be a bit more softer.

And you're on the delays and a quick follow up on the regulatory front I think you know Martin you mentioned that while you guys are.

Complying more rigorous regulation would this have somewhat impact on how we execute our business, meaning that should be seeing a more of a slower business growth opportunities.

Hyungwook Choi: [inaudible]

Within your different businesses.

I was trying to comply to their new regulatory standards.

James Gordon Mitchell: Thank you. John, so on your first question around our game business outlook, we did quantify the impact of not generating revenue from users aged 12 years old and under, which is 0.3% of our Chinese game revenue and, therefore, a smaller percentage of our aggregate game revenue in China. And then, you know, outside China, we have what we think is also a fairly healthy, robust game pipeline. And we've seen success recently, really for the first time in Japan and Korea, with our tactical RPG. We're seeing good traction, again, RWB for the first time with a console-first game. Pokemon Unite!

John So on your first question around our game business outlook then yes.

Yes, we did quantify the impact if not generating revenue from users, aged 12 years old and longevity, which is up in a 0.3% of our China game revenue and therefore, it's more of a sense Joe.

Aggregate game revenue and then on the positive side I think you made some comments about our soft game pipeline, which you know is not a perception or actually quite well.

Positive excited about our game pipeline.

Within China, and then without China outside China.

We have what we think is also a steady healthy robust game pipeline.

Seen some success recently are you ready for the <unk>.

First time in Japan, and Korea, with our tactical RPG.

Seeing good traction again, it can be for the first time with a console first game in the form of Pokemon unite.

Martin Lau: So I think it's an uncertain environment, there are lots of moving pieces, but overall, we believe we have a very high-quality game pipeline both inside China and internationally. In terms of regulations, I would say there will definitely be short-term adjustments that are needed for the different businesses. But on the other hand, the long-term strategy, I think, you know, for us is actually very, We have always executed our strategy around creating services that have user value, that help businesses and industries, and they also create social value. And in that process, we invest in these services, and we monetize them in a very self-restrained way. And I think, you know, that strategy will continue.

So I think it's an uncertain environment, there's lots of moving pieces, but overall.

We believe we have a very.

High quality game pipeline.

Inside China and internationally.

In terms of regulation is I would say it would definitely be a short term adjustments that are needed for the different businesses, but on the other hand, the long term strategy I think for us is actually very intact.

We have always.

Execute our strategy around creating services that pass user value that help businesses and industries.

And then also create social value and in that process, we invest in DS services, we monetize in a very south we screened way.

I didn't know what that strategy will continue.

Yeah.

Operator: Thank you. Our next question comes from Alex Yao from J.P. Morgan. Please ask a question. Thank you, management, for taking...

Thank you next question comes from Alex Yao from Jpmorgan. Please ask your question.

Thank you management for taking my question.

First question is long term prime national impact from increasingly more sociable responsible you used to take social responsibilities.

Alex C. Yao: Financial Impact from Increasingly More Social Response Initiatives to Take

This quarter, you guys announced.

Alex C. Yao: to Social Responsibility. Number one is the suspension of minor monetization for people under 12 years old. And then, number two is that you will charge a very low to zero payment take rate for some cases. As you take on more and more of those social responsibilities

Two more initiatives.

Number one is the suspension of a minor one transitioning people under 12 years old and then number two the AR.

You charge, a very low to zero payment take rate for.

Some cases, a few take home more and more and more.

Alex C. Yao: How should we think about the impact on your long-term margin structure? And then, secondly, I have a follow-up on Martin's comments around more regulation coming to the market. Can you share with us your thoughts on the direction and the areas of future regulatory direction?

So how should we think about the impact on your long term margin structure.

And then kind of a.

I have a follow up mountains, a comment around more revenue.

No you shouldn't coming to the market can you share with us your thoughts on the directions in the.

Future revenue direction or are you expecting to see more.

Alex C. Yao: As you expect

Alex C. Yao: to see more regulatory measures.

Alex C. Yao: Revolutionary managers. Thank you.

Regulatory measures. Thank you.

Martin Lau: Well, on the last question, we have already provided the framework. I think it will be coming from all different regulatory entities, as well as from different segments of the industries, and we think that there will be quite a few coming up. So I think, you know, we can't provide a clinical analysis of that until they come out. Now, in terms of the impact on our businesses, I think, you know, if you look at the under-12s, it's only 0.3% of our total revenues, so it's actually sort of, you know, very little.

Yes.

Well on the last question.

Have already provided the framework I think it would be coming from all different us.

Regulator entities as well as on different.

Segments of industries.

And.

We think that there will be a quite a few coming out.

So I cant.

Can't provide a clinical.

Analysis of that until they come out now in terms of the.

The impact on our businesses. If you look at the under 12 years is only <unk>, 3% of our total revenue. So it's actually sort of no very little in terms of our.

Martin Lau: In terms of our SME benefits, by and large, it would slow down the growth of revenue, but I think, you know, it would be well within that scope. In terms of longer-term impact, I would say our margin profile has always been driven by our overall strategy of a combination of different components. One is monetization of profitable businesses, which usually monetization from our side is actually a restraint. And then we will have free services, which could be monetized over time.

<unk>.

Benefits.

But by and large it would slow down the growth of our revenue, but I think it would be well within that scope.

In terms of longer term impact I would say our margin.

Profile has always driven by our overall strategy of a combination of different components. One is monetization of its.

Profit, both businesses, which usually the monetization from our side is actually a restrained.

And then.

We will have a free services, which could be monetize over time and then we also have loss making businesses.

Martin Lau: And then we also have loss-making businesses, which are actually quite significant, but, you know, they would actually, over time, hopefully, narrow losses and, over time, be able to generate some profit. And this overall strategic mix has actually been quite consistent over the past many years, and we intend to keep this strategy stable, which means that our earnings profile, I would say, over time would continue to be relatively stable, although there will be some short-term fluctuations.

Which by now actually quite significant.

Actually over time, hopefully narrow losses and over time be able to generate some profit.

And.

This overall.

<unk> strategic mix.

It's been actually a bin.

Quite consistent over the past many years and we intend to keep this strategy stable, which means that our earnings profile I would say over time with continued to be rather stable, although there will be some short term fluctuations.

Martin Lau: Now, in terms of the SSB investment, right, you know, of $50 billion, it will be, again, funded from a non-IFRS profit, which we actually sort of, you know, have a pretty big Oh, IFRS. So it would not impact our IFRS.

Now in terms of the SSB investment right.

50 billion it will be again.

I want to emphasize that funded from our non <unk> profit and which we actually sort of have a pretty big pool.

Okay.

Profit pool.

So it would not impact our non I O S a profit.

Yes.

Operator: All right, the next question comes from Natalie Wu from Hightown International. Please ask your questions.

Alright next question comes from Natalie <unk> from Hi, Tal International Please ask your question.

Hi, good evening, Thanks for taking my question.

Natalie Wu: Hi, good evening. Thanks for taking my question. Just wondering, actually, your FDF Financial Business Services line actually grew very fast this quarter. Just wondering how much of the growth is led by commercial payment, and how much is led by the cloud. And also, just wondering if the growth margin profile of the cloud is similar to the FinTech business. Thank you. So on your

Sure Gary actually your.

Financial business premises line actually grew by Bob.

Uh huh.

Wondering how much or how much of the calls being flat by I can make a payment and how much is that by the end.

Uh huh.

<unk> Chan.

Fly Alright and also.

Just wondering if that gross margin profile of cloud.

With that.

Thank you.

James Gordon Mitchell: So on your question, Natalie, then both the commercial payment and the cloud were the two primary contributors to the growth. Within the cloud, we saw very rapid, very substantially above market growth in infrastructure as a service, and then more rapid growth in platform as a service and software as a service. And that translated into the margin, where, as John mentioned, the gross margin for cloud improved year on year. But that's not because we're at the stage of focusing on margin optimization yet.

So on your question Natalie then.

Commercial payments and cloud whether.

But the two primary contributors to the growth within cloud we saw very rapid.

Quite substantially above market growth infrastructure as a service and then more rapid growth.

That's almost a service and software as a service.

And that translated into the margin.

As John mentioned, the gross margin for cloud.

<unk> year on year, that's not because we're at the stage of focusing on our margin optimization, yet rather it's because that was a gentle mixed shift from infrastructure as a service towards a platform as a service and software as a service so.

James Gordon Mitchell: Rather, it's because there was a gentle mixed shift from infrastructure as a service toward platform as a service and software as a service. So we're still focused on maximizing client penetration and growing our market share and helping industries digitize rather than on profitability, but the gross profit margin did improve, notably year-on-year for business services because of the mixed shift to PaaS and SaaS.

[noise] stone.

Maximizing our client penetration and growing our market share and helping industries digitize rather than on profitability at the gross profit margin did improve noted the year on year for business services because of the mix shift too.

Paas SaaS.

[noise].

Operator: Thank you. The next question comes from Garrett Wang.

Thank you. Our next question comes from Garik <unk> from Citic Securities. Please go ahead.

Operator: Program Security. Please go ahead.

Yeah.

Garrett Wang: Hello, management team. In the first half year, I noticed that there was some reorganization of our management team. Some managers from IEG and PCG are now leading China Literature, TME, QQ, and some other business departments. It seems that we are focusing more on the content field. Can the management team work out the main strategy and the purpose of the human resource reorganization?

Oh.

Well among the team in the past.

Yes, I noticed with some of the ultimate edition of our mines.

The management team.

The magnitude from I E.

She is now leading China Richard Yes.

Some other.

Martin Lau: Besides, as internet traffic is reaching its upper limit, under this background, what is the priority of our content investment? And can you give us some hints about our layout on the Quanzhen Hunan Wang or Metaverse? Thank you. Thank you for the questions, Garrett. So on your second question, you know, the metaverse is a topic of great interest to us, albeit on a longer term rather than an immediate opportunity. And, you know, we believe there are a number of potential pathways to the metaverse, including, you know, very popular existing games that are highly social in nature, new games that are yet to be created, as well as existing social networks that, on more metaverse-like progress of the over... We also think that there are certain skill sets or attributes that are highly beneficial to come into and provide a metaverse environment, including experience of handling. Unknown Speaker 001

Business Department.

Instead, we are focusing more on the content of the field.

As a management team work outgrew demand strategy on our purpose.

Humongous throughout the organization.

Right.

And then that traffic is the return opportunity.

Although this back wrong, what is the priority of all the content investment and can you give us some hints of our layout on the change in Oklahoma or multi Bruce Thank you.

Yes. Thank you for your questions Gary So on your second question and it's a matter of us as a topic of great interest to us, albeit a longer time, rather than the immediate opportunity.

We believe that it's a number of potential pathway to them out of us including.

Our popular existing games that are highly social in nature, new games that are yet to be created as well as existing social networks that can become more met of us like progressively over time.

We also think that that's scaling.

The scale of SAP, so attributes that will be highly beneficial to companies seeking to provide a metaverse environments, including experience of handling huge numbers of users interacting with each other which as you know tend to communications and social networking.

Martin Lau: Thank you. Unknown Speaker 002, including managing a digital economy, online games, and then also including the ability to take Physical World assets such as human faces, buildings, or mountains and, in a digitized domain, populate the metaverse with people and with objects, and we're pursuing all of those paths. We're one of only a handful of companies globally that have all of those. Social Networking. Managing Online Gains. Thank you. Thank you. Take Real World. So that's the second question. In terms of your first question, it is, and just a few to observe.

<unk> managing digital economies between users, which is akin to online games, and then also including the ability to.

Take a physical assets, such as human faces or buildings or mountains, and digitize them in order to chat to populate in a minute.

US with with people and with objects, so at a high speed and with.

Pursuing all of those hubs and we believe that we all want is really a handful of companies globally that have all those capabilities in terms of the.

Actual network expertise in terms of experience managing online games and in terms of the ability to take a real world assets and digitize them. So it's a matter of us purposes. So that's on the second question in terms of your first question. It is an interesting and just stood observation.

Martin Lau: And I think your conclusion is correct that we are looking for opportunities to continually re-enact the past, you know, upstream content presence, whether that's Digital Literature, whether that's in video. And we also believe that there are increasing opportunities for synergy between the different media formats. We see that very clearly from the facts when we released the drama based on Honor of Kings, that actually contributes to the popularity of the underlying owner of King's Game. Different media interpretations of the same underlying IP, which, if they're high quality, will self-report.

And I think Youll confusion is correct.

We are looking for.

For opportunities to continually reinforce upstream content presence, whether that's in <unk>.

Digital literature.

That's in video and film and television series, whether that's seen in cartoons comics and so forth.

And we also believe that there's increasing opportunities for synergies.

Between the different media formats in China, and you can see that very clearly from the fact that when we release.

When we released the drama series based on RF Kings then.

That actually accretive pop it out.

Underlying honour of Kings the game and so you can have a different media interpretations of the same underlying IP, which if that high quality well.

Martin Lau: You can also find us on Facebook at www.facebook.com.au or on Twitter at www.twitter.com.au. Facto, now seeding a wide range of animators, Mobile Games, and so forth, and with each iteration, and ROTC FBI. So, you know, that's a very healthy trend; by moving within, and by ensuring that what have historically been more platform-centric products, you're in a very good position.

Self reinforce each other you can also see it in the fact that one of them.

Literatures Ah Ips that up.

Not all of them.

It is now ceding a wide range of.

Animated series.

Drama series.

Mobile games, and so forth and with each iteration.

Popularity of the IP risk.

Respect for the IP and the market appears to deepening.

And so you know that that's a very healthy trend and we think that by moving people within our sort of content centric groups and by ensuring that what have you start keeping more platform centric products become increasingly mindful of the opportunities around content than we were in a very good position to.

And it really helped drive that change in China.

Okay.

Operator: The next question comes from William Packer from Exxon Mobil, BNP Paribas. Please go ahead.

Our next question comes from William Packer from Exane BNP Paribas. Please go ahead.

William Henry Packer: Hi Management, many thanks for taking my questions. Firstly, now you've further developed your reinvestment plans, could you perhaps, which you communicated last quarter, provide more details on the scale of investment you're planning for 2021, perhaps narrowing the range of guidance of zero to 22% non-GAAP EPS growth? And then, secondly, I wondered if you had any thoughts to share on 2022 in the context of both reinvestment plans and regulatory factors. Can you return to trend profit growth, or is that too soon? Thank you.

Hi management, Thanks for taking my questions.

Firstly I'm now you've developed.

Developed your reinvestment plans.

Could you, perhaps we can communicate to the law school, which grew five.

More details on the scale of investment you're planning for 2021, perhaps a narrowing of the range of guidance of zero to 22% non-GAAP EPS growth.

Then secondly, I wonder if you have any thoughts to share on 2022 in the context of both reinvestment plans and regulatory factors.

The trend profit growth, where you've got too soon thank you.

James Gordon Mitchell: So, William, unfortunately, we typically don't provide guidance, and, you know, we did so last quarter as a means of signaling that there could be a... [inaudible] What's more important is really measuring whether we are or are not delivering on those reinvestments, meaning that, from our perspective, when we look at our enterprise initiatives, the fact that our business services revenue growth accelerated so sharply, the fact that we For our investments in game studios and game content, the fact that our international game revenue growth grew 37% year-on-year, the fact that we're for the first time successfully penetrating the Nintendo Switch opportunity, the first time moving into the Japanese market, gives us a degree of confidence we're moving in the right directions for games.

So.

Guidance and we did so last quarter as a means of sickening that that could be.

A deceleration in growth because of the Reinvestments in a in a short video and in our game business and in enterprise.

At this point in time.

I think well.

What's more important is ready to.

Measure, whether we are or are not delivering on those reinvestments, meaning that from our perspective, let me look at our enterprise initiatives. The fact that our business services revenue growth accelerated so sharply. The fact that we're seeing very strong user growth 10 dogs and so we comment for Tencent meeting.

Can you give us a degree of confidence that we're moving in the right direction.

Our investments in game studios and game content. The fact, it up international game revenue grew 37% year on year to fact that we have for the first time successfully penetrating Nintendo switch opportunity. The first time and moving into the Japanese market give us a degree of confidence we're moving into right direction for games and then.

James Gordon Mitchell: And then for short video, the increases in BAU and time spent on the innovation video accounts, we believe signal that we're moving in the right direction. So, you know, in terms of where that shakes out from a bottom-line perspective in the next two quarters or the next six quarters, there's a huge number of moving parts. Some of them are within our control. Some of them are outside our control.

The short video the increases in <unk> and time spent on the elation video accounts, we believe signals that we're moving in the right direction. So.

In terms of.

Where that shakes out.

Bottom line perspective in the next two quarters or the next six quarters. That's a huge number of moving parts. Some of them are within our control some of them are.

Outside our control, but we're less focused on the short term roofing parts and we're more focused on what are the businesses. We are building at 510 years from now.

James Gordon Mitchell: But, you know, we're less focused on those short-term moving parts, and we're more focused on, you know, what are the businesses we are building, 5, 10 years from now. And, you know, we firmly believe that if you look at our enterprise software suite, we have the products of the analogs of, you know, Zoom and Shopify and, arguably, Microsoft Office in China, which is a very good place to be.

We firmly believe that if you don't cut up enterprise software suite and it would be half the products for the analog stuff.

Zoom and Shopify and arguably Microsoft office in China, which is a very good place to be.

<unk> accounts.

James Gordon Mitchell: If you look at our video accounts, you know, we have an opportunity to drive, you know, longer-term advertising revenue growth at a substantial scale. If you look at our game business, we have the opportunity to aggressively reposition this from a primarily China-centric business to a truly global business and, therefore, more than triple our addressable market for the game business group. So that's our focus, really, around that, you know, longer-term opportunity rather than, you know, optimizing for the next two or six quarters.

Has an opportunity to drive a.

Longer term advertising revenue growth substantial scale. If you look at our game business, we have the opportunity to aggressively reposition deaths from a primarily China centric business to a truly global business and therefore more than tripled our addressable market for the game business groups. So that's our focus is really around that.

Longer term opportunity rather than optimizing for the next six quarters.

Operator: Great. Thank you. Our next question comes from Eddie Leung from Bank of America, Merrill Lynch.

Great. Thank you. Our next question comes from Eddie Leung from Bank of America Merrill Lynch. Please go ahead.

Operator: Thank you very much. Please go ahead.

Unknown Executive: Good evening. Thank you for taking my questions. The first question is a follow-up question on advertising and regulation. We have read from various media that there could be tightening of data connection and data privacy policies. So, just wondering what could be the potential impact on the different marketing solutions under your platform? Should we expect certain marketing solutions to have a less impact than others?

Good evening, Thank you for taking my questions.

The first question as a follow up question on advertising on regulation.

Have a rat failures from various media that thought there could be tightening did not data collection and data privacy.

So just wondering what could be the potential impact on the different marketing solutions.

Should we expect a surge of marketing solutions to have a lesser impact.

Unknown Executive: And then secondly, a follow-up question on James. You just mentioned, for example, some of the overseas game opportunities. So I was wondering when we expand our presence in overseas, especially game development, are we going to focus on mobile games, and how much are we actually looking at, as you mentioned, console games and other opportunities such as PC games? We also noticed that you just established a couple of studios in the U.S., so it's kind of along that line. Thanks. Yeah, thank you.

And Argos and then secondly, a follow up question on <unk> you just mentioned about for example, some of the overseas game opportunities. So just wondering when we expand our presence in overseas.

Especially parliament.

We're going to focus on mobile games and how much we are actually looking at as you mentioned right console games and other opportunities such as our PC games. We also youll notice that you chose that established a couple of our studios in the U S. So this is kind of like along that line. Thanks.

James Gordon Mitchell: So, you know, on your first question about data, production, and targeting advertising, and I think we've always been well-known in the industry for being very thoughtful and judicious about the extent of Targeting.

Okay.

Yeah. Thank you. So on your first question about data collection.

Collection in and using data to target advertising and I think we've always been.

Well known in the industry for being very thoughtful and judicious about the extent to which we use.

Consumer data for.

Targeting purposes.

James Gordon Mitchell: You know, I won't go into all of the details here, but... and I think at a high level, you know, our response. There could be fairly substantial changes in terms of the regulation, for the... nearly as aggressive as our Western peers or some of our local peers in terms of the granularity and the specificity of the ad targeting that we employ. So that's the first question. The end, focused on mobile games. Well, that's my opinion.

I won't go into the details here, but.

I think at a high level, our assumption is that that.

Could be fairly.

Substantial changes in terms of the regulations around the use of data for advertising targeting purposes.

Before that would have any mean.

Negative impacts on us simply because we have not been.

And in nearly as aggressive as you know our western peers or some of the local peers in terms of the granularity and the specificity of the AD targeting.

That we employed relative to that.

Use of data that we would potentially have access to so that's on the first question on the second question.

I think it was specifically around weather.

Focused on mobile games globally, or on PC and console games as well as mobile and the answer is the last year I think if you look at one of our biggest international game success in the last year as its riot games about Orange, which is a PC first game.

James Gordon Mitchell: You know, the answer is the latter, and one of our biggest international... [inaudible] Pulling back a little bit, then, you know, in years gone by, required, effectively, the tripling of headcounts and the tripling of..., as well as mobile at the same time, but that's less and less the case for a few reasons. Architecture of PC, Xbox, and PlayStation is increasingly converging. Mobile, the architecture of mobile and switch.

Big game successes last quarter.

Pokemon unite which is in Nintendo switch console game, you know pulling back a little bit then I think that in years gone by it would have.

Required.

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Tripling of head counts and a tripling of effort in order to address PC and console as well as mobile at the same time, but that's decreasing either case for a few reasons one is that the architecture.

And a PC Xbox and Playstation is increasingly convert changed around X 86, and Meanwhile, the architecture of mobile and switch it is increasingly come much into around.

Chipset design and as a result studios like <unk> have been very much mobile first find it easier to port to switch it would've been the case, when mobile and Nintendo architectural side of our part.

James Gordon Mitchell: Now, as a result, you know, studios like and Mobile Firms. And then, secondly, there's a profusion of software tools, including our investor Epic's Unreal Engine, that simplify the process of development. And thirdly, within Tencent, we've made a number of investments, worked for what would historically work for higher studios, a number of specializations, but one of the specializations was helping a great deal, so I think for all of those.

And then secondly, as a profusion of software tools, including our <unk> engine to simplify the process of developing for multiple platforms simultaneously and thirdly within Tencent, we've made a number of investments often acquisitions of.

Well what were historically, what's the highest studios outside China with a number of specializations, but one of the specializations was helping a great game on PC become a great game on console MAU bottle vice versa. So I think for all those reasons.

Yeah, addressing a PC console and mobile together.

Nationally and will be increasingly doing so going forward.

Yeah.

Operator: Thank you. Our next question comes from.

Thank you our next question comes from.

Operator: Thomas Chong from Jeffreys said, " Please go ahead.

Thomas Chong from Jefferies. Please go ahead.

Thomas Chong: Hi, good evening. Thanks, management, for taking my questions. My first question is about the online video landscape. I just want to get a sense about the regulatory environment for long-form video. Are we seeing that it's relaxing, and should we expect more long-form drama series and variety shows to come out in the second half?

Hi, Good evening, Thanks management for taking my questions. My first question is about the online video landscape.

Just wanted to get a sense about the regulatory environment in long form video.

Seeing that is a relaxing and we should expect more long haul Thomas UBS I'm a variety shows to come.

Thomas Chong: And my second question is about, just follow up on the previous questions on the international gaming side. Given that we have seen quite a very strong growth momentum in international games, I just want to get a sense about our strategies going forward. Should we expect it more to be driven by in-house development or M&A? And on that front, can management give us some color about the international gaming revenue contribution in Q2, as well as the long-term TPI? Thank you.

In the second half.

And my second question is.

Just a follow up on the <unk>.

Question is on the international gaming side, given that we have seen very strong growth momentum in international games, well definitely look at our statements about our strategies going forward should we expect is more could be driven by in house development.

Oh, M&A and that's the ones on can management give us some color about the international gaming revenue contribution in Q2 as well as the long term okay. Thank you.

James Gordon Mitchell: So why don't I address the international games question? You know, we actually disclosed the international game revenue for 2Q, and you can back it up. And we also disclosed that the revenue grew. In terms of the strategy, then, you know, I think it's very, in China, because of the QQ and WeChat distribution platforms, with a historic focus on both distribution and content creation, although increasingly shifting. Transcripts provided by Transcription Outsourcing, LLC. In terms of where the revenue and where the growth are coming from, then... and primarily Supplemented Periodic Table.

So why don't I address the international games question, we actually disclosed.

International game revenue for <unk>, when you come back out of <unk>.

I think 25% of games segment revenue.

And we also disclosed that the revenue grew 37% year on year in constant currency terms in terms of the strategy. Then I think it's very much a content strategy in China, because it's QQ inflation distribution platforms with historically.

Focus on.

Both distribution and content creation or they are increasingly shifting to content creation over time versus outside China.

It's much more purely content driven.

In terms of where the revenue and why the growth is coming from Ben it's primarily existing studio.

Supplemented periodically.

Acquisitions that we think.

Fit a particular hold or bring us a new technology capability. We previously locked so looking at our international game revenue in the second quarter then.

James Gordon Mitchell: [inaudible] at our international game where I have for you a second. [inaudible] Games that we created. [inaudible] Studios, such as, you know, Raya, and then smaller ones outside China that are at more of an incubation stage or have released one big project. So that's as far as, and with regard to, online video. But I think the, As you're probably aware, in the first... already this summer. On the flip side, I think that there's been some issues with variety shows, and therefore, there's some dislocation in the variety. You're probably aware that, historically, variety shows tend to monetize primarily through advertising versus drama series which monetize primarily through subscriptions.

Got it.

One big piece is games that we create in China, such as Pepsi.

T mobile such as Arena Roca, Honda and we export to the rest of the world.

Our second big piece relatively similar in size is games created by our outside China, but by some of our success.

Successfully Investees studios outside China, such as you know Ryan with league of legends about events, such as supercell with clash of clans Clash Royale stars.

And then a smaller component is other.

The studios outside China that are at a more of a an incubation stage or you know have really.

One big gain previously in an outcome on that second game.

So that's as far as international games are concerned I think with regard to online video Martin May supplement me, but I think that.

As you're probably aware in the first half of this year. There was some content constraints related to the Chennai to first celebration.

And so it's possible that there may be more drama series of hearing.

Experienced more successful drama series, we're ready to summer.

Flip side I think there's been some issues with a variety shows and therefore theres some dislocation to the variety show.

Hum.

Output in the second half of the year, you'll probably be aware that historically for rashi shows tend to monetize primarily through advertising.

As drama series monetize primarily through subscriptions are obviously, our business is increasingly subscription driven and I think that will remain true going forward.

Operator: Thank you. Operator, we are closing the call now. Thank you, everyone. If you wish to check out our press release,

Thank you.

Later, we are closing the call now. Thank you everyone. If you wish to check out our press release and other financial information.

Operator: Thank you everyone. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com.

IR section of our company website at Www Dot Dot com. The replay of this webcast will also be available soon thank you and see you next quarter.

Operator: The replay of this webcast will also be available. Thank you, and see you next quarter. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. Thank you for watching!

Ladies and gentlemen that does conclude our conference for today. Thank you for meeting you may all disconnect.

Operator: Meeting. Thanks for watching!

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Operator: Good day, and thank you for standing by. Welcome to Tencent Holdings Limited's 2021 Second Quarter Results Announcement Conference Call.

Good day, and thank you for standing by and welcome to Tencent Holdings Limited 2021 second quarter results announcement conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and now I would like to turn call over to MS. Wendy Huang from the Tencent IR team.

Operator: Today's conference is being recorded. If you require any further assistance, please press star zero. And now I would like to call over Ms. Wendy Huang.

Wendy Huang: and RRT.

Please go ahead.

Wendy Huang: Thank you. Please go ahead. Thank you. Good evening.

Wendy Huang: Thank you. Good evening, everyone.

Thank you good evening, everyone welcome to our 2021 second quarter results Conference call.

Wendy Huang: Welcome to our 2021 second quarter results conference call. Before we start the presentation, we would like 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 various reasons. Information about general market conditions is coming from a variety of sources outside of. This presentation also contains some unaudited 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. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents in the IR section.

Before we start our presentation, we would like to remind you that it includes forward looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons.

Information about general market conditions is coming from a variety of sources outside of Tencent.

This presentation also contains some are already gave no ISR financial measures that should be considered in addition to but not as a substitute for measures of the company's financial performance prepared in accordance with <unk>.

Well, a detailed discussion of risk factors and it <unk> measure please refer to our disclosure documents on the IR section of our website.

Wendy Huang: Please refer to our disclosure policy.

Now, let me introduce the management team on the call Tonight.

Wendy Huang: Our Chairman and CEO Pony Ma will kick off with a short overview. President Martin Lau will discuss the strategy review. Chief Strategy Officer James Mitchell will speak about the business review, and Chief Financial Officer Joan Lo will conclude with a financial discussion before we open the floor for questions.

Chairman and CEO Pony MA will kick off with a short overview.

President Martin Lau will discuss strategy review Chief strategy Officer, James Mitchell will speak to business review and Chief Financial Officer, Joe will conclude with financial discussion before we open the floor for questions.

I will now turn the call over to Pony.

Thank you Wendy.

Huateng Ma: Good evening. Thanks, everyone, for joining us. In the second quarter, we enhanced our services and achieved healthy growth across our businesses, particularly business services and advertising, while our game revenue benefited from international growth. Now, let me go through the headline number, the financial number for the quarter. Total revenue was 138 billion RMB, up 20% year on year and 2% quarter on quarter. Gross profit was 63 billion RMB, up 18% year-on-year and stable quarter-on-quarter. Non-IFRS operating profit was 43 billion RMB, up 14% year-on-year and stable quotas.

Good evening, thanks, everyone for joining us.

In the second quarter, we will have our services achieved healthy growth across our businesses, particularly picked an it services and advertising.

Our GAAP revenue benefited blocker connection deal close.

Now let me go through the headline number for initial number for the quarter.

Total revenue was 100.

Hey period, RMB up 20%.

2% quarter on quarter.

Gross profit was 63 billion up 18% year on year and stable quarter on quarter.

Non-GAAP.

Operating profit was 43 billion up 14%.

So quickly.

Huateng Ma: Non-IFRS net profit attributable to equity holders worth 34 billion RMB, up 13% year-on-year and 3% For our key services, we generally retain our first place positions in activities including social, games, long-form video, news, music, literature, payment, and mobile utilities. And we believe we gain market share in cloud services. Combined MAU of WeChat and WeChat was $1.25 billion. The mobile devices MAU of QQ was 591 million. Martin and James will discuss our strategy to help the real economy and society, as well as progress across different businesses. Now I will hand over to Martin for the strategy review. Thank you, Pawnee, and good evening and good morning to everybody.

Non-GAAP.

Net profit attributable to equity holders was put on be up 15%.

3% quarter on quarter.

For our purposes.

Generally the repaying our FERC.

<unk> active.

Activities, including.

So sure Ken wrong from reveal.

<unk> music literature payment and mobile utility.

And we believe we gained market share you will call services.

Combined <unk>.

Wechat was 1.25 billion.

Mobile device.

<unk> of <unk>.

I think one made it.

Lucky and Janssen will discuss our strategy to help real economic society.

That's progress across different businesses.

Now I will hand over to Martin and look forward to our strategy overview.

Thank you Bonnie and good evening and good morning to everybody.

Today, I would like to share with you the encouraging progress of our communication and productivity. These SaaS products, which are generating user and social value. Despite contributing very little revenue to us for now.

Since the outbreak of Covid, 19, which seemed accelerated demand for digitization across industries.

Communication and productivity SaaS product suite, mainly <unk> com Tencent meeting intensive talks.

This digitization process and contribute to the growth of Blue economy.

We achieved this by leveraging a number of capabilities developed over the years first to our advanced technologies in domains, such as AI real time communications and security.

Martin Lau: Second, a proven experience in operating large-scale Internet services with robust performance and reliability. Third, our ubiquitous coverage and deep engagement with consumers via Weixin and QQ, which facilitates industries building direct connections with their users, and forth. Our vertical solutions for providing business services, including cloud services, to key industries through our own product innovation and partnership. By helping industries digitize, we believe we deliver critical benefits to different stakeholders. For SMEs, we have significantly lowered the barrier to technology adoption.

Our proven experience operating large scale internet services with robust performance and reliability.

Third our ubiquitous coverage and deep engagement with consumers via <unk>, and QQ, which facilitates industries building direct connections with their users and Ford.

Our vertical solutions for providing business services, including cloud services to key industries through our own product innovation and partnerships.

Helping industries digitize, we believe will deliver critical benefits to different stakeholders.

For Smes, we have significantly lowered the barrier for technology adoption.

Martin Lau: They can leverage our products to increase customer engagement, as well as to enhance cost efficiency without making significant IT investments on their own for public services when they enable real-time and direct connection with citizens and enterprises. We also facilitate productivity enhancements through improving their workflows and increasing their collaboration efficiency. For individual users, we help reduce their traveling burden and enhance convenience.

I wish our products to increase customer engagement themselves as well as to enhance cost efficiency without making significant investments on their own but public services will enable real time and direct connection with citizens enterprises will also facilitate productivity enhancements to improve their workflows and increasingly.

Collaboration efficiency.

Individual users, we help reduce their traveling burden and enhance convenience. We also enable instant access to and sharing of information.

Martin Lau: We also enable instant access to and sharing of vital information, going through the different products. WeCome enables better connections within enterprises and with consumers externally. Wecom offers collaboration tools for enterprises to enhance management efficiency. It is deeply integrated with Asian chats, mini programs, and WeChat payments. Enterprises can use Veeam as a back end to communicate with and serve customers on Weixin, enabling convenient and efficient customer management on one single platform. All customer relationships will be retained by enterprises and will be preserved even after the front line staff's departure.

Going through the different products, we come enables better connections within enterprises and with consumers externally.

We can offer this collaboration tools for enterprises, and hence management efficiency. It is deeply integrated with Asian chats mini programs and we shouldn't payment enterprises can use E com as a backend to communicate with and serve customers and ration, enabling a convenient and efficient customer management on what do you think.

Platform <unk>.

Customer relationship it will be retained by enterprises, it will be preserved even after a different mine stops departure.

Martin Lau: Examples of how we can assist digitization include for the government. We support the 7th National Population Census, the first digitized census in China's history, have enabled around 7 million census tickers to submit a massive amount of data online in a secure and reliable way, and have facilitated the efficient management and coordination of this large and mobile work in the public education sector. Wecom has been increasingly adopted as a software for enhancing communications and operations management of schools. Wecom enables real-time and direct communications between teachers and parents, where teachers can benefit from WECOM's CRM functionality, while parents can interact with teachers using their own regular evaluation accounts and apps.

Examples of how we can assist digitization include for the government, we come support to the seventh National population comes put sensors.

<unk> the first digitize census in China's history, we come enabled around 7 million census, tickers to submit the massive amount of data online in a secure and reliable way.

Militated efficient management and coordination of this large and mobile workforce.

In the public education sector weaken.

<unk> has been increasingly adopted as a software for enhancing communications and operations management of schools.

We have also provides tools for education bureaus and schools to manage their day to day operations more efficiently.

And the business sector, we have been upgrading tools and we come to enhance the private domain operations of retailers and brands as we improve the resources management.

We believe these two was can help retailers and brands increased sales and improved cost efficiencies.

Yeah.

Now turning to Tencent meeting the most used standalone cloud conferencing happened in China.

Hence a meeting has achieved double digit growth in both MCU and time spent per user in June 2021, compared with December 2020.

Martin Lau: We're increasing its penetration in the medical and public education sectors, leveraging our vertical solutions and expanding industry partnerships. To enrich our solutions for meeting rooms, Tencent Meeting supports a wide range of hardware from around 30 partner vendors. We upgrade the voice quality by launching our self-developed voice solution, Tencent Ethereal Audio. With enhanced AI-based noise cancellation, our solution enables speech capture from up to 12 meters away in standard meeting rooms.

We're increasing its penetration in the medical and public education sectors, leveraging our vertical solutions and expanding industry partnerships.

So enrich our solutions for meeting Whoops, Tencent meeting supports a wide range of hardware from around 30 partner vendors.

We upgrade our voice quality by launching herself developed voice solution Tencent you see real audio.

With enhanced AI based noise cancellation, our solution enables speech capture from up to 12 meters away in spend at meeting rooms.

Martin Lau: Examples of how Tencent Meetings assists digitization include: for large enterprises, for example, such as the State-Grid Corporation of China and China Communications Construction Company, we customize solutions compatible with their existing IT systems and Equipment for Efficient Collaboration. This illustrates our capabilities in supporting enterprises with vast operations, and Sophisticated Recruitment for large-scale conferences, which deliver secure, reliable, and high-performance solutions, among which we have supported the China Import and Export Fair, or known as the Canton Fair, for three consecutive events since April 2020. Finally, Tencent Jobs is now the leading cloud-based productivity suite in China, with a spreadsheet, word processing, and slide deck application. It also allows easy sharing of files via WeChat and QQ.

Examples of how Tencent meetings assist digitization includes.

For large enterprises for example, such as.

State Grid Corporation of China, and China Communications construction company with customized solutions compatible with their existing it systems.

And equipment for efficient collaboration.

This illustrates our capabilities in supporting enterprises with vast operations and.

And sophisticated requirements.

For large scale conferences with deliver secure reliable and high performance solutions, among which would have supported to China importing export fair or known as the <unk> unfair for three.

The consecutive events.

Since April 2020.

Finally, Tencent docks.

Now the leading cloud based productivity suite in China, with spreadsheet, where processing and slide deck applications. It also allows you sharing of ours via equation and QQ.

Martin Lau: Building on its initial success in the education sector, Tencent Docs is gaining popularity in traditional sectors such as finance, media, and legal. This reflects increasing functionality of the service as well as its unique user experience for collaborative data collection and sharing. In July 2021, student volunteers used Tencent Docs as a real-time collaborative tool for helping the rescue of people trapped in the Henan floods via data collection, editing, and sharing. Our infrastructure and operations supported Tencent Docs to deliver reliable performance in such an extreme situation, with the documents edited over 300,000 times and accessed over 2.5 million times within 24 hours, and in that process, saved many lives. Now, with that, I will pass to James to talk about our business. Thank you, Martin.

Building on its initial success in education sector Tencent dogs is gaining popularity in traditional sectors, such as finance media and legal.

This reflects increasing solution <unk> service as well as its unique he was experienced who collaborate if data collection and sharing.

In July 2021 student volunteers it used Tencent docs as a real time collaboration tool for helping rescue of people trapped in Hunan floods via data collection editing and sharing.

Our infrastructure and operations support at Tencent docs to deliver reliable performance in such an extreme situation with the documents edited over 300000 times and access to over $2.5 billion times within 24 hours and in that process saved demanded lives.

With that I will.

I'll pass to James talk about our business review.

James Gordon Mitchell: For the second quarter of 2021, our revenue grew 20% year on year. VAS represented 52% of our revenue, within which the GameStop segment was 31%, and the social network sub-segment, online advertising with 17%, and FinTech and business services reached 30% of our total. The value-added service's segment revenue was R72 billion for the quarter, up 11% year-on-year and stable quarter-on-quarter. Social network sub-segment revenue increased 9% year-on-year to R29 billion, reflecting moderate growth in digital content subscriptions and in-game item sales.

Thank you Martin for the second quarter of 2021, our revenue grew 20% year on year.

This represents a 52% of our revenue within which the Gamestop segment, especially bump.

And the social networks Subsegment, 21% online advertising was 17% and Fintech and business services reached 30% of our total revenue.

Value added services segment revenue was 72 billion renminbi for the quarter up 11% year on year and stable quarter on quarter.

Social networks sub segment revenue increased 9% year on year to 29 billion renminbi, reflecting moderate growth of digital content subscriptions and in game item sales.

James Gordon Mitchell: Total VAS subscriptions grew 13% year-on-year to 229,000, and video subscriptions increased 9% to 125 million, benefiting from our diversified content across sports, animated series, and dramas. For example, our animated series Nandovarius, as well as Battle Through the Heavens Season 4, attracted a wide audience.

Social V. I S subscriptions grew 13% year on year to 229 million video subscriptions increased 9% to $125 million benefiting from our diversified content across sports animated series drama series and movies. For example animated series not afforded to us by this battle through that Havent system for <unk>.

With wide audience spaces.

James Gordon Mitchell: Music subscriptions expanded 41% million, driven by TME's effective marketing and by increased consumer willingness to subscribe. Game sub-segment revenue increased 12% year-on-year to $43 billion. Our international games revenue grew 29% to R11 billion, or 37% in constant currency. Mobile games VAS revenue increased 13% year-on-year to R41 billion, higher off through a paying user ratio. Revenue growth was primarily driven by Honor of Kings and Moonlight Blade Mobile in China and by PUBG Mobile and Clash of Clans.

Subscriptions expanded 40 bumps to $66 million driven by Tms effective marketing and by increased consumer willingness to subscribe for music services.

GAAP sub segment revenue increased 12% year on year to <unk> 43 billion renminbi or international games revenue grew 29%. So it hasn't been in renminbi or 37% in constant currency terms.

Mobile games <unk>.

Revenue increased 13% year on year to 40 bumping in renminbi with higher off too and thank yous ratios revenue growth was primarily driven by honour of kings and Moonlight blade mobile in China and by pop T mobile and clash of clans internationally.

James Gordon Mitchell: C-Client Game Revenue increased 1% year-on-year to 11 billion RMB as international growth from Valorant and Warframe offset domestic softness from Dungeon and Fighter. Turning to Weixin, Miniprogram's GMB more than doubled year-on-year as our decentralized commerce environment helps businesses thrive with their own channels and their own user relationships, while also enabling them to achieve higher profit margins than on other channels. Summarizing how the WeishenYi... [inaudible] Brands and merchants can acquire customers for their mini-programs offline via QR codes and via WeChat Pay.

PC client game revenue increased 1% year on year, but hasn't been in renminbi as international front. Some of the other engines will frame offset domestic softness reduction in feature.

Turning to Asian mini programs <unk> more than doubled year on year as our decentralized commerce environment helps businesses thrive with their own channels and their own user relationships, while also enabling them to achieve higher profit margins than on other channels.

Summarizing how the Asian ecosystem deliver success for our partners brands and merchants and acquire customers for that many programs offline QR codes in violation.

James Gordon Mitchell: They can create and distribute content via their own offices. Inc., and others engage their users and drive repeat visits to many programs. Powerful shopping functionalities, such as single merchant membership rewards, many programs can convert visits into transactions. And we're also developing video accounts and live streaming as additional touch points. For QQ, we enhanced the camera capabilities so as to provide a better augmented reality experience, user-generated content production, and video channel. We also automated the in-app video editing process, encouraging users to generate and share more appealing videos.

Can create and distribute content by their own offline accounts inflation routes.

Engaging that users and driving repeat visits to many programs with top was shopping functionalities such as single merchant membership rewards mini programs can convert visits into transactions and we're also developing video accounts and live streaming as additional touch points to deepening user activity.

For Q2, we enhanced the camera capabilities, so as to provide better augmented reality experiences and use.

User generated content production and video chat, we automated the in App video editing process encouraging users to generate and share more appealing video content.

James Gordon Mitchell: Turning to games, we reinforce the IP value of our leading... We adapted Honor of Kings into a drama series, You Are My Glory, which is now the most-watched drama series on Tencent Video, five videos per episode. Yesterday, Honor of Kings also released a series of popular skins.

Turning to games, we reinforced the value of our leading titles, we adopted honour of kings into a drama series you are Mike Lawrie, which is now the most watched drama series by video.

So yesterday honour.

King has also released a series of popular skins.

James Gordon Mitchell: PUBG Mobile collaborated with the movie Godzilla vs. Kong to create Crossfire. And we revamped PUBG Mobile's battlefield design and combat features in July, increasing our... For Clash of Clans, we released a major content upgrade in April and launched the 9th anniversary event. Supercell is developing three new games based on the Clash IP, including the turn-based strategy game Clash Quest, which has begun beta testing. Valorant achieved 14 million monthly active users on its first day, benefiting from the game's competitive gameplay, robust technology, and eSports acumen. Riot is developing a mobile version of PowerWrench.

Pop T mobile can operated within roofing felt set of vessels columns create cross sample content and we revamped our PMO plus battlefield designing comeback features in July increasing average user time spent.

The clash of clans, we released a major content upgrade in April and launched the ninth anniversary event in August Super set is developing three new games based on the cash IP and creating the Tam based strategy game cash quest, which has begun beta testing in Scandinavia.

<unk> achieved 14 million monthly active users on its first on accessory benefiting from the games competitive gameplay robust technology and esports activities rises.

The amount of intermodal.

James Gordon Mitchell: We're also extending our presence in newly-emerging games. Alchemy Stars, developed by our Tordog Studio, was the most downloaded tactical RPG in Japan in July, benefiting from its anime art style, unique tile-connecting gameplay, and narrative created by a reputable Japanese script writer. Lights and Nights, developed by our Aurora Studio, became China's top dating simulation game by DAU in July, with particular popularity among female players due to its story-telling. Our first survival open-world crafting game, Undawn, developed by Lightspeed and Quantum Studios, has accumulated over 30 million pre-registrations in China to date, ahead of its release on mobile.

We're also extending our presence in Utah marching gains Shawn Rose Alkermes stars develops by our total studio was the most downloaded tactical RPG in Japan in July benefiting from its anime style unique how connected gameplay and narrative created by reputable Japanese script right.

Yes.

Light nights developed by our Aurora studio became China's top patient simulation game by <unk> in July with particular popularity among female players it's usually storyline.

Yes.

It's a leader in the game industry, we have so many years sorts of foster a healthy gameplay and environment, we believe paying appropriate games in moderation can provide clients with experiences such as teamwork leadership skills market.

Enhance that familiarity and facility with software and in some cases represents a first step toward acquiring coding skills.

In 2017, we pioneered a system, helping parents managed minus game activity in 2018, we introduced the strictest in game measures in the China industry with mandatory renamed verification and stringent game time and spending limits.

Earlier this month, we further tightened our game tightened spending limits beyond regulatory requirements initiatives honour of Kings Peacekeeper elite and future for our other games, we've reduced the time limit from minus to one hour per day on non statutory holiday since two hours a day on statutory holidays, and we prevented in game spending by class a chunk to 12.

James Gordon Mitchell: And we've prevented in-game spending by players aged under 12. We're also cracking down on minors misusing adult accounts, and transactions to that out of account some third party. To fully implement a healthy game play environment in China, we advocated industry-wide coordinated discussion, such as Regulating Minors' Total Time Spent Across Games, Further Researching Age-Based Game Classification, and or potentially restricting under 12 year olds from playing games

We're all set cracking down on minus misusing out accounts and transactions without accounts on third party platforms.

So fully implements a healthy gameplay environment in China, if advocated industry wide coordinated discussion around regulating minus total time central cross guidance further.

Researching H based game classification systems annual potentially restricting onto 12 routes from playing games altogether.

James Gordon Mitchell: During the second quarter, under-16-year-olds accounted for 2.6% of that China game gross, and under 12-year-olds accounted for 0.3%. Moving to online advertising, total revenue was $23 billion in the second quarter, up 23% year-on-year, as growth in internet services, consumer staples, and automobile sectors outweighed weakness in education. Since May, the Chinese online advertising industry has been impacted by the sharp decline of ad spend from K-9 up to $1.5 billion, and to a lesser extent by regulation of launch screen advertisements. Conversely, Apple's IDFA changes appear to have had less impact in China than widely expected.

During the second quarter, and a 16 year old accounted for two 6% of Chinese game gross receipts and 12 year olds accounts CRM, 3%.

Moving to online advertising total revenue was 20 treatment in renminbi in the second quarter up 23% year on year.

Both in Internet services, consumer staples, and automobile sectors outweighed weakness in education.

James Gordon Mitchell: We expanded our overall advertiser base by enhancing industry solutions, enabling merchants to better manage their private domain operations within Weixin. During the Tokyo 2020 Olympic Games, we provided integrated marketing solutions across Weixin, QQ, Tencent Video, Tencent Sports, and Tencent News. Leveraging our strengths in social, long-form, and short-form video distribution, as well as in content management, we believe we have outperformed other online platforms. Video Views and User Sharing Activity

We expanded our overall advertiser base by enhancing industry solutions, enabling much better manage that.

Operations through inflation.

During the Tokyo 2020 Olympic Games, we provided integrated marketing solutions across <unk>, QQ, Tencent video Tencent sports and Tencent news leveraging our strengths in social long form and short form video distribution as well as in content management. We believe we outperformed other online platforms in terms of video views and use of sharing activity.

James Gordon Mitchell: Our social and other advertising revenue increased 28% year-on-year to 20 billion renminbi, primarily driven by WeChat properties, in particular mini-programs, as well as our mobile ad network. For moments of advertising, more advertisers adopted mini-programs as landing pages, leading to higher sales conversion and thus revenue growth. Video Art Inventories contributed close to half of the moment's revenue. Ad revenue inside mini-programs also doubled year-on-year following the growth in mini-program GMV. Official Accounts Revenue Bridge, the release of inventories in notification feeds, and increasing recognition of official accounts' role in generating sales. Our media advertising revenue is stable year-on-year with increased monetization of our music.

Our social and others advertising revenue increased 28% year on year to <unk> 20 billion renminbi, primarily driven by ration properties in particular with many programs as well as on mobile network for a moment sanitizing more advertisers adopted many programs as landing pages due to higher sales conversion and thus revenue growth.

Video increased contributed close to half moments revenue at.

AD revenue inside many programs also doubled year on year following the growth in mini programs TMT.

Efficient accounts revenue for each at the release of inventories and notification fees and increasing recognition of official accounts relative to generating sales leads.

Media advertising revenue was stable year on year was increased monetization of music apps offset weakness in advertising on our news app.

James Gordon Mitchell: Offset Weakness and Advertising on Our News Looking at FinTech and business services, segment revenue was 42% within RevenueBee, up 40% year-on-year and 7% quarter-on-quarter, with business services growing at a relatively rapid rate. Within FinTech, year-on-year revenue growth was mainly driven by mobile payment volume growth. The number of consumers using our payment services and the number of payment transactions per consumer each year. We believe SMEs play a valuable role in enriching our payments and Generating Payment User Engagement, and we, in turn, seek to help SMEs benefit from greater mobile payment acceptance by charging very low or even zero payment take rates in certain cases, and by our commitment of resources. Thanks for watching!

Looking at Fintech and business services segment revenue was 40 attribute in renminbi up 40% year on year, and 7% quarter on quarter with fitness services growing at a notably rapid rate within Fintech year on year revenue growth is mainly driven by mobile payments volume growth the number of consumers using our payment services in the number of payment.

Options per consumer each increased.

We believe the Smes play a valuable role in enriching our payments ecosystem generating payment user engagement and we intend to seek to help sme's benefit from greater mobile payments acceptance by charging very narrow or even zero payment take rates in certain cases, and by our commitment of resources and services to support SME scrubbed.

James Gordon Mitchell: We're also researching new opportunities in the payment industry, such as participating as a pilot in the Digital Yuan project where we're supporting WeBank in developing... Digital Yuan ERM, application. For business services, our revenue grew at a rapid rate year-on-year as we helped in the digitalization of public services. Traditional Industry. We experienced an increasing number of customers adopting our platform and software. Security, AI, and Datron.

We're also researching new opportunities in the payment industry, such as participating as a pilot and the digital project that we're supporting we bank and developing and testing new interface within the <unk>.

Digital E RMB application.

Business services revenue grew at a rapid rate year on year, as we helped us digitalization and public services and trends traditional industries, we experienced an increasing number of customers adopting our platform and software services, such as security AI and data analytics.

James Gordon Mitchell: Video cloud solutions are an important and rapidly growing platform as a service, and according to IDC, we rank first in China in terms of video cloud solutions. During the course, we integrated our real-time communication, instant messaging, and CDN infrastructures into a unified solution called RT1 Network. For developers, RT-1 enhances their efficiency by providing a one-stop software development kit for audio and video path solutions.

Video cloud solutions are an important and rapidly growing thoughtfulness of service segment and according to IDC. We ranked first in China in terms of video cloud solution revenues during the quarter, we integrated our real time communication instant messaging and CDN infrastructure seems to be a unified solution called us He one network.

So developers akila enhance their efficiency by providing a one stop software development kit or you haven't.

Past solutions for Tencent cloud <unk> expense cross selling opportunities and increasing cost efficiency.

James Gordon Mitchell: Tencent Cloud, RTY expands cross-selling opportunities and increases cost efficiency. With that, I'll pass it to John to discuss the financial review. Thank you, James. Hello, everyone.

With that I'll pass to John to discuss the financial review.

Thank you James Hello, everyone for the same quarter of 2021 total revenue was $138.3 billion renminbi up 20% year on year or 2% quarter on quarter gross profit was $62.7 billion renminbi up 18% year on year or stable quarter on quarter.

Shek Hon Lo: For the second quarter of 2021, total revenue was $138.3 billion RMB, up 20% year-on-year or 2% quarter-on-quarter. Gross profit was $62.7 billion RMB, up 18% year-on-year or stable quarter-on-quarter. Net other gains were $20.8 billion RMB, up 141% year-on-year or 6% quarter-on-quarter. This mainly included non-IRR adjustments relating to our investing companies. Number one, net fair value gains reflecting increased valuations of investees, in particular, in the sectors of transportation services, FinTech services, and local services. Number two, net gains on dim disposal and disposals of certain investing companies. These were partially offset by fair value losses or impairment against certain investments.

Net other gains were $20.8 billion renminbi up 141% year on year or 6% quarter on quarter.

Meaning who didn't know and I a virus adjustments relating to our investing companies number one net fair value gains, reflecting increased valuations of investees in particular in the sectors of transportation services Fintech surfaces and local services number two net gains on disposal and disposes of certain.

Thus the company this was partially offset by fair value losses impairment against certain investees.

Operating profit was $52.5 billion renminbi up 34% year on year or down 7% quarter on quarter.

Net finance costs were $1.9 billion renminbi down, 3% year on year or up 42% quarter on quarter.

The 3% year on year decrease was the result of lower Forex losses, partly offset higher interest expenses due to higher amount of indebtedness.

On to increase reflected forex losses in the second quarter worse as Forex gain last quarter.

Shek Hon Lo: Share of losses of associates and joint ventures was 3.9 billion RMB compared to 295 million RMB a year ago. This resulted from non-IFRS adjustments of certain associates and increased investments in community group buying initiatives by certain associates, as well as losses recognized from certain associates. On a non-nine-hour basis, we shared losses of $449 million RMB this quarter compared to share profit of $658 million RMB a year ago. Interest tax income tax expense was $3.7 billion this quarter.

Share of losses of associates and joint ventures was frequent number there Randy compared to 200, 9500, then Randy a year ago.

This resulted from non <unk> adjustments of certain associates and increased investment in community buying initiatives by certain associates.

As well as losses recognized from certain associates.

On a non I have our status free <expletive> losses of 449 million in renminbi this quarter compared to share of profit of 658 billion renminbi a year ago.

Interest income.

Income tax expense was $3.7 billion this quarter effective tax rate for the quarter was seven 9%.

I have RF net profit attributable to shareholders was $42.6 billion renminbi up 29% year on year or down 11% quarter on quarter.

EPS was $4.387, renminbi up 28% year on year or down 11% quarter on quarter.

Shek Hon Lo: The effective tax rate for the quarter was $7.9 billion. IFRF net profit attributable to shareholders was $42.6 billion RMB, up 29% year-on-year or down 11% quarter-on-quarter. The listed EPS was 4.387 RMB, up 28% year-on-year or down 11% quarter-on-quarter. Now, I'll share our non-Iovirus financials. For the second quarter, operating profit was $42.8 billion RMB, up 14% year-on-year or largely stable quarter-on-quarter. Net profit up the NCI was $34 billion RMB, up 13% year-on-year or 3% quarter-on-quarter. Diluted EPS was $3.504 RMB, up 12% year-on-year or 3% quarter-on-quarter.

Now I'll share.

<unk> financials.

<unk> percent year on year, or 3% quarter on quarter moving onto gross margin. The overall gross margin was 45, 4%. So Europe, one nine percentage points, both year on year and quarter on quarter.

Shek Hon Lo: Moving on to gross margin, the overall gross margin was 45.4%, down 0.9 percentage points, both year-on-year and quarter-on-quarter, by segment. Gross margin for VAT was 52.9%, down 0.8% points year-on-year and 2.2% points quarter-on-quarter. The year-on-year decline was mainly due to lower contributions from privilege, subscriptions, and PC gains, which carry relatively higher margins. The sequential decline was also due to lower revenue contributions from PC games and a higher revenue mix of lower-margin digital content servicers with increased content costs. Gross margin for online advertising was 48.8%, down 2.6 percentage points year-on-year, or up 3.7 percentage points quarter-on-quarter. The year-on-year decrease was mainly due to increased bandwidth and server costs.

Segment gross margin for Bath was 52, 9% variable eight percentage points year on year, and 2.2 percentage points quarter on quarter.

Year on year decline was mainly due to lower contribution from privilege subscriptions at PZ gains, which carry relatively higher margins.

Sequential decline was also due to lower revenue contribution from PC games, and higher revenue mix of lower margin digital content services with increased content cost.

Gross margin for online advertising was 48, 8% down two six percentage points year on year or up three seven percentage points quarter on quarter.

Year on year decrease was mainly due to increased bandwidth and server cost sequential increase mainly benefited from mix shift to higher margin owned and operated inventory.

Shek Hon Lo: The sequential increase mainly benefited from a shift to higher-margin owned and operated inventory. Gross margin for fintech and business services was 32%, up 3.1 percentage points year-on-year or stable quarter-on-quarter. The year-on-year increased reflected improvement in gross margin of business services and makeshift within fintech services on Operating Expenses. Selling and marketing expenses were a 10 billion revenue, up 29% year-on-year, or 17% quarter-on-quarter. Both year-on-year and quarter-on-quarter increases mainly reflected increased market spending on business services, digital content services, and games, including marketing spend associated with subsidiaries we consolidated over the past year as a percentage of revenue.

Gross margin for Fintech and business services, plus 32% up three one percentage points year on year or stable quarter on quarter.

Year on year increase reflect the improvement in gross margin of this of surfaces and mixed shifts within Fintech services.

Operating expenses, selling and marketing expenses were 10 billion renminbi up 29% year on year or 17% quarter in quarter, both year on year and quota and quota increase mainly reflected increase market spending on business emphasis digital contents emphasis and game, including marketing.

Send associated with subsidiaries, we consolidated over the past year.

As a percentage of revenues.

Shek Hon Lo: S&M expenses were 7% of revenues, broadly stable compared to the second quarter of 2020. R&D expenses were $12.8 billion RMB, up 30% year-on-year or 14% quarter-on-quarter. R&D expenses represented 9% of revenue. G&A expenses excluding R&D were R$9.8 billion, up 48% year-on-year or 28% quarter-on-quarter. Both year-on-year and quarter-on-quarter increases reflected retail staff costs. Excluding share-based compensation, it increased by 37% year-on-year or 10% quarter-on-quarter. At the quarter end, we had approximately 94,000 employees, up 33% year-on-year or 6% quarter-on-quarter.

And then expenses plus 7% of revenues broadly stable compared to the second quarter of 2020.

R&D expenses were $12.8 billion renminbi up 30% year on year or 14% quarter on quarter.

<unk> expenses represented 9% of revenues.

G&A expenses, excluding R&D were $9.8 billion renminbi up 48% year on year or 28% quarter on quarter, both year on year and quarter on quarter increase reflected breathe a sigh of course, excluding share based compensation increased by 37% year on year or 10% quarter on quarter.

As of quarter end, we had approximately 94000 employees up 33% year on year or 6% quarter to quarter.

Shek Hon Lo: Let's take a look at the operating and net margin ratios. For the second quarter, the net non-IFRS operating margin was 31%, down 1.8 percentage points year-on-year and 0.6 percentage point quarter-on-quarter. Non-AI virus margin was 25.4%, down 1.8 percentage points year-on-year or largely stable quarter-on-quarter. Finally, I will share some key financial metrics for the quarter. Total capex was $6.9 billion RMB, down 27% year-on-year or 10% quarter-on-quarter, within which operating capex was $5.9 billion RMB, down 29% from the high base in the second quarter of 2020 as we advanced procurement amid the pandemic at that time.

Let's take a look at the upgrading.

<unk> ratios for the second quarter net non <unk> operating margin was 31%.

One eight percentage points year on year, and 0.6 percentage point quarter over quarter.

<unk> margin was 25, 4% down one eight percentage points year on year or largely stable quarter on quarter.

Finally, I will share some key financial metrics for the quarter.

Capex was $6.9 billion renminbi down, 27% year on year or 10% quarter on quarter within which.

Grading Capex was $5.9 billion renminbi down 29% from the high base in the second quarter of 2020, as we advance procurement and amid the pandemic at that time.

Nonoperating Capex decreased 11% year on year to $1.1 billion renminbi, reflecting lower spending on land use rights and data center construction.

Free cash flow for the quarter was.

17, 3 billion renminbi down, 39% year on year or 48% quarter on quarter.

That position was 21 billion renminbi compared to a net cash of $5.6 billion renminbi last quarter, mainly due to a net cash outflow for M&A activities and 2020 dividends of $12.5 billion renminbi.

The offset by free cash flow generation.

The fair value of our shareholdings in listed investment companies. Excluding subsidiaries was approximately 145 trillion revenue.

$224 billion at the end of the second quarter. Thank.

Thank you Michelle I'll now open the floor for questions.

Operator: Operator, we will take one question after one follow-up question each time. Please ask the first question.

Operator, we will take one last question Q1 question each.

My first question.

Operator: Thank you. May we ask the first question from Hanjin, sorry, from Alicia?

Thank you we invite the first question from Hanjin, sorry from Alicia Yap from Citigroup. Please go ahead.

Operator: from Alicia Yap and the CT Group. Please go ahead.

Alicia Yap: Hi, good evening, management. Thanks for taking my questions. My first question is related to advertising. So how should we think about overall ad revenue growth in the second half of this year, given there are more advertisers adopting the...

Alicia Yap: are adopting the mini-program as the landing pages, which will help moments advertising that leads to higher revenue opportunities. But in the meantime, there are regulatory headwinds on limiting these launch screen ads and also overall macro weakness that might lead to some cautious ad spending.

Each will help moments advertising that lead to higher revenue opportunities in the middle.

Hi, Yeah regulatory headwinds on limiting the launch of screen at and also overall macro weakness that might lead to some cautious spend.

Alicia Yap: So any color on the near-term ad revenue growth outlook and also the longer-term ad revenue opportunity given further integrations of these video accounts and moments that you're going to have within your mini-program ecosystem? Second question, very quickly, is you mentioned about, you know, you're deploying more of your technology and expertise to help the SME, the public service, and also the enterprises with Tencent Docs and all these cloud-based How should we think about these, any complementary service that could evolve and develop around this software that could translate into future business opportunities? Thank you.

So any colors on the near term revenue growth outlook and also the longer term.

Revenue opportunity given a flood of integration and southeast with PDL and moments that you're going to have reading your mini program ecosystem.

Second question very quickly.

You mentioned about you know yet.

Deploying mafia technology and expertise to help the SME the public service and also the enterprises, Wisconsin box and all these cloud based productivity solution.

How should we think about beef comment.

A complementary service that could evolve and develop around this software that could translate to future business opportunity. Thank you.

So it is showing a fast cutting out emphasizing I think you summarized the puts and takes fatty well.

Taking a long term strategic view, it very happy with our position and how it's evolving particularly in a couple of areas.

One being as you alluded to the increasing adoption of mini programs by enterprises.

<unk>, which helps us a number of ways first it means that advertising with emulation as more of a.

Performance component more akin to two such environment to a marketplace environment, rather than the media environment, which is beneficial.

Advertising activity within <unk> moments within <unk> efficient accounts and elsewhere and then secondly, the mini programs themselves constitute advertising inventories that we mentioned that.

The advertising revenue within the mini programs themselves, which is quite substantial more than doubled year on year. During the second quarter and overall you can see that our advertising gross margins improved somewhat from the first quarter to the second quarter due to a mix shift from lower margin AD network business toward our higher margin <unk>.

Properties, then secondly from a inventory perspective, we're seeing good growth in video accounts.

And time spent.

And that product has benefited from the addition of high quality content such as the Olympics in recent weeks.

Over the longer term.

We monetize that media accounts inventory.

So the other short video services.

But the AD loads on the CPM as can be attractive relative to other advertising properties. So those two structural drivers so over the longer term the mini program adoption of the video accounts inventory creation.

James Gordon Mitchell: In the near term, you know, our expectation is the overall online ad industry will experience slower growth in the third quarter than in the second quarter, and that is partly because of the full-quarter impact of a very sharp reduction in advertising by K-9 after-school tuition services, to a lesser extent the negative effect on the supply side from the flash screen advertising regulation changes, and then potentially a deceleration in overall consumer activity as well.

In the near term.

Our expectation is there for the online AD industry will experience a slower growth in the third quarter from the second quarter.

And that is partly because of the full quarter impact of a very sharp reduction in advertising by canine after school tuition services.

To a lesser extent.

The negative effect on the supply side from the flash screen advertising regulation changes and then potentially deceleration in overall consumer activity as well.

James Gordon Mitchell: So that's on the advertising side. Now, in terms of the productivity software side, I think these are services which we don't monetize directly at this point in time, but we believe they carry a lot of value to customers, and over time, they will be valuable commercial products as well. But more immediately, a lot of these solutions, when they are deployed by enterprise customers, actually help us to open the door, and as a result, can help us to sell our cloud services as well as our app services to these companies.

So that's on the advertising side.

Now in terms of the productivity software side I think.

Yes.

Our services, which we don't monetize directly at this point in time, but we believe the category.

A lot of value to the customers and overtime, they would be valuable commercial products as well.

But more immediately right.

A lot of these solutions when they.

<unk> deployed by enterprise customers it actually help us to open the door and as a result can help us to sell our cloud services as well as our App services to these companies.

James Gordon Mitchell: That's the immediate benefit. And then, over time, if you look at the U.S. market, each one of the products that we have actually got a very successful commercial product in the U.S. For example, Tencent Meeting; the counterpart is Zoom, Google Docs, and Microsoft Office.

The immediate benefits and then overtime if you look.

The U S market right each one of the product that we have actually has got a very successful.

Commercial product.

In the U S. For example, Tencent meeting kind of pocket zoom.

And if you look at <unk>.

Part of the Salesforce coffee shops, and Tencent docks.

Political Google Docs, and Microsoft Office and DS services.

James Gordon Mitchell: And these services all have their own monetization and business models. And I think over time, while we don't charge at this point in time, over time, we may develop value-added services. And for certain customers who want to use these value-added services, there will be some kind of commercial solution. Looking further into the future, these solutions also help to build an ecosystem of innovation around SaaS software. So there will be other SaaS software companies who can actually rely on our productivity to provide their service to enterprise customers.

There are monetization and business models I think overtime, while we don't charge at this point in time at the time, we may develop value added services and for certain customers, who wanted to use these value added services there will be some kind of a commercial solution.

And.

Looking further into the future.

Solutions also helped to build.

Ecosystem of.

Of our SaaS offerings. So there will be other SaaS software, who can actually rely on our productivity and improve.

Their services too.

The enterprise customers and we can actually see some value from there as well so all in all we believe that at this point of time.

James Gordon Mitchell: And we can actually derive some value from there as well. So all in all, we believe that at this point in time, it's a very valuable suite of services from a user value perspective. Over time, they would help us to generate commercial value.

Very valuable suite of service from.

User value perspective over time, they would help us too.

Generate commercial value as well.

Operator, thank you.

Operator: Thank you. Certainly. The next question comes from Hyunjin Kim from Macquarie. Please ask your question.

Certainly the next question comes from pension Kim from Macquarie. Please ask your question.

Hyungwook Choi: Great. Thank you for your time today, management. The first question really goes to kind of, there have been a lot of regulatory developments in the market. Are there any in particular that you want to call out as things that might have been different from the way that you were envisioning them a few months or a few quarters ago and how that might impact our strategic initiatives or priorities and so forth. So if you just kind of call out one or two of them, that'd be great.

Great. Thank you for your time today management.

First question really goes to kind of there's been a lot of regulatory developments in the market.

Are there any in particular that you would want to call out as things that might have been different from the way that you were envisioning. It a few months or few quarters ago, and how that might impact our strategic initiatives or priorities and so forth. So if you.

Just kind of call out one or two of them that would be great.

Hyungwook Choi: And that dovetails into my second question, which is around professional taxation that I think the industry has been benefiting from over the years. And I think some of your peers in the market have indicated that perhaps some of this professional treatment might be slowing to ebb away. So I just wanted to get some impressions of how your conversations with the regulators have been about, you know, the idea that you redeploy your capital into investing for the benefit of society, and whether you think that's still valid and that the professional tax treatment should remain for us on an ongoing basis. Thank you.

That dovetails into my second question was just around.

Professional tax, but I think the industry has been benefiting from over the years and I think some of your.

Tiers of the market.

Kate it that perhaps some of those perpetual period, it might be flooring to ebb away. So I just wanted to get some impression from how your conversations with the regulators have been about.

Yeah that you deploy your capital into reimbursed to them for the benefit of society, and whether you think thats still valid.

Perpetual tax free rent should remain for us.

Ongoing basis. Thank you.

Martin Lau: I think if you want to identify a regulatory action, it's probably sort of around afterschool children, which is actually a pretty big advertiser group in our advertising across the industry, and we're seeing part of the impact this quarter, and we're going to be seeing impact, full quarter impact next quarter. And that essentially took away a big. Bye, on our platform. The inventories are still there, so over time, we'll be able to fill up the inventory with other advertisers, but there will be an impact initially.

I mean, if you want to identify a.

Regulatory action.

Action, it's probably sort of around the after school tutoring, which is actually impacting our pretty big Advertiser group.

Group on our advertising across industry, and we are seeing part of the impact this quarter and we're going to be seeing.

The entire impact of full quarter impact next quarter.

That essentially took away a bit.

Big.

Buyer of advertisement.

And our platforms and the inventories are still there so over time, we'll be able to fill it up inventory with with other emphasizes but that would be.

<unk>.

Initially so I think that's the most direct impact but.

I think theres going to be a lot of questions with respect to regulation, So I might as well just sort of you entered a more systemic view.

I think the point, we want to make is that the number one.

We felt that regulation of Internet is a global trend and it's not just limited to China, it's actually happening in the U S and Europe.

But China I think.

A bit ahead in terms of the execution of the more structural.

Regulation framework.

And I think this should be expected because.

Regulation has been actually quite lose over an industry like the internet considering its size and importance.

Now secondly, I would like to say in terms of the regulators.

The regulators are very.

<unk> focused on identifying and rectifying industries with Ta peers, and also asked ambition regulations emphasized complains social responsibility as well as fair and proper behavior and we should expect.

Martin Lau: And we should expect in the future, in the near future, more regulations should. Thirdly, what are the goals right to go with for from our understanding is that the government actually wants to foster sustainable development. The government does recognize the importance, on the economic side and social side of the internet industry, and also the contribution of the industry to the global economy.

In the future in the near future more regulation should be coming.

Thirdly, what are the goal was to go from our understanding is that the government actually wants to foster a long term sustainable development of the Internet industry.

Government does recognize the importance on the economic side and our social side of the Internet industry and also the contribution of the industry to global competitiveness. So that's why it doesn't want to foster a long term healthy environments.

Martin Lau: So that's why it does want to foster a long-term healthy and Fourthly, I would say our attitude during this wave of regulation is that we want to embrace this new environment fully. And we want to establish ourselves as fully, And we feel that this is actually going to be good for us and for the entire industry over the long term. And on a relative basis, we felt we were also quite well-positioned to embrace the regulatory environment because we have been fully compliant with all regulations.

Fourthly I'd say our attitude during this this wave of.

Regulation is that we.

Want to embrace this new environment fully and we want to establish ourselves as truly complained.

And we felt that this is actually going to be good for us and for the entire industry over the long run.

And on a relative basis that we felt we also.

<unk> well positioned to embrace that.

The regulatory environment because.

Martin Lau: This has always been our operating model, and our strategy has always been trying to create value for users. And we have always been quite self-restrained in terms of monetization. We have run our platforms so that we establish open platforms to support individual enterprises and entities. And we have also, all along the way, quite emphasized social responsibility and emphasized that we want to use our tech for good. So given all these factors, right, I would say there will be short-term uncertainties, and there are a lot of new regulations that will be coming, but we are pretty confident that we can be completely safe.

We have been fully compliant with all regulation and this has always been our operating philosophy.

And our strategy has always been trying to create value for users and.

We have always been a quite self restraint in terms of monetization.

We have run our platforms. So that we finish open platforms to support individual enterprises entities.

We are also all along the way quite emphasize social responsibility and emphasized we want to use our tech for good.

Given all these factors I would say there will be a short term.

Certainties and there are a lot of.

The regulation that will be coming but we are pretty confident that we can be compliant.

Martin Lau: And over the long run, it would actually position the industry for healthy growth and will be beneficial. In relation to tax, you know. I think the tax repair has been reducing generally over time by implementing more detailed categorization of key software enterprises. Beforehand, the group had about four to five companies which were qualified for key software enterprises, while last year, we still had them, but the number had reduced by quite a lot.

And over the long run it would actually position the industry for healthy growth and we will be a beneficiary of that.

In relation to tax.

I think the tax repair has been reducing generally over time by implementing more detailed categorization of key software enterprise.

Martin Lau: We only accrued tax at a preferential rate of 1000% when we were sure that we could get it normally in the subsequent year. We also accrued folding tax when we generated profits as opposed to some of our peers which accrued when they needed to remit money. As you can see, the effective tax rate for 2020 was about 11%, and the first half of 2021 was about... 11% as well. We expect that the effective tax rate for the entire year will be similar.

Forehand the group has.

About four to five companies, which would qualify for key software enterprise for all four last year, we still had but the number reduced by play a lot we only accrued tax preferential rate of 10% when we assure that we can get it normally in the subsequent year.

We also accrued withholding tax when we generated profit as opposed to some of our peers, which accrued when they need to money.

As you can see the effective tax rate for 2020 was about 11% in the first half of 2021 was about.

11% as well, we expect that the effective tax rate for the entire year will be a similar level on the face of that.

Martin Lau: On the face of it, the tax seems to be very low, taking into account a lot of non-IFRS adjustments such as non-taxable book profits on BIM disposal or other valuation gains on investment. If we take out all the non-IFRS virus adjustments that are the noises and withholding tax as well, the effective tax rate would have been approximately low teens for 2020 and mid-teens for 2021. All in all, the total tax rate differential would be around 3%.

Seemingly as result, taking into account of a lot of non <unk> suggest funds such as non taxable book profit some deemed disposal disposal or other valuation.

Valuation gains on investment.

We took out all of this all of the non <unk> adjustment that is what that other noises and withholding tax as well.

Active tax rate would have been a part of them in the low teens for 2020.

Mid teens for 2021, or you know the total tax rate differential would be around 3%.

Operator, let's move to the next one.

Operator: Thank you. Our next question comes from Gary Yu from Morgan Stanley.

Thank you. The next question comes from Gary You from Morgan Stanley. Please ask your question.

Operator: Stanley, please ask me a question.

Gary Yu: Hi, thank you for the opportunity to ask questions. I have one follow-up on regulation. I appreciate the fact that, you know, management has been proactive in kind of talking to the regulator and self-regulating some of the practices in the market. Based on our conversation with the regulator, do we see the risk of more kind of drastic measures that the regulator may impose on the gaming industry? So, for example, when we try to limit, you know, restriction on time for minors or below 12, is there any discussion about, you know, teenagers above, you know, 18 years old in terms of, you know, time spent on games? So that's my question about regulation. Thank you.

Alright, Thank you for the opportunity to ask questions I have.

One follow up on regulation.

I appreciate the fact that management has been proactive in kind of talking to directly later and south directly some of the practices in the market.

In terms of on.

Time spent on games.

My question on reclamation. Thank you.

Yeah.

Martin Lau: On games, I think that the key issue at this point in time is still the amount of time and the amount of money that minors spend on games. And as a result, as you can see in our latest pronouncements, we have put in a number of different measures that James has already talked about. But there is one issue which I think we should address proactively. Thank you very much, because right now, I think a lot of the regulations are actually around each game. But if you look across the industry, and most of the people aren't,

On games I think that the key issue at this point in time is too.

The amount of time and the amount of money that miners spend point games and this is an area that we are very focused on and as a result, as you can see it in our latest.

Pronouncements, we have put in a number of different measures that James has already talked about but there is one issue, which I think we are proactively.

Go to the regulators, which is about the total amount of time and money that minor spend on games because right now I think.

What are the recognitions and actually around each game, but if you look at across the industry.

And most of the people are.

Martin Lau: When they have concerns, they are concerned over miners spending too much time on games as a category. So if we can actually find a way to regulate the total amount of time that's spent across different games, That would address the problem. It actually requires, it's a complicated issue requiring. Consensus, of the regulator as well as the industry, if it requires regulation and also requires a system to police it. But from the practicality perspective, it's actually doable.

When they have concerns they're concerned over.

<unk> spending too much time on games as a category so.

If we can actually find a way to regulate.

The total amount of time.

Spend across different games.

<unk> addressed the problem and it actually require it's a complicated issue are requiring.

The consensus of the regulator and as long as the industry.

<unk>.

Regulation and also requires a system to police it but.

But.

From the practicality perspective is actually doable. So this is one thing that we felt we would want to tick up to the industry and the regulator to discuss and if that can be achieved.

Martin Lau: So this is one thing that we felt we would want to take up with the industry and the regulator. And if that can be achieved, then I think most of the criticism of the gaming industry will be.

Most of the criticism on the gaming industry it will be resolved.

Operator: Thank you. Our next question comes from Robin Zhu from Bernstein. Please ask a question.

Thank you. Our next question comes from Robin Zhu from Bernstein. Please ask your question.

Thanks management.

Thanks for the opportunity to ask a question.

A couple of questions. Please the first one is there's been a lot of reports about reopening up of ecosystem between yourselves and peers in the industry, because I listen just talk a little bit about.

The impact or first of all.

Whether business happening whether it is the timeline for its output.

Subsequently the likely impact revenue.

Awesome.

The <unk> business.

Or opportunities, but my open.

The other one.

Is that.

Just to focus on video accounts so thanks James.

He was a punishment.

And then going up.

Could you just share some thoughts on the monetization strategy here.

But at what point in the development of video accounts or where are the prerequisites for monetization of video accounts to help them where are you on.

Great.

Thank you.

Martin Lau: Yeah, in terms of the ecosystem, I think, you know, our ecosystem is fundamentally open, and the priority of our ecosystem is actually helping the smaller companies and SMEs, and brands and merchants to be successful. Now, if you look at our ecosystem right now, it's fundamentally open; links are not blocked; no links are blocked. Users can always copy and paste. However, some links are not particularly enhanced with rich presentation.

Yeah in terms of the ecosystem I think our ecosystem is fundamentally open and the priority of our ecosystem is actually helping smaller.

Companies and Smes.

<unk> brands and merchants due to successful now if you look at our ecosystem. It's fundamentally open links are not blocked most things are blocked users can always copy and paste.

Some things are not particularly enhanced with rich presentation.

<unk>.

Martin Lau: And why is that the case, right? You know, the ecosystem, if you look at our Asian ecosystem, is really built on the principle that it allows individuals, SMEs, brands, and merchants to engage with their users directly and in unfettered ways. When... And we have actually always upheld that principle.

Why is that the case right now the ecosystem if you look at our waste.

<unk> ecosystem is really built on the principle.

Ill individuals Smes brands and merchants to engage with their users directly and unfettered way.

When.

And we have actually always uphold that principle and build a lot of different tools.

Martin Lau: And we have built a lot of different tools, and we've put in place a lot of guidelines and rules of operation in order to support the vision. Now, when platforms actually interact with each other, different questions arise. It becomes much more complicated.

<unk> put in a lot of guidelines and rules operation in order to support this vision.

When when platforms actually interact with platforms different questions arose it become much more complicated.

Platforms do not offer individual services, they actually sort of you have got a lot of other.

Merchants don't put behind them right a lot of cases in some cases, there are a million.

Tens of millions of merchants behind these very large and dominant platforms.

And the platform rules are very different from ours.

So that actually raised a lot of complicated questions such as.

Users spend, especially when other platforms with a lot of <unk>.

Sources can offer subsidies.

How do we deal with kind of defeats and content.

Content piracy.

How do we deal with commercial policies, which are completely different for example, we don't charge any take rate on how merchants.

<unk> set the brands right with other platforms, how do we reconcile with that so we felt these.

Martin Lau: So we feel these are very complicated questions and need to be discussed and resolved over time. It's really not the most important priority for our vision. And if these questions are not handled well, then it will be bad for our users. It will be bad for the brands and merchants on our platforms. So we want to handle these questions in a very cautious way.

Very complicated questions.

It needs to be.

Discussed and resolved over time, and it's really not the most important priority for her vision and.

These questions and not handled well then it would be bad for all users it will be bad for the brands and merchants.

On our platforms. So we want to handle these questions in a very cautious way.

Martin Lau: Now in terms of video accounts, I would say video accounts have been growing quite nicely and are healthy in terms of DAU and time spent per DAU, as well as the number of content contributors. The Olympics content was also positive for video accounts. Right now, we are very focused on increasing content, improving the content ecosystem, including increasing high-quality content, as well as enhancing our core capabilities, such as our recommendation engine.

Now in terms of video accounts.

I would say video accounts has been growing quite nicely and healthy in terms of <unk> and time spent for <unk> as well as the number of content contributors.

Olympic content.

A positive for video accounts right now we are very focused on increasing the content improved content ecosystem, including increasing the high quality content as well as enhancing our core capabilities such as our recommendation engine.

Martin Lau: Monetization is not a focus for now. We know that at some point in time, there will be monetization because the monetization mechanism is actually well established in that industry. But for now, our focus is not on monetization.

<unk> is not a focus but now we know that at some point in time, there will be modest inflation because of monetization mechanism. It is actually a well established.

In that industry, but for now our focus is not on monetization.

Operator: Thank you. As a reminder, ladies and gentlemen, to ask a question, please press star one on your telephone. Our next question comes from John Choi from Daiwa Capital Markets. Please ask a question.

Thank you.

Ladies and gentlemen to ask a question. Please press star one on your telephone. Our next question comes from John Choi from Daiwa capital market.

Hyungwook Choi: Good evening management. Thank you for taking my question. I have a question on your online games and then another follow-up on the regulation. So on online games, I think you know you guys mentioned earlier that you know China market was about 8%. I understand last year was also a pretty high base but you know as we go into the second half this year with the more tighter regulatory environment targeting the minors, now how should we think about the you know

Ask the question.

Good evening management and thank you for taking my question.

Question on your online games and then another follow up on the regulation So online game I.

I think you guys mentioned earlier that in the China market was about 8% I understand last year was also a pretty high base, but as we go into the second half this year with the more tighter regulatory environment targeting the miners now how should we think about the gaming growth, particularly for the domestic market.

Hyungwook Choi: for

Yeah.

I do understand that we do have a few games in the pipeline, but it seems like the pipeline could be a bit more softer.

Hyungwook Choi: James Lee, William Packer, Ronald Keung, Thomas Chong, Alex Yao, James Lee, William Packer,

Depending on the delays and a quick follow up on the regulatory front I think Martin you mentioned that while you guys are.

James Gordon Mitchell: You mentioned that while you guys are complying more with the regulations, would this have some impact on how we do our business? Meaning, should we be seeing more of a slower business growth opportunities within your different businesses as you guys try to comply with the new regulatory standards? Thank you.

More.

Regulation.

This has somewhat impact on how we execute our business, meaning that should be seeing more of a slower business growth opportunities.

Within your different businesses as you guys try to comply to their new regulatory standards.

Martin Lau: John, so on your first question around our game business outlook, then we did quantify the impact of not generating revenue from users aged 12 years old and under, which is 0.3% of our Chinese game revenue and therefore a smaller percentage of our aggregate game revenue. We are positive and excited about our game pipeline within China and then, you know, without China, outside China. We have, you know, what we think is also a fairly healthy, robust game pipeline. You know, we've seen some success recently, you know, for the first time in Japan and Korea with our, you know, tactical RPG. We're seeing, you know, good traction again, arguably for the first time with a console-first game in the form of Pokemon Unite.

John So on your first question around our game business outlook then.

We did quantify the impact if not generating revenue from users, aged 12 years old and Andre which is 0.3% of our China again revenue and therefore, it's more of a sense too.

Aggregate game revenue and then on the positive side I think you made some comments about our soft game pipeline, which is not our perceptions are actually quite well.

Positive excited about our game pipeline.

Within China, and then without China outside China.

We have what we think is also a steady healthy robust game pipeline.

Seen some success recently and are ready for the first time in Japan and Korea with.

Tactical RPG were seeing good traction.

Again, it can be for the first time with a console first game on this one.

James Gordon Mitchell: So I think, you know, it's an uncertain environment. There are lots of moving pieces, but overall, you know, we believe we have a very high-quality game pipeline both inside China and internationally. In terms of regulations, I would say there will definitely be short-term adjustments that are needed for the different businesses.

Came on unite.

So I think.

It's an uncertain environment that has lots of moving pieces, but overall.

But if we have a very high quality game pipeline.

Inside China and internationally.

In terms of regulation as I would say it will definitely be a short term adjustments that are needed for the different businesses, but on the other hand, the long term strategy I think for us is actually very intact.

Martin Lau: But on the other hand, the long-term strategy, I think, you know, for us is actually very intense. We have always executed our strategy around creating services that have user value, that help businesses and industries, and then also create social value. And in that process, we invest in these services, and we monetize in a very self-restrained way. And I think that strategy will continue.

We have always.

Execute our strategy around creating services that pass user value that help businesses and industries and then also create social value and in that process are we.

Invest in DS services, we monetize in a very self restraint way.

And I think.

That strategy will continue.

Operator: Thank you. Our next question comes from Alex Yao from J.P. Morgan. Please ask the question. Thank you management for taking

Thank you. Our next question comes from Alex Yao from Jpmorgan. Please ask your question.

Thank you management for taking my question.

First question is.

Alex C. Yao: on the long term financial impact from increasingly more social response.

Long term financial impact from increasingly more sociable responsible you used to take social responsibilities.

In this quarter, you guys announced.

Alex C. Yao: more initiatives for social responsibility. Number one is the suspension of minor monetization for people under 12 years old. And then, number two is that you will charge very low to zero payment take away.

Two more initiatives.

Responsibility and number one is the suspension of minor monetization when people under 12 years old and then number two the.

You charge very low to zero payment take rate for some.

Alex C. Yao: For some cases, As you take on more of...

Some cases you pay.

Alex C. Yao: more and more of those social responsibilities. How should we think about them?

More and more and more social responsibility for how should we think about the impact on your long term margin structure.

Alex C. Yao: about the impact on your long-term margin structure. And then, secondly, I have a follow-up on Martin's comments around more regulation coming to the market. Can you share with us your thoughts on the direction and the areas of future regulatory direction or the areas that you expect to see more regulatory measures? Thank you.

Okay.

Mountains, a comment around more revenue.

Coming to the market can you share with us your thoughts on.

The directions in the areas of.

Future revenue direction or are you.

Expect to see more.

Regulatory measures. Thank you.

Martin Lau: Well, on the last question, we have already provided the framework. I think they will be coming from all different regulatory entities, as well as from different segments of the industries, and we think there will be quite a few coming. So I think, you know, we can't provide a clinical analysis of that until they come out. Now, in terms of the impact on our businesses, I think, you know, if you look at the under-12s, it's only 0.3% of our total revenues. So it's actually sort of, you know, very little.

Well on the last question.

<unk> already provided the framework I think it would be.

Coming from all different us rec.

Regulator entities as well as on.

Different.

Segments of industries.

And.

We think that there will be quite a few coming out.

So we can't provide a clinical.

Analysis of that until they come out in terms of the.

The impact on our business. If you look at the under 12 years is only <unk>, 3% of our total revenue. So it's actually sort of no or very little in terms of our.

Martin Lau: In terms of our SME benefits, by and large, it would slow down the growth of revenue, but I think, you know, it will be well within that scope. In terms of longer-term impact, I would say our margin profile has always been driven by our overall strategy of a combination of different components. One is monetization of profitable businesses, which usually monetization from outside is actually a restraint. And then we will have free services, which could be monetized over time.

<unk>.

Benefits.

But by and large it would slow down the growth of our revenue, but I think it would be well within that scope.

In terms of longer term impact I would say our margin.

<unk> has always driven our overall strategy of a combination of different components. One is monetization of its profit.

Profitable businesses, which usually the monetization from our side is actually a restrained.

And then we will have a free services, which could be monetized over time, and then we also have loss, making businesses, which by.

By now actually quite significant but they would actually overtime, hopefully narrow losses and over time be able to generate some profit.

Martin Lau: And then we also have loss-making businesses, which are actually quite significant now. But, you know, they would actually, over time, hopefully, narrow their losses, and over time, be able to generate some profit. And this overall strategic mix has actually been quite consistent over the past many years. And we intend to keep this strategy stable, which means that our earnings profile, I would say, over time would continue to be relatively stable, although there will be some short-term fluctuations.

And.

This overall.

The strategic mix.

It's been actually been.

Quite consistent over the past many years and we intend to keep this strategy stable, which means that our earnings profile I would say over time with continued to be relatively stable, although there'll be some short term fluctuations.

Martin Lau: Now, in terms of the SSV investment, right, you know, of $50 billion, it will be, again, funded from a non-IFRS profit, which we actually sort of, you know, have a pretty good, All right. So it will not impact our IFRS.

Now in terms of the SSB investment right.

50 billion it will be again.

I wanted to emphasize that funded from a non IRS profit in which we actually sort of have a pretty big pool.

Oh.

Okay.

Profit pool.

So it would not impact our non <unk>.

Yes.

Great.

Yeah.

Operator: All right, the next question comes from Natalie Wu from Haitong International. Please ask your questions.

Alright next question comes from Natalie <unk> from Hi, Tal International Please ask your question.

Natalie Wu: Hi, good evening. Thanks for taking my question. Just wondering, actually, your FDF Financial Business Services line actually grew very fast this quarter. I'm just wondering how much of the growth is led by commercial payment, and how much is led by the cloud. And also, just wondering if the gross margin profile of the cloud is similar to the FinTech business. Thank you. So on your

Uh huh.

Hi, good evening, Thanks for taking my question.

Who are very actually Europe.

Financial business premises line exit group that is Bob this quarter, just wondering how much or how much of that goes with that by kind of like a payment and how much of that's why the now and.

Hi.

See there is a chance.

Alright and also.

Just wondering if that gross margin profile of cloud.

Now with that.

Thank you.

James Gordon Mitchell: So on your question, Natalie, then both the commercial payment and the cloud were the two primary contributors to the growth. Within the cloud, we saw very rapid, very substantially above market growth, infrastructure as a service, and then more rapid growth, platform as a service, and software as a service. And that translated into the margin, where, you know, as John mentioned, the gross margin for cloud improved year on year. But that's not because we're at the stage of focusing on margin optimization yet.

So on your question Natalie then.

Commercial payments and cloud was.

But the two primary contributors to the growth within cloud we saw right round it.

Quite substantially above market growth infrastructure as a service and then more rapid growth.

Almost a service and software as a service.

And that translated into the margin.

As John mentioned, the gross margin for cloud.

Year on year, that's not because we're at the stage of focusing on margin optimization, yet rather it's because that was a gentle mixed shift from infrastructure as a service towards a platform a service and software as a service. So we're still focused on.

James Gordon Mitchell: Rather, it's because there was a gentle mix shift from infrastructure as a service toward platform as a service and software as a service. So, you know, we're still focused on maximizing client penetration and growing our market share and helping industries digitize rather than on profitability. But the gross profit margin did improve, notably year on year for business services, because of the mix shift to PaaS and SaaS.

Maximizing our client penetration and growing our market share and helping industries digitize Robinson on profitability, but the gross profit margin did improve noted the year on year business services because of the mix shift too.

SaaS.

Operator: Thank you. Our next question comes from Garrett Wang from Civic Securities. Please go ahead.

Thank you. Our next question comes from Garrett Wang from Citic Securities. Please go ahead.

Operator: Securities. Please go ahead.

Oh.

Hello Amendment team.

Javier I noted some tariffs and some of the ultimate Additionally, I'll cover my.

Mike and the team.

And remind me too from <unk> and <unk> is now leading China, maybe Richard yes.

Other.

Martin Lau: Besides, as the internet traffic is reaching its upper limit, under this background, what is the priority of our content investment? And can you give us some hints about our layout on the QJH or Metaverse? Thank you.

Business Department.

That'd be all focusing more on the content of the field has a much smaller team workout group demand strategy and a purpose.

We saw the organization.

Hi.

And then that traffic is a routine operating.

Although this back wrong, what is the priority of all the positive investment and can.

Can you give us some cadence of our layout on the.

No more multi Bruce thank you.

Martin Lau: Thank you for the questions, Garrett. So on your second question, you know, the metaverse is a topic of great interest to us, albeit a longer-term rather than immediate opportunity. And, you know, we believe there are a number of potential pathways to the metaverse, including, you know, very popular existing games that are highly social in nature, new games that are yet to be created, as well as existing social networks that become more metaverse-like progressively over... We also think that that's a skill set or attributes highly beneficial to come, provide a metaverse environment including experience of handling, and Interaction with each other.

Yes. Thank you for the questions Gary So on your second question and it's a matter of us as a topic of great interest to us, albeit a law.

Longer term, we're often the immediate opportunity.

We believe that the number of potential pathways to them out of us including.

Our popular existing games that are highly social in nature, new games that are yet to be created as well as existing social networks that can become more of a slight progressively over time.

We also think that that's scaling.

Skill sets are attributes that will be highly beneficial to companies seeking to provide a metaverse environments, including experience of handling huge numbers of users interacting with each other which is.

Communications, and social networking, including managing digital economies between users, which is a kin to online games and then also including the ability to.

Martin Lau: Managing Digital Economy, online games, and then also including the ability to take Physical World Assets, such as human faces, buildings, or mountains, and digitize them in order to populate the metaverse with people and with objects. And we're pursuing all of those paths; we're one of really a handful of companies globally that have all of those. Social Network. Insurance Managing Online Banking.

Take.

Physical world.

Assets, such as human faces or buildings or mountains, and digitize them in order to pop tedactive, none of us with that people with objects. It at a high speed and we are pursuing all of those pumps.

Believes that way a lot of really a handful of companies globally that have older device capabilities in terms of the.

Our social network expertise in terms of experience managing online games and in terms of the ability to take.

Real world assets and digitize them. So it's a matter of us purposes. So that's on the second question in terms of your first question. It is.

Martin Lau: [inaudible] So that's on the second question. In terms of your first question, yes. [inaudible] And I think your conclusion is correct.

And interesting and just shoot observation.

I think youll confusion is correct.

Martin Lau: We are looking for opportunities to continually re-enact upstream content presence, whether that's Digital Literature, whether that's in video. And we also believe that there are increasing opportunities for synergy between the different media formats. We can see that very clearly from the facts that when we released the drama based on Honor of Kings, that actually contributed to the popularity of the underlying Honor of Kings again; different media interpretations of the same underlying IP, which, if they're high quality, will self-destruct.

We are looking.

For opportunities to continue to reinforce our upstream content presence whether that's in <unk>.

Digital literature.

That's in video and film and television series.

<unk> seen in cartoons comics and so forth.

And we also believe that increasing opportunities for synergies.

Between the different media formats in China.

You can see that very clearly from the fact that when we re.

Please.

When we released the drama series based on all of our F. Kings, then that actually accretive pop it out here the antennae honour of kings the game and so you can have.

Media interpretations of the same underlying IP, which if that high quality.

Martin Lau: Ltd. [inaudible] now seeding a wide range of animators. Mobile Games, and so forth, and with each iteration, and RGFDI. Thank you. So, you know, that's a very healthy trend, by moving within, and by ensuring that what have historically been more platform-centric products are unmined.

Self reinforce each other and you can also see it in the.

But when I saw it in the China Literature's IP.

Ip's.

Donate Aldo.

And now ceding a wide range of.

Animated series.

Drama series mobile games.

So forth with each iteration.

And our CSD IP <unk>.

Respect for the it and the market appears to deepen and grow so that's a very healthy trend and we think that by moving people within sort of content centric groups and by ensuring that what have you start keeping more platform centric products become increasingly mindful of the opportunities around.

Martin Lau: We're in a very good position, and so are many others.

Content than we were in a very good position to really help drive that change in China.

Okay.

Operator: The next question comes from William Packer from Exxon Mobil, BNP Paribas. Please go ahead.

Our next question comes from William Packer from Exane BNP Paribas. Please go ahead.

Hi management, Thanks for taking my questions.

Firstly.

Now you've developed.

Developed your reinvestment plans.

Could you, perhaps we can communicate to the last quarter, which grew five go with details on the scales of investment you're planning for 2021, perhaps a narrowing the range of guidance of zero to 22% non-GAAP EPS growth.

Then secondly.

Wondering if you've heard any thoughts to share on 2022.

Thanks to both reinvestment plans and regulatory factors can be returned to profit growth. We got too soon thank you.

James Gordon Mitchell: So, William, you know, unfortunately, we typically don't provide guidance, and, you know, we did so last quarter as a means of signaling that there could be a.., and you know, a deceleration in growth because of the reinvestments in short video and in our game business and in enterprise. And you know, at this point in time, you know, I think what, What's more important is really to, you know, measure whether we are or are not delivering on those reinvestments, meaning that, you know, from our perspective, when we look at our enterprise initiatives, the fact that our business services revenue growth accelerated so sharply, the fact that we're seeing very strong user growth for Tencent Docs and for Wecom and for Tencent Meeting, you know, give us a degree of confidence that we're moving in the right direction.

So one of them.

Unfortunately, we typically provide.

Guidance and we did so last quarter as a means of sickening that that could be.

A deceleration in growth because of the Reinvestments in and a short video and in our game business and in enterprise.

At this point in time I.

I think well.

What's more important is really too.

Measure, whether we are or are not delivering on those reinvestments, meaning that from our perspective, when we look at our enterprise initiatives. The fact that our business services revenue growth accelerated so sharply. The fact that we're seeing very strong user growth 10, docs and so we comment for Tencent meeting.

Can you give us a degree of confidence that we're moving in the right direction.

James Gordon Mitchell: For our investments in game studios and game content, the fact that our international game revenue growth grew 37% year-on-year, the fact that we're for the first time successfully penetrating the Nintendo Switch opportunity, the first time moving into the Japanese market, gives us a degree of confidence we're moving in the right directions for games. And then for short video, the increases in DAU and time spent on WeChat video accounts, we believe signal that we're moving in the right direction.

Our investments in game studios and game content to the fact that up international gaming revenue grew 37% year on year. The fact that we have for the first time successfully penetrating Nintendo switch opportunity. The first time and moving into the Japanese market give us a degree of confidence we're moving in the right directions for games and then.

The short video the increases in <unk> and time spent on the <unk>.

We believe that we're moving in the right direction. So.

James Gordon Mitchell: So, you know, in terms of where that shakes out from a bottom line perspective in the next two quarters or the next six quarters, that has a huge number of moving parts. Some of them are within our control. Some of them are outside our control.

In terms of.

Where that shakes out.

Bottom line perspective in the next two quarters over the next six quarters. That's a huge number of moving parts. Some of them are within our control some of them.

Outside our control, but we're less focused on the short term roofing parts and we're more focused on what are the businesses. We are building at 510 years from now.

James Gordon Mitchell: But, you know, we're less focused on those short-term moving parts, and we're more focused on, you know, what are the businesses we are building five, ten years from now. And, you know, we firmly believe that if you look at our enterprise software suite, we have the products of the analogs of, you know, Zoom and Shopify and, arguably, Microsoft Office in China, which is a very good place to be.

We firmly believe that if you cut up enterprise software suite, we have the products to the offices.

Zoom and Shopify and Oxy, Microsoft Office in China, which is a very good place to be if you look at our video.

We have an opportunity to drive.

Longer term advertising revenue growth substantial scale. If you look at our game business, we have the opportunity to aggressively reposition deaths from a primarily China centric business to a truly global business and therefore more than tripled our addressable market for the King business groups. So that's our focus really around that.

Longer term opportunity rather than optimizing for the next six quarters.

Operator: Great, thank you. Our next question comes from Eddie Leung from Bank of America in Maryland. Please go ahead.

Great. Thank you. Our next question comes from Eddie Leung from Bank of America Merrill Lynch. Please go ahead.

Operator: Good evening. Thank you for taking my questions. The first question is a follow-up question on advertising and regulation. We have read from various media that there could be tightening of data connection and data privacy policies. So, just wondering what could be the potential impact on the different marketing solutions under your platform? Should we expect certain marketing solutions to have a less impact than others?

Good evening, Thank you for taking my questions.

The first question is a follow up question on advertising on regulation.

Right.

He is from various media that opex could be.

Tightening did not match trend and data privacy.

Policy. So just wondering could be the potential impact on the different marketing solutions.

Sure.

Should we expect sort of a marketing solutions to have less of an impact.

And Argos and then secondly, a follow up question on that James just mentioned.

For example, some of the overseas game opportunities.

Just wondering.

<unk> expands our presence in overseas, especially in Parliament.

We are going to focus on mobile games and how much we are actually looking at as you mentioned right console games and other opportunities such as our PC games. We also youll notice that you just asked that pushed a couple of studios in U S. So this is kind of like along that line. Thanks.

Okay.

Unknown Executive: So, you know, on your first question about data collection and data to target advertising, you know, I think we've always been well-known in the industry for being very thoughtful and judicious about the extent and other partners. Thank you. Thank you. At targeting. I won't go into that.

Yes. Thank you. So on your first question about data collection.

Collection, and using data to target advertising and I think we've always been.

Well known in the industry are being very thoughtful and judicious about the extent to which we use <unk>.

Consumer data for.

Targeting purposes.

I won't go into the details here.

James Gordon Mitchell: I think at a high level, you know, there could be fairly substantial changes in terms of the regulation, forward, nearly as aggressive as our Western peers or some of our local peers in terms of the granularity and the specificity of the ad targeting that we employ. So that's the first question, you know, on the second question... I think it was... (inaudible) focused on mobile games. Well, that's my opinion.

I think at a high level, our assumption is that.

That could be fairly.

Substantial changes in terms of the regulations around the use of data for advertising targeting purposes.

Before that would have any meaningful negative impact on us simply because we have not been in.

Nearly as aggressive as you know our western peers or some of our local peers in terms of the.

Granularity and the specificity of the AD targeting.

That we employed relative to that.

The use of data that we would potentially have access to so that's on the first question on the second question.

I think it was specifically around weather.

Focused on mobile games globally, or on PC and console games as well as mobile.

James Gordon Mitchell: You know, the answer is the latter, I think, in one of our biggest international... [inaudible] Pulling back a little bit, then, you know, in years gone by, required, effectively, the tripleting of headcounts and the tripleting of assets, as well as mobile at the same time. But that's increasingly the case for a few reasons. The architecture of PC, Xbox, and PlayStation is increasingly converging. Meanwhile, mobile, the architecture of mobile and switch.

The answer is the last year I think if you look at.

One of our biggest international game success in the last year as riot games, <unk>, which is a PC first game.

Big game successes last quarter.

Pokemon unite which is in Nintendo switch console game.

Pulling back a little bit then I think that in years gone by it would've.

Required effectively.

Tripling of head counts and a tripling of effort in order to address PC income so as well as mobile at the same time, but thats decreasing either case for a few reasons one is that the architecture.

And a PC Xbox and Playstation is increasingly.

<unk> changed around X 86, and Meanwhile, the architecture of mobile and switch it is increasingly convergent around.

Just chipset design and as a result studio slide to me has been very much mobile first find it easier to port to switch that would've been the case, when mobile and Nintendo architectural side of our part.

James Gordon Mitchell: You know, as a result, studios like and Mobile Firms. And then, secondly, there's a profusion of software tools, including our Invasive EMPICS Unreal Engine, that simplify the process. And thirdly, within Tencent, we've made a number of investments, worked on what were historically worked for hire studios, a number of specializations, but one of the specializations was helping a great deal, so I think for all of those.

And then secondly that the profusion of software tools, including our Investees Epic's Unreal engine and simplify the process of developing some multiple platform simultaneously and therapy within Tencent, we've made a number of investments.

Acquisitions of.

Well what were historically, what's the highest studios outside China with a number of specializations, but one of the specializations was helping a great game on PC become a great game on console Martel Vice versa. So I think for all of those reasons.

Addressing.

PC console and mobile together internationally will be increasingly doing so going forward.

Operator: Thank you. Our next question comes from Thomas Chong from Jeffries, please.

Thank you. Our next question comes from <unk>.

MS Chong from Jefferies. Please go ahead.

Operator: Hi, good evening. Thanks, management, for taking my questions. My first question is about the online video landscape. I just want to get a sense about the regulatory environment for long-form video. Are we seeing that it's relaxing, and should we expect more long-form drama series and variety shows to come out in the second half?

Hi, Good evening, Thanks management for taking my questions. My first question is about the online video landscape.

Just wanted to get a sense about the regulatory environment in long form video.

Seeing that is a relaxing and we should expect more along Paul Thomas Evs, but why you chose not to come out in the second half.

Thomas Chong: And my second question is about, just follow up on the previous questions on the international gaming side. Given that we have seen quite a very strong growth momentum in international games, I just want to get a sense about our strategies going forward. Should we expect it to be more driven by in-house development or M&A? And on that front, can management give us...

And my second question is.

Yes.

Just a follow up the previous.

Question is on the international side.

Isn't that what we have seen strong momentum in international gains.

Again, I'll say this about.

Strategy is going forward should we expect.

It will be driven by in house development.

M&A and that's the one can management give us some color about the international gaming revenue contribution in Q2 as well as the long term. Thank you.

Thomas Chong: Give us some color about the international gaming revenue contribution in Q2.

Thomas Chong: in Q2, as well as the long-term KPI. Thank you.

James Gordon Mitchell: So why don't I address the international games question. You know, we actually disclosed the international game revenue for 2Q, and you can back out. It's, I think, 25% of game segment revenue. And we also disclosed that revenue grew 37% year-on-year in constant currency terms. In terms of the strategy, then, you know, I think it's very much a content-first strategy, focused on both distribution and content creation, although increasingly shifting to content creation over time, whereas outside China, it's much more purely content-driven.

So why don't I address the international games question, we actually disclosed the.

International game revenue for <unk>, when you come back out of <unk>.

I think 25% of games segment revenue.

And we also disclosed that the revenue grew 37% year on year in constant currency terms in terms of the strategy. Then I think it's very much a content first strategy in China, because of QQ and <unk> distribution platforms with historically.

Focused on.

Both distribution and content creation or they are increasingly shifting to content creation over time versus outside China.

It's much more purely content driven.

James Gordon Mitchell: In terms of where the revenue and where the growth is coming from, then it's primarily existing studios, although supplemented periodically by acquisitions that we think are a New Technology Capability we previously lacked. So looking at our international game revenue in the second quarter, then the One big piece is games that we create in China, such as PUBG Mobile, such as Arena of Valor, and we export to the rest of the world. A second big piece, relatively similar in size, is games created outside China by some of our very... successful in Vastu studios outside China, such as Riot with League of Legends and Valorant such as Supercell with Clash of Clans, Clash Royale, and Brawl Stars.

In terms of where the revenue and where the growth is coming from Ben It's <unk>.

Similarly existing studio.

Our supplements it periodically.

Acquisitions that we think.

Fit a particular hold or bring us a new technology capability. We previously that so looking at our international game revenue in the second quarter then.

James Gordon Mitchell: And then a smaller component is other studios outside China that are at more of an incubation stage or have released one big game previously and are now working on their second. So that's as far as our international gains are concerned.

Yes.

One big piece is games that we create in China, such as <unk>.

<unk> mobile such as Arena Roca, Honda and we export to the rest of the world.

Our second big piece relatively similar in size.

Games created by outside China by some of the trade.

Successfully Investees studios outside China.

As Ryan with league of legends and thought of it as such as supercell with clash of clans Clash Royale stars and then a smaller component is other studios outside China.

More of the incubation stage.

Yep.

One became previously and an outlook on on that second game. So.

So that's as far as international gains are concerned with regard to online video Martin May supplement me, but I think that.

James Gordon Mitchell: And with regard to online video, Martin may supplement me, but I think that, as you're probably aware, in the first half of this year, there were..., you know, content constraints related to the July 1st celebration. And so it's possible that there may be more drama series appearing, or we have experienced more successful drama series already this summer. On the flip side, I think that there's been some issues with variety shows, and therefore, there's some dislocation among variety show output in the second half of the year. You're probably aware that, historically, variety shows tend to monetize primarily through advertising versus drama series that monetize primarily through subscriptions, increasingly subscription-driven, and I think that will remain true going forward.

As you're probably aware in the first half of this year. There was some content constraints related to the July the first celebration.

So it's possible that there may be more drama series of hearings.

Experienced more successful drama series, we're ready to summer on the flip side I think there's been some issues with a variety shows and therefore, there is some dislocation to the variety show.

Output in the second half of the year probably of what historically for US. He shows tend to monetize primarily through advertising versus drama series monetize primarily through subscriptions.

<unk> business is increasing subscription driven and I think that will remain true going forward.

Operator: Operator, we are closing the call now. Thank you, everyone. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com.

Thank you operator, we are closing the call now.

Thank you everyone. If you wish to check out our press release and other financial information.

The IR section of our company website at Www Dot Tencent Dot com the replay of this webcast.

website at www.tencent.com. The replay of this webcast will also be available soon. Thank you, and see you next quarter. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating.

Available. So thank you and see you next quarter.

Ladies and gentlemen that does conclude our conference for today. Thank you for saving you may all disconnect.

Q2 2021 Tencent Holdings Ltd Earnings Call

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