Q4 2021 Tencent Holdings Ltd Earnings Call

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

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

At this time.

Operator: And at this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star and the number one on your telephone. And please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. Now, I would like to turn the conference over to Ms. Wendy Huang from Tencent IIT. Thank you. Please go ahead.

Participants are in listen only mode. After the speaker's presentation there'll be a question and answer session.

Question James the session, you will need to press star and the number one and 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 the conference over to MS. Wendy Huang from Tencent.

Thank you. Please go ahead.

Thank you operator, good evening, everyone welcome to our 24th quarter and annual results Conference call.

Wendy Huang: Thank you, operators. Good evening, everyone. Welcome to our 2021 fourth quarter and annual 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 they 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 group's financial performance propelled in accordance with IFRS. For a detailed discussion of risk factors in a non-IFRS measure, please refer to our disclosure documents in the IR section of our website.

Before we started presentation, we would like to remind you that it includes forward looking statements which are underlined.

And all synergies.

That will be realized in the future.

Yes.

Information about general market conditions is calling for a variety of sources outside of Tencent.

This presentation also count.

Oh no.

These financial measures that should be considered in addition to but not as a substitute for measures.

In Asia performance propelled in accordance with <unk>.

A detailed discussion of risk factors.

Measures. Please refer to our disclosure documents on the IR section of our website.

Wendy Huang: Now, let me introduce the management team on the call tonight. 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 provide a business review, and Chief Financial Officer Joan Lo will conclude with a financial discussion before we open the floor for questions.

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

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

President Martin Lau will discuss.

Hugh.

Chief Strategy Officer, James Mitchell will provide a business review.

And Chief Financial Officer, Joe will conclude with financial discussion before we open the floor for questions.

I would now turn the call over to Pony.

Thank you Randy.

Good evening, everyone. Thank you for joining us.

Huateng Ma: Good evening, everyone. Thank you for joining us. 2021 was a challenging year. During the year, we embraced change and implemented certain measures that reinforced the company's long-term sustainability. What are the effects of slowing our revenue growth? Despite financial headwinds, we have continued to make strategic headwinds. Our Weixin ecosystem will increasingly be violent, delivering more value to users and partners, content diversity and video views increased significantly in video accounts, many programs for independent merchants to thrive within their own private domain, increasing their fiscal goods GMB year-on-year. Our healthy code served 1.3 billion users with 180 billion total visitors since its launch, becoming the most used ePub for verifying health and travel status during the pandemic.

Sure.

Challenging year.

The year, we embrace change and implement certain measures and we can focus the company's long term sustainability.

Bob had that you've done.

Our revenue growth.

As far as financial have we.

<unk> has continued to make strategic heartbeat.

Always doing ecosystem.

Christy violent.

Delivering more value to users and partners.

Quanta diversity and video views increased significantly in the dealer count.

Mini programs with Citigroup independent of the mergers two slides, we think theyre all private demand.

Probably they are physical goods <unk>.

Yes.

Our healthy cold to serve the one policy beta users.

180 feet in total visits lunch he.

He called me that most of you.

<unk> four <unk>.

Health and travel.

And the pandemic.

So I'll turn call, we deepen the integration amongst the fastest growing source product.

Huateng Ma: For Tencent Cloud, we definitely need integration amongst the faster-growing SaaS products. Wecom, Tencent Meeting, and Tencent Docs together facilitate more efficient collaborations and workflows, both within and between organizations. Our video cloud solutions rank number one in the domestic market by revenue, and we also provide other industry-leading past services. In Games, we launched League of Legends Wild Rift and five of the Golden Spatula, the two highest ranked new mobile games by BAU in China.

You call them.

Nikki and Kent been talk together facilitates more efficient collaboration and workflow.

Both are meeting and beating organization.

Our video cloud solutions ranked number one.

Ticket market by revenue.

And we also provide other industry industry, leading paas services.

And again, we launched the architecture is wildly.

And fight off the Goto spatula.

The two highest rank.

New mobile games.

China.

We also have you back and hopefully to five all of the top 10 mobile games all of that I tried to buy it.

Huateng Ma: We also developed and operated five out of the top 10 mobile games outside China by BAU and increased international contribution to game revenue to 26%. FinTech business was stable as we operate with prudence, cooperation, and expertise.

<unk> international contribution to gain revenue to 26%.

Student Tech business was stable.

Operator.

Corporation and expertise.

Looking forward, we believe the China Internet industry is structurally shifting to a healthier mode characterized by at least focus on user value technology innovation and social responsibility.

Huateng Ma: Looking forward, we believe the Chinese internet industry is structurally shifting to a healthier mode characterized by the focus on user value, technology innovation, and social responsibility. We are proactively adapting to the new environment by optimizing cost, increasing efficiency, sharpening our focus on key strategic areas, and repositioning ourselves for sustainable long-term growth. I'm summarizing our financial numbers. Our revenue growth slowed while our costs increased for the fourth quarter, resulting in a year-on-year earnings decline. Total revenue was 144 billion RMB, up 8% year-on-year and 1% quote-unquote. Gross profit was 58 billion RMB, 2% year-on-year and 8% quarter-on-quarter. Non-IFRS operating profit was 33 billion RMB, down 13% year-on-year or 19% quote-unquote.

We are proactively adapting to the new environment.

By optimizing costs increasing efficiency.

Sharpening our focus on key strategic add it.

And we position ourselves for sustainable long term growth.

Summarizing our financial numbers.

Our revenue growth slower while our coffee.

For the fourth quarter, we started.

Yes.

Sorry.

Total revenue was 140 <unk> up.

Up 8%.

And 1% quarter on quarter.

Gross profit was 58 billion RMB.

2%.

Quarter on quarter.

No.

Can populate.

B the RMB <unk> 14.

13% year on year.

Or 19th of third quarter I'll quickly.

Huateng Ma: Non-RFI net profit attributable to equity holders was 25 billion RMB, growing 25% year-on-year and 22% quarter-on-quarter. For our key services, we generally retain our first place position in activities including social, games, long-form video, news, music, literature, payment, and mobile utilities. Combined MAU of WeChat and WeChat was 1.27 billion. The mobile devices MAU of QQ was 552 minutes. Now I will hand over to Martin for the strategy review. Thank you, Pony, and good evening and good morning to everybody.

Non <unk> net profit attributable to equity holders was 235 billion RMB.

75%.

2% third quarter.

Yeah.

For all of Q3.

January became our first place position in active including soldier games.

The deal new move.

The catcher payment and mobile you can with you.

Combined Mou of leisure and retail was $1 two 7 billion.

Mobile.

Devices and <unk> was 550.

To meet it.

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

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

Martin Lau: As Pony discussed earlier, 2021 was a challenging year for the internet industry in China and Tencent as well. Today, I would like to share with you how we see the industry changing structurally and fundamentally, and how we are repositioning ourselves for the new industry environment, and why we remain confident in our future. It's only a long period of rapid development.

As Tony discussed earlier 2021 was a challenging year for the internet industry in China in Tianjin as well.

Today, I would like to share with you how we see the industry has changed structurally and fundamentally.

How are we positioning ourselves for the new industry environment, and why we remain confident in our future.

Our long period that puts development.

Martin Lau: The internet industry in China has revolutionized many aspects of people's daily lives and contributed significantly to the digitization of industries. However, for several years, industry participants have overemphasized will some competition, aggressive marketing, reckless expansion, short term growth and corporate benefits, overlooking the most important elements of sustainable growth. As a result, the industry's growth has become frothy and unhealthy. Since early 2021.

The industry in China has revolutionized the many aspects of People's Daily lives and contributed significantly to the Digitization of industries. However.

However for several years industry participants have overemphasized really some competition aggressive marketing.

This expansion short term growth and corporate benefits overlooking the most important elements of sustainable growth.

As a result, the industry's growth has become frothy.

Since early 2021.

Martin Lau: The internet industry has faced fundamental changes and challenges. New regulations have been introduced to correct misbehavior by industry participants in multiple sectors and to promote fair competition, user protection, and data security. At the same time, the global macro environment has become more challenging.

Internet industry has faced fundamental changes and challenges.

New regulations have been introduced to correct. This behavior by industry participants multiple sectors.

To promote competition user protection and data security the.

The same time, the global macro environment has become more challenging.

Martin Lau: Amid these changes and challenges, we strongly believe that it is time for the internet industry to return to its roots of creating sustainable value in a responsible way. In a new paradigm, the internet industry should focus on the most important and fundamental elements for healthy development, including user value, technology and innovation, cost efficiency, long-term sustainability, and balanced benefits among corporations, the internet industry, and society.

Amidst these changes and challenges.

We strongly believe that it is tied to the internet industry to return to its roots of creating sustainable value in a responsible way.

And a new paradigm industry should focus on the most important and fundamental elements so healthy development.

Including user value technology, and innovation cost efficiency long term sustainability and balanced benefits among corporations industry and society.

At Tencent, we believe we're already well positioned for the new industry paradigm.

Martin Lau: At Tencent, we believe we are already well positioned for the new industry paradigm. We have a long-term-oriented corporate culture that focuses us on user value, social responsibility, technology innovations, and compliance, the key elements for sustainable and healthy growth. In addition, we are proactively embracing changes to better align ourselves with the new industry paradigm. For example, we are progressively implementing initiatives to control marketing and operational costs and to rationalize our non-core business

The long term oriented corporate culture that focuses.

Unusually value social responsibility technology innovations and compliance.

Key elements for sustainable and healthy growth.

In addition, we are proactively embracing changes to better align ourselves with the new industry paradigm.

We are progressively implementing initiatives to control marketing and staff costs and to rationalize our non core businesses.

Martin Lau: We expect results from these initiatives to become apparent from the second half of 2022 and onward, as we continue to invest in our strategic growth areas, namely SaaS, video accounts, and international games. We're confident that these repositioning initiatives will enable us to resume growth at a sustainable and healthier pace in the new industry paradigm over the course of 2021. Our financial performance was under pressure amidst structural industry challenges.

We expect results from these initiatives to become apparent.

The second half of 2022.

And onward.

We continue to invest in our strategic growth areas, namely sauce.

Video accounts and international games.

We are confident that these repositioning initiatives will enable us to resume growth at a sustainable and healthy pace in the new industry paradigm.

Over the course of 2021, our financial performance was under pressure amid structural industry challenges.

We experienced lower revenue growth during the year as we adjusted to the new environment.

Martin Lau: We experienced lower revenue growth during the year as we adjusted to the new environment. So advertising, our advertisers, and our own app services adapted to new economic and regulatory conditions for our domestic games business. We implemented industry-leading mining protection measures to ensure a healthy gameplay environment in China. The direct revenue impact of these measures was lower game spending for minors, which has always been very small.

So advertising or advertising isn't in their own App services adapted to new economic and regulatory conditions.

So our domestic games business, we implemented industry, leading might've protection measures to ensure a healthy gameplay environment in China.

Direct revenue impact of these measures with lower games spending from minors, which has always be very small.

Martin Lau: However, more importantly, there was an indirect revenue impact arising from shifting opportunity and development resources away from new gains in content development toward minor protection measures implementation. Our margins reduced due to operating de-leverage, reflecting three key factors. First, our investments in strategic growth areas, namely SaaS, video accounts, and international games. Second, our increased costs in response to aggressive marketing activities and intense talent competition in the industry during the course of 2020 and 2021.

However, more importantly.

There was indirect revenue impact of rising some shifting of certain development resources away from new games and content development towards minded protection measures implementation.

Our margins reduced due to operating deleverage, reflecting three key factors.

Our investments in strategic growth areas, namely sauce video accounts, especially games.

Second our increased costs in response to aggressive marketing activities and intense competition in the industry.

Of course of 2020 in 2021.

Martin Lau: Third, higher revenue contribution from business services, which currently have a lower gross margin. At the non-operating level, our financial performance was also affected by higher losses of several investees, which increased investments in new businesses such as community group buys and incurred heavy expenditure on Music Acquisition.

Third I.

Higher revenue contribution from business services, which currently have lower gross margin.

At the non operating level of financial performance also affected by higher losses at separate Investees, which increased investments in new businesses, such as community group buy and encourage it had the expenditure on this.

Acquisition.

Yes.

Although we faced financial pressure in 2021, we believe our underlying services businesses is in good health.

Martin Lau: Although we faced financial pressure in 2021, we believe our underlying services and businesses are in good health. For advertising, as we adapt to the new environment and further upgrade our app solutions, expect growth to be seen in late 2022. For domestic games, we expect to fully digest the impact of minor protection measures in the second half of 2022.

For advertising as we adapt to the new environment and further upgraded our AD solutions.

Growth to resume in late 2022.

The domestic games, we expect to fully digest the impact of minor protection measures in the second half of 2022.

Martin Lau: We benefit from more new game launches when there are new releases. For eyes and paths, we are repositioning our focus on revenue growth at all costs to customer value creation and quality of growth, which should benefit our customers and margins over the longer term. For long-term video, we are optimizing its cost structure to reduce losses while maintaining its leading position. On the other hand, we also see compelling growth opportunities emerging in our strategic growth areas.

The benefit from more new game launches when they are newly this is substantial.

So I can pass we are repositioning our focus on revenue growth at all costs to customer value creation and quality of growth, which should benefit our customers and margins over the longer term.

Our long term video, we are optimizing the cost structure to reduce losses, while maintaining its leading position.

On the other hand, we also see compelling growth opportunities emerging in our strategic growth areas.

Martin Lau: For enterprise software, we are expanding the scale of our communication and collaboration side. For video accounts, we are enriching user connections with creators, advertisers, and merchants for International Games. We have a compelling pipeline backed by franchise expansion at our market-leading studios and consistent enhancement of our category-leading studios. In the next few slides, I will discuss more our latest operational progress in these three strategic growth areas. Let's start with our communications and collaboration side. SaaS adoption in China is experiencing rapid growth among large enterprises and SMEs, in particular. Enterprises are increasingly focused on customer engagement, collaboration, and productivity enhancements in their digitization process. By 2021,

So enterprise software, we are expanding the scale of our communication and collaboration staff the video accounts.

Reaching usually connection with creators advertisers and metrics.

National games, we have compelling pipeline backed by franchise extensions at.

Our market, leading studios and consistent enhancement of our category leading studios.

The next few slides I will discuss more on our latest operational progress in DS Smith.

Strategic growth areas.

Let's start with our communications and collaboration sauce.

Martin Lau: Wecom, Tencent Meeting, and Tencent Docs achieved strong user growth and deepened penetration into key industry verticals such as education, retail, healthcare, and manufacturing. The recent strategic product upgrades are strengthening our competitive edges by, firstly, positioning Veecom as the core platform for enhanced collaboration and productivity among employees and partners, and reintegration with Tencent Meeting and Tencent Docs. Enterprises will benefit from reduced complexity, enhanced user experience, and increased efficiency. Secondly, enable differentiated CRM functions in Veeam with a deepened connection to Weixin.

SaaS adoption in China is experiencing rapid growth among large enterprises and Smes.

In particular.

Enterprises are increasingly focused on customer engagement collaboration and productivity enhancements in the digitization process.

During 2021.

We come tends to meeting and Tencent dogs achieved strong user growth and deepened penetration in key industry verticals, such as education retail healthcare and manufacturing.

The recent strategic trial upgrades, we're strengthening our competitive edges by firstly positioning <unk> as the core platform for enhanced collaboration and productivity among employees and partners and integration with Tencent meeting and Tencent Ducks.

Enterprises will benefit from reduced complexity, and hence user experience and increased efficiency.

Secondly, enabling differentiated CRM functions as we come with deepens connections equation for instance, enterprise since it uses become can build customer engagement through multiple touch points with innovation and enhanced services via the newly launched <unk> customer services.

Martin Lau: For instance, enterprises using Veeam can build customer engagement through multiple touchpoints within Weixin and enhance services via the newly launched Weixin customer service. We're currently prioritizing scale expansion over risk and revenue generation, as we believe expanding the network of effective communications and collaboration tools is important for future value creation. Having said that, we are confident in unlocking the monetization potential ahead because, firstly, there are proven business models and a significant market size for critical enterprise stars internationally.

We're currently prioritizing scale expansion overseas, which can revenue generation as well.

We believe expanding the network effect of communications and collaboration tools is important for future value creation.

Having said that we are comforted and unlocking demand <unk> potential exit.

Because firstly the art proven business models and significant market size for critical enterprise SaaS internationally.

Martin Lau: Secondly, in China, the significant size and fast growth of past spending is a leading indicator of the monetization potential of critical enterprises. And thirdly, we can leverage our deep experience in monetizing freemium 2C products, which share certain similarities with communication and collaboration. Now, turning to video accounts, which have become a new core infrastructure operation ecosystem.

Secondly, in China, Silicon size and fast growth of past spending as a leading indicator of the monetization potential of critical enterprise.

And thirdly, we can leverage our deep experience in monetizing premium to see products, which share certain similarities with communication and collaboration.

Turning to video accounts, which has become a new core infrastructure operation ecosystem.

Martin Lau: Video Accounts, Time Spent per Day Viewing, and Total Videos Viewed both more than doubled year-on-year in the fourth quarter. The growth was supported by our successful expansion in creators and content diversity, as well as our product enhancements. We achieved a significant breakthrough in our pocketed content categories such as news, music, and knowledge-based content. The number of videos with over 100,000 likes increased robustly, demonstrating deepened user engagement

Video accounts time spent per day and total videos viewed.

Both more than doubled year on year.

In the fourth quarter.

Growth was supported by our successful expansion and creators and content diversity.

As well as our product enhancements.

We achieved a significant breakthrough in a targeted content categories, such as news music and knowledge based content.

<unk> with over 100000 likes increased robustly demonstrating deepening user engagement.

The proliferation of video accounts also enhance the strength of <unk> overall content ecosystem.

Martin Lau: The proliferation of video accounts has also enhanced the strengths of Tencent's overall content ecosystem. Taking the Beijing Winter Olympics as an example, by leveraging video accounts and the capabilities of other properties within Tencent, including social sharing on racing moments, professional sports content from Tencent Sports, and editorial coverage from Tencent News, we achieved the highest user reach among internet platforms in China for the global sports event. We have been very focused on enriching user connections with creators and merchants and video accounts. An increasing number of media, retailers, and brands recognize our strong differentiation of building private domains and developing deep engagement with users through this meeting.

The Beijing Winter Olympics as an example by leveraging video accounts and the capabilities of other properties with intentions, including social sharing embracing movements.

Fashion sports content from Tencent sports and editorial coverage in terms of news, we achieved the highest usually which among internet platforms in China, but a global sports events.

We have been very focused on enriching user connections with creators and merchants and video accounts.

An increasing number of media retailers and brands recognize a strong differentiation of beauty private domain.

And a developing deep engagement with users.

This means.

Martin Lau: We're nurturing more high-quality original content by leveraging official account created pools and upgrading our creator support scheme. We are also facilitating merchant operations with enhanced shopping features and marketing tools. As for monetization of video accounts, we're still in the early stage of development. For live streaming, we are ramping up our tipping revenue, which is already becoming quite sizable, but we pass most of the benefits to content creators. We're growing our live streaming e-commerce GMV as well. Later in 2022, we will kick off the testing and optimization of short video feed ads, which we believe will be the largest revenue opportunity within the video account. Finally, moving on to international games.

With the entering more high quality original content by leveraging official account created cruise and upgrading our creative support scheme.

We're also facilitating merchant operations with enhanced shopping features and marketing tools.

As for monetization of video accounts, we're still in the early stage of development.

Streaming we are ramping up our tipping revenue, which is already becoming quite sizable.

<unk> passed most of the benefits of content creators.

Growing our light streaming e-commerce .

As well.

In 2022, we will kick off the testing and optimization of short video speeds at.

Which we believe will be the largest revenue opportunity within the video accounts.

Finally, moving on to international games.

Martin Lau: Many of you are aware of our highest profile franchises and studios. League of Legends is one of the top three PC games by MAU. After more than 12 years of its release, the franchise is still expanding. Thanks to its excellent gameplay experiences, attractive new game modes, team fight tactics, high quality linear content, and the most popular esports event in the world. Hachi Mobile is a top five mobile game by DAU.

Any of you are aware of our highest profile franchises in studios.

<unk> is one of the top three PC games by Mou.

After more than 12 years of its release the franchise is still expanding thanks to its excellent gameplay experiences attracted new game mode.

<unk>.

High quality alumina content and.

And the most popular esports event in the world.

T mobile is a top five mobile game <unk>.

Flash is the only mobile game franchise with two of the top 10, most popular titles Baidu.

Martin Lau: Flash is the only mobile game franchise with two out of the top 10 most popular titles by DAU, mainly Clash of Clans and Clash Royale. Valorant has grown into a leading title in the tactical shooter category and ranked number one on Twitch in this hyper-competitive category. But you may be less aware of our success in acquiring and nurturing lower-profile students that focus on a particular category of gains and that have iterated their way through leadership within these categories while consistently increasing their revenue and earnings.

Namely clash of clans and clash Royale.

Element has grown into a leading title in tactical shooter ranked number one on twitch in this hyper competitive category.

But you may be less aware of our success in acquiring and nurturing lower profile students that focus on a particular category of games.

It's weighted that way for the leadership within these categories, while consistently increasing the revenue and earnings.

Martin Lau: For example, since we acquired Miniclip in 2015, it has steadily grown through new releases and bought-on acquisitions to become a leader in mobile sports games. Similarly, since we acquired Grinding Gear Games in 2018, its game, Path of Exile, has become the global leader in the action role-playing genre.

For example, since we acquired <unk> clip in 2015.

Steadily grow with new releases and bolt on acquisitions to become a leader in mobile sports games.

Since we acquired grinding gear games in 2018 with game path of exile has become the global leader in action roleplaying genre.

James Gordon Mitchell: Since we acquired Digital Extremes in 2020, it has cemented Warframe's position as a leading cross-platform sci-fi shooter. Based on our proven success, we have increased our pace in acquiring emerging studios with promising futures. We're confident that our game competences in games as a service model, in our extension from PC and console games to mobile platforms, as well as our game development and publishing expertise will be able to facilitate bigger hits with greater longevity for our category leading studios. We are already one of the key industry participants in the international market with a revenue increase to 7.1 billion US dollars in 2021.

Since we acquired digital extremes in 2020 with cemented <unk> position as a leading cross platform side by shooter.

Based on our <unk>.

Proven success with increased outpace in acquiring emerging studios with promising future with <unk>.

<unk> Dot outgained competences.

And James as a service model.

Extension from PC and console games T mobile platform as well as our game development and publishing expertise.

We'll be able to facilitate bigger ships with greater longevity for our category leading studios.

We're already one of the key industry participant in the international markets with a revenue increase of $271 billion in 2021.

James Gordon Mitchell: Going forward, we aim to further grow our existing titles via deepening market penetration, product enhancements, and operational optimization. In addition, we'll continue to release new titles, which we expect to drive additional growth, particularly for 2023 and beyond. So with that, I'll pass to James to discuss the business review. Thank you, Martin.

Going forward, we aim to grow further our existing titles deepening market penetration.

Enhancements and operational optimization and.

In addition, we will continue to release new titles, which we expect to drive additional growth, particularly for 2023 and beyond.

So with that I'll pass to James to discuss business review.

James Gordon Mitchell: For the fourth quarter of 2021, our total revenue grew 8% year on year. VAS represented 50% of our revenue, of which the domestic games subsegment was 21%, international games 9%, and social networks. Online advertising was 15% of our revenue, and FinTech and business services reached 33%. For value-added services, segment revenue was $72 billion for the quarter, up 7% year-on-year. Social Network revenue was up 4% year-on-year to 29 billion renminbi, reflecting more video subscriptions and revenue contributions from video accounts.

Thank you Martin for the fourth quarter of 2021 total revenue grew 8% year on year <unk> represented 50% of Iraq me within which the domestic game sub segment was 21% international games, 9% and social networks, 20% online advertising was 15% of our revenue and Fintech and business.

Services reached 33%.

So value added services segment revenue was 73 billion renminbi for the quarter up 7% year on year.

Network revenue was up 4% year on year to 29 billion renminbi, reflecting more video subscriptions and revenue contributions from video accounts live streaming services.

James Gordon Mitchell: Our total VAS subscriptions grew 8% year-on-year to 236,000. Despite content regulations, our video subscriptions increased 1% year-on-year to 124 million, benefiting from popular animated series, drama series, and sports events. Music subscriptions increased 36% year-on-year to 76 million thanks to expanded sales channels and high-quality content and services.

It'll VII subscriptions grew 8% year on year to $236 million. Despite content regulations, our video subscriptions increased 1% year on year to $124 million.

Getting from popular animated series drama series and sports events music subscriptions increased 36% year on year to 76 million, thanks to expanded sales channels and high quality content and services.

Our domestic games revenue was up 1% year on year to 30 billion renminbi as growth from honour of Kings Plaza Yoga Inspite of the Golden statue that when we get license what Rick was largely offset by softness from Moonlight blade mobile in dungeon <unk> fighter.

James Gordon Mitchell: Domestic Games revenue was up 1% year-on-year to RMB$30 billion as growth from Honor of Kings plus new games Fight of the Golden Spatula and League of Legends Wild Rift was largely offset by softness from Moonlight Blade Mobile and Dungeon and Fighter. However, revenue decreased quarter-on-quarter due to seasonality and the direct and indirect effects of the controls on miners playing games. International Games Revenue grew 34% year-on-year to $13 billion RMB. The increase reflected popular content updates in Valorant and Clash Royale, a true-up adjustment to Supercell's revenue upon periodic review of revenue deferral periods, as well as consolidation of digital extremes.

Revenue decreased quarter on quarter due to seasonality and so the direct and indirect effects of the controls on minus playing games.

International games revenue increased 34% year on year 13 billion renminbi increased refractive popular content updates and documents and clash Royale, a true up adjustment Super sales revenue upon periodic review of revenue deferral periods as well as consolidation of digital extremes.

James Gordon Mitchell: In waging video accounts, we broadcast the 2022 CCTV Spring Festival Gala, incorporating unique features for sharing clips in moments. 120 million viewers watch this gala on video accounts. We exclusively carried the first-ever online concert by boy band Westlife, with 27 million viewers, and rock group Mayday live-streamed their New Year's Eve concert on video accounts, attracting 14 million viewers. For QQ, we're upgrading the service's code base to facilitate a more immersive social experience.

Embracing video have accounts with broadcast for the 2022 CCTV Spring Festival gala incorporating unique features for Sharon clips environments 120 million viewers watched the scholar and video accounts.

Excuse me would be carried the first ever online concert by boy band Westlife with 27 million viewers and rough group made a livestream that new year's Eve concert on video accounts, attracting 14 million viewers.

For QQ, we're upgrading the services, let's say more or less I should experiences with <unk>.

James Gordon Mitchell: We're integrating Unreal Engine's graphics capabilities to enable advanced real-time rendering and physics simulation, providing more attractive visuals and lifelike interaction. For example, we're testing an application of Unreal Engine and Super QQ Show, where users can customize their 3D animated avatars for use in social scenarios.

Grading umbrella engines graphics capabilities.

Real time, rendering and physics simulation, providing more attractive visuals and lifelike interactions.

Example, with application of Unreal engine and Super QQ shot so that.

Users can customize their <unk> automated appetites for Houston social scenarios.

Turning to our games in China accounts fading, a key IP franchises more DPM currently honour of Kings were developing new games animated series and a movie based on its popular characters.

James Gordon Mitchell: Turning to our games in China, we're cultivating our key IP franchises more deeply and broadly. For Honor of Kings, we're developing new games, animated series, and a movie based on its popular characters. We're increasingly creating thematic game content that links to the physical world.

Increasingly creating thematic game content that links to physical what experiences. For example, we provided events tied into the Winter Olympics, and Peacekeeper elite QQ speed mobile and keeps you don't semi Bob.

James Gordon Mitchell: For example, we provided events tied into the Winter Olympics in Peacekeeper Elite, QQ Speed Mobile, and QQ Dancer Mobile. In terms of minor protection implementation, during the fourth quarter, total time spent by users aged under 18 declined 88% year-on-year, contributing 0.9% of our domestic gains total. Total gross receipts from these users decreased 73% year-on-year, contributing 1.5% of our domestic gains. Martin spoke about our international game strategy earlier; here, I'll just note some individual title highlights. Pokemon Unite, jointly developed by Chimmy Studio and the Pokemon Company, won Google Play's Best Game of the Year award for its dynamic gameplay and cross-platform experience.

In terms of minor protection implementation during the fourth quarter total time spent from users underwriting declined 88% year on year contributing 0.9% of our domestic gains total time spent.

Total grossing receipts for these users decreased 73% year on year contributing one 5% of our domestic gains total versus overseas.

Martin spoke about our international game strategy earlier, Karen I'll just note some individual titled highlights.

Pokemon unites jointly developed by Chinese studio in the Pokemon company on Google play its best game of the year Award for its dynamic gameplay and cross platform experience as of December .

James Gordon Mitchell: As of December, it had accumulated 50 million downloads. Supercell released one of the biggest updates in Clash Royale's history, materially boosting the game's DAU and grossing receipts. Valorant's new map and character drove user engagements and consumption, and Valorant's inaugural global sports tournament enjoyed an enthusiastic response. Building on League of Legends' setting and characters, Riot released the animated series Arcane, which topped Netflix's English-language TV series viewership chart during the week following its release and set a benchmark for high-quality video game adaptations.

Accumulated 50 million downloads.

<unk> already started the biggest update some clash royale history materially boosting the games <unk> and pricing receipts.

<unk> to drive user engagement and consumption and Sunoco Global esports tournament enjoyed an enthusiastic response.

Building on the league of legends setting and characters released animated series Arcane, which top Netflix as English language TV series viewership chart during the week following its release.

<unk> set a benchmark for high quality video game adaptations.

James Gordon Mitchell: The League of Legends World Championship Finals attracted a record 74 million peak concurrent viewers, consolidating its lead as the most popular and highest production value esports tournament in the world. Moving to the online advertising segment, revenue was 22 billion renminbi in the fourth quarter, down 13% year on year and 4% quarter on quarter, with lower bidding density reducing average eCPM. Weakness in education, games, and internet services ad spend due to regulations on those sectors more than offset the strength and consumer staples ad spend consolidation of SOGO. Internally, we've incorporated regulatory changes which generally reduce our ad inventory, including limitations on launch screen ads, restrictions on ads for the elderly and minors, and personal information protection.

License World Championship finals attracted a record 74 million peak concurrent views consolidating its lead as the most popular and highest production value E sports tournaments in the world.

Moving to online advertising segment revenue was 22 billion renminbi in the fourth quarter down 13% year on year, and 4% quarter on quarter slower bidding density reduced average CPM.

Weakness in education games, and Internet services AD spend Judah regulations on those sectors more than offset strength in consumer Staples AD spend is consolidation of saga.

Internally, we've incorporated regulatory changes, which generally reduce our AD inventory, including limitations on launch screen ads restrictions on ads for the elderly and minus and personal information protection at all.

James Gordon Mitchell: Our social and other advertising revenue is 18 billion renminbi, down 10% year-on-year and 4% quarter-on-quarter. While spending per advertiser declined for the reasons discussed, we expanded our advertiser coverage, and Weixin's daily active advertisers increased over 30% year-on-year. Over one-third of moment site revenue was generated from ads using mini-programs as landing pages and ads connection- customer service representatives via. Our media advertising revenue of 3 billion renminbi was down 25% year-on-year and 8% quarter-on-quarter, as video ad revenue declined due to fewer releases of top-tier drama series and variety shows.

Our social and others advertising revenue was 18 billion renminbi down 10% year on year and 4% quarter on quarter.

Spending at the types of declined for the reasons discussed we expanded our advertiser coverage.

<unk> daily active advertisers increased over 30% year on year.

I for one thought if moment side revenue was generated from ads using mini programs is landing pages and adds connecting users to customer service representatives by a week off.

Our media advertising revenue was <unk> 3 billion renminbi down 25% year on year, and 8% quarter on quarter as video AD revenue declined due to fewer releases top tier drama series and variety shows.

Looking at Fintech and business services segment revenue was 48 billion renminbi up 25% year on year and up 11% quarter on quarter.

James Gordon Mitchell: Looking at FinTech and business services segment revenue, 48 billion renminbi was up 25% year on year and up 11% quarter on quarter. For fintech services, year-on-year revenue growth was primarily driven by increased commercial payment volume, benefiting from an expanded merchant-acquirer network and increased volume of mini-programs transactions. We've strengthened our payment ecosystem by enhancing user security, upgrading mini-program-based transaction and customer management functions for SMEs, and reducing transaction friction through tools such as WeChat Pay Score.

The Fintech services year on year revenue growth was primarily driven by increased commercial payment volume benefiting from an expanded merchant acquiring network.

And increased volume of mini programs transactions with.

We strengthened our payment ecosystem by enhancing user security upgrading many program based transaction and customer management functions to Smes and reducing transactional friction five tools such as <unk> pay school.

James Gordon Mitchell: We now support Digital Yuan as an additional funding option with N.Y. Shim Pei as part of the PBOC's Digital Yuan pilot. For business services, revenue growth is mainly driven by increased usage of Internet services, public transportation, and retail. We have developed three proprietary chip designs for AI inference, smart network interface cards, and video transcoding to enhance our product performance and cost. We released a distributed cloud-native operating system called Orca, which reduces costs for customers migrating from on-premise to on-cloud and enables consistent app deployment and information technology services management from the cloud.

Now support digital your line is an additional funding option with inflation pay as part of the <unk> digital Yuan pilot phase.

The business services revenue growth was mainly driven by increased usage by the Internet services public transportation and retail industries.

We have developed three proprietary chip designs for AI inference, Smart network interface cards and video transcoding through enhanced our product performance and cost efficiency. We released a distributed cloud native operating system called Orca, which reduces cost to the customers migrating from on premise to cloud and enables consistent app deployment and.

Information Technology services management from the cloud.

Shek Hon Lo: We're assisting leading manufacturers such as Foxconn and Sanyo in the industry in that digital transformation; leveraging our AI-based Internet of Things and proprietary cloud solutions, clients can automate their production and quality control processes and thereby increase productivity and cost efficiency. And I'll now pass to Jon to discuss the finances. Thank you, James. Hello, everyone.

We're assisting leading manufacturers such as Fox Con in Saudi has the industry in that digital transformations, leveraging our AI internet of things and proprietary cloud solutions clients can automate that production and quality control processes, and thereby increased productivity and cost efficiency.

I will now pass to John to discuss the financials.

Thank you Jane.

Hello, everyone.

Shek Hon Lo: For the fourth quarter of 2021, total revenue was $144.2 billion RMB, up 8% year-on-year or 1% quarter-on-quarter. Gross profit was $57.8 billion RMB, down 2% year-on-year or 8% quarter-on-quarter. Net other gains were $86.2 billion RMB, up 162% year-on-year or 275% quarter-on-quarter, which were primarily non-I-virus adjustment items, such as net gains on BIM disposals or disposals of certain investing companies, including a one-off gain of $78 billion RMB arising from the cessation of gd.com as an associate.

For the fourth quarter of 2021 total revenue was $144 2 billion renminbi up 8% year on year or 1% quarter on quarter.

Gross profit was $57 8 billion renminbi down 2% year on year or 8% quarter on quarter net other gains were $86 2 billion renminbi, 162% year on year or 275% quarter on quarter, which with time, the non I virus, such as spin items such as net.

Gains on disposals of disposals, absurdly investing companies, including a one off gain of seven to 8 billion renminbi arising from the cessation of Gd Dot com as an associate.

Operating profit was $109 7 billion renminbi up 72% year on year or 106% quarter on quarter.

Shek Hon Lo: Operating profit was 109.7 billion renminbi, up 72% year-on-year or 106% quarter-on-quarter. Net finance costs were 1.9 billion RMB, down 17% year-on-year or 4% quarter-on-quarter. Share of losses of associates and joint ventures were 8.3 billion renminbi compared to share profits of 1.6 billion renminbi last year. Non-IRS share of losses of associates and JV were 0.8 billion renminbi compared to non-IRS share of profits of 2.7 billion renminbi last year, reflecting increased investment in community retail initiatives by certain associates and losses recognized from an associate in the transportation service vertical. Income tax expense was 3.9 billion renminbi this quarter.

Net finance costs were $1 9 billion renminbi down, 17% year on year or 4% quarter on quarter.

She had losses of associates and joint ventures were $8 3 billion renminbi compared to share of profits of $1 6 billion renminbi last year.

No not a virus share of losses of associate Ben JV were 0.8 billion renminbi compared to none I virus share of profits of $2 7 billion renminbi last year, reflecting increased investment in community retail initiatives plus rate and associate losses recognized from an associate in the transportation side, it's vertical.

Income tax expense was $3 9 billion renminbi this quarter.

Net profit attributable to equity holders was <unk> 95 billion renminbi up 60% year on year or 140% quarter on quarter diluted EPS was $9 788, renminbi up 60% year on year or 140% Q on Q4, the full year of 2021 total revenue was 500.

Shek Hon Lo: High-advantage net profit attributable to equity holders was 95 billion renminbi, up 60% year-on-year or 140% quarter-on-quarter. Diluted EPS was 9.788 renminbi, up 60% year-on-year or 140% year-on-year. For the full year of 2021, total revenue was 560.1 billion renminbi, up 16% year-on-year.

Shek Hon Lo: Gross profit was 245.9 billion renminbi, up 11% year-on-year; operating profit was 271.6 billion renminbi, 47% year-on-year. iVirus NAP profit attributable to equity holders was 224.8 billion renminbi, 41% year-on-year. The effective tax rate for 2021 was 8.2%.

One 1 billion renminbi up 16% year on year.

Gross profit was $245 9 billion renminbi up 11% year on year.

Operating profit was $271 6 billion renminbi, a 47% year on year.

<unk> net profit attributable to equity holders was $224 8 billion renminbi up 41% year on year.

Active tax rate for 2021 was eight 2%.

The lower effective tax rate, whereas last year was mainly due to their recognition of take accounting profit from certain investment related fair value Mark ups all of them.

Pozos during the year, including J D Dotcom stepped down game.

Now I'll share with you.

Shek Hon Lo: The lower effective tax rate versus last year was mainly due to the recognition of big accounting profit from certain investment related fair value markups or dim disposals during the year, including JD.com's step-down gain. Now I'll share with you our non-Iovirus financial figures. For the fourth quarter, operating profit was $33.2 billion RMB, down 13% year-on-year or 19% year-on-year. Net profit attributable to equity holders was $24.9 billion RMB, down 25% Y&Y and 22% quarter-on-quarter.

Hi virus financial figures.

For the fourth quarter operating profit was $33 2 billion renminbi down 13% year on year or 19% Q on Q.

Net profit attributable to equity holders was $24 9 billion renminbi down, 25% Y O y and 22% quarter on quarter.

Diluted EPS was $2 five plus of the renminbi down 25% year on year or 22% quarter on quarter.

For the full year 2021, operating profit was $159 5 billion renminbi up 7% year on year.

Shek Hon Lo: Diluted EPS was 2.547 renminbi, down 25% year-on-year or 22% quarter-on-quarter for the full year 2021. Operating profit was 159.5 billion renminbi, up 7% year-on-year. Net profit attributable to equity holders was 123.8 billion RMB, up 1% year-on-year. Moving on to Grub Margin.

Net profit attributable to equity holders was $423 8 billion renminbi up 1% year on year.

Moving onto gross margin.

For the full quarter. The overall gross margin was 44, 1% down three nine percentage points year on year.

Shek Hon Lo: For the fourth quarter, the overall gross margin was 40.1%, down 3.9 percentage points year on year or 4 percentage points quarter on quarter, reflecting our continuous investment in key strategic areas, declining margins in Domestic Games and Advertising, as well as the revenue makeshift towards lower margin business. By segment, gross margins or bias was 48.7%, down 2.8 percentage points year-on-year or 4.3 percentage points quarter-on-quarter. Both year-on-year and Q-on-Q decreases mainly reflected revenue-sharing costs associated with redo account services, content costs associated with eSports events and live streaming services, as well as revenue makeshift within the net.

<unk> four percentage points quarter on quarter, reflecting our continued investment in key strategic areas decline.

Client margins in domestic gains in advertising as well as the revenue mix shift towards lower margin businesses.

Segment.

Gross margin for <unk> was 48, 7% down two eight percentage points year on year or four three percentage points quarter on quarter, both year on year and Q on Q decrease is mainly reflect the revenue sharing cost associated with redo account services.

Land cost associate with esports events, and not screening status as well as revenue mix shift within does that mean.

Gross margin for online advertising was 42, 7% down 10, six percentage points year on year or three seven percentage points Q on Q, both year on year and Q on Q decrease mainly reflected our continued investment in key strategic areas.

Shek Hon Lo: Gross margin for online advertising was 42.7%, down 10.6 percentage points year-on-year or 3.7 percentage points queue-on-queue. Both year-on-year and queue-on-queue decreases mainly reflected our continuous investment in key strategic areas, mostly infrastructure and bandwidth to support the rapid growth of our video account services, as well as increased content costs, where overall online advertising revenue faces headwinds from both regulatory changes in various advertising categories Gross margin for fintech and business services was 27.1%, down 1.4 percentage points year on year and quarter on quarter. Both year-on-year and quarter-in-quarter decreases were substantially driven by revenue mix within the segment, as well as our continuous investment in crowd computing, talent, and operations.

Mostly.

Infrastructure and bandwidth to support the rapid growth of out we do okay.

As well as increased content costs.

Wes on the advertising revenue.

Wind farm, both rapidly to re changes in various advertising categories as well as on the advertising industry itself.

Gross margin for Fintech and business services was 27, 1% down one four percentage points year on year and quarter over quarter.

Both year on year and quarter on quarter decrease is substantially driven by revenue mix shifts within the segment as well as our continued investment in cloud computing, Kevin and operations.

On operating expenses, selling and marketing expenses were 11, 6% in renminbi up 16% y on Y and 11% Q on Q.

Shek Hon Lo: On operating expenses, selling and marketing expenses were 11.67 RMB, up 16% YNY and 11% Q1Q. Thus, view-on-year and quarter-on-quarter increases were primarily driven by increased marketing spend on international gains, partly offset by decreased spending on digital content services. Charlene, MarketAid says this will equal 1% of revenues for a stable year-on-year. R&D expenses were $147,000 RMB, up 25% year-on-year, or 2% year-on-year. The year-on-year increase was mainly due to a greater staff force.

So year on year and quarter on quarter increases were primarily driven by greater marketing spend on international gains, partly offset by decreased spending on digital content services.

Bucket, because it's with a four 1% of revenues broadly stable year on year.

R&D expenses were 14, then renminbi up 25% year on year or 2% Q on Q. The year on year increase was mainly due to create that that staff force.

Shek Hon Lo: R&D expenses represented about 9.7% of revenue. TNA Census, through the R&D was 10.4 billion RMB, up 20% year-on-year or 2% quarter-on-quarter. The year-on-year increase reflected greater SACORS and others related expenses, excluding share-based compensation. G&A expenses increased by 22% year-on-year or 15% quarter-on-quarter. That's a quarter end.

<unk> expenses represented about 7% of revenues.

G&A expenses, excluding R&D were $10 4 billion renminbi up 20% year on year or 2% quarter on quarter the year.

One year increase reflects a greater <unk> and all those related expenses.

Excluding share based compensation G&A expenses increased by 22% year on year or 15% quarter on quarter.

As of quarter end, we had approximately.

117000 employees up 31% year on year or five.

Shek Hon Lo: We had approximately 117,000 employees, up 31% year-on-year or 5% quarter-on-quarter. Let's take a look at the operating and net margin ratios. So in the fourth quarter, Non-IA virus operating margin was 23%, down 5.5 percentage points year on year or 5.7 percentage points K-1-2. Non-IA virus net margin was 17.9%, down 7.9 percentage points year on year or 4.9 percentage points quarter on quarter. Due to the above-mentioned reasons, as well as the negative impact from our associate earnings.

5% quarter on quarter.

Let's take a look at operating and net margin ratios for the fourth quarter.

<unk> operating margin was 23% down five five percentage points year on year or five seven percentage points Q on Q non I a virus that margin was 17, 9% seven nine percentage points year on year or four nine percentage points quarter on quarter due to the above mentioned reasons.

Well as the negative impact from our associates earnings.

Now move on to earnings per share in dividends.

Shek Hon Lo: Let's move on to Ernie Brashear and David Davis for 2021. iVirus's basic EPS was 23.597 yuan and diluted EPS was 23.164 yuan. Non-IFRS-Basic EPS was 12.992 yuan and Substance EPS was 12.698 yuan. On 23rd December 2021, we declared a special income dividend in the form of distribution instead of a JED.com share. Based on today's closing prices of JD.com, the market value of this special interim dividend is about $12,000 per share. Subject to shareholders' approval at the 2022 AGM, we are proposing an annual dividend of 1.6 Hong Kong dollars per share payable to shareholders on the 6th of June, 2022. This is stable when compared with Dashie. Finally,

2021, five hours basic EPS was 23, 597, Brandon B and diluted EPS was $23 one six for renminbi.

Non <unk> basic EPS was $12 990, renminbi and the EPS was $12 698 renminbi.

On 20 <unk> of December 2021.

There are special interim dividend in default.

Distribution is Betsy of JV Dot com shares.

Asia two days closing price of JD com the market value of this special interim dividend.

12, Hong Kong dollars per share.

Subject to the shareholders' approval at the 2022 AGM, we are proposing an annual dividend of $1 six Hong Kong dollars per share payable to shareholders on the sixth of June 2022.

Is it stable when compared with last year.

Finally.

I will share some key financial metrics on your cash flow and balance sheet for the quarter.

Shek Hon Lo: I will share some key financial metrics on the cash flow and balance sheet for the quarter. Total capex was 11.7 billion RMB, up 21% year-on-year or 65% quarter-and-quarter. Without within total CAPAX operating CAPAX was 8.1 billion RMB, largely stable year on year. Non-operating CAPAX increased 122% year on year to 3.6 billion RMB, mainly reflecting acquisition of land use rights during the quarter. Free cash flow for the quarter was $33.5 billion RMB, up 21% year-on-year or 39% quarter-on-quarter.

Total capex was $11 seven day that renminbi.

Up 21% year on year or 65% quarter on quarter.

Without within total.

<unk> operating Capex was $8 1 billion renminbi largely stable year on year non operating Capex increased 122% year on year to frequent 6 billion renminbi, mainly reflecting acquisition of land use right during the quarter.

Free cash flow for the quarter was $33 5 billion renminbi up 21% year on year or 39% quarter on quarter.

Shek Hon Lo: The net debt position was $20.2 billion RMB, compared to $26.1 billion RMB last quarter, mainly reflecting free cash flow generation and one-market diversities of certain listed securities, partially offset by strategic investment in other companies. The net value of our shareholdings in listed investing companies, excluding 30 degrees, was approximately 983 billion renminbi, or $154 billion at the end of 2021.

Net debt position was $20 2 billion renminbi compared to $26, one bedroom remedy last quarter, mainly reflecting free cash flow generation and la market divestitures of certain listed securities.

Partially offset strategic investments in other companies.

The value of our shareholdings in let's say investment companies. Excluding subsidiaries was approximately 983 billion renminbi or 154 billion.

Because at the end of 2021.

Thank you.

Thank you operator.

Operator: Thank you, Joan. Operator, we should now open the floor for questions. We will take one main question and one follow-up question. Yes, thank you. Our first question comes from the line. Charlene Liu from HSBC. The line is open. Thank you.

We'll now open the floor for questions.

One main question and one follow up question.

Yes. Thank you our first question comes from the line.

China, India of HSBC.

Is open. Please go ahead. Please ask your question.

Charlene Liu: I have a question, a follow-up on online advertising settings. In the press release, we understand the company is only expecting the advertising business to resume growth in late 2022. Is that fair to assume that we could see negative growth sustained through at least the first three quarters?

Thank you Raj thanks for the opportunity.

I have.

A question and a follow up on online advertising segment.

Perhaps the leads they understand the company is expecting.

The advertising business to resume growth in late 2022 is that fair to assume that we could see negative growth sustain through at least the first three quarters and I guess in the context of ongoing challenging macro and regulatory developments.

Charlene Liu: How would you assess Tencent's advertising business outlook relative to the market at large for the coming year or two? I have a follow-up question on that regulation. Thank you.

Could you ask that.

I can't ever tightening business outlook relative to the market at large for the coming year or two I have a follow up on regulation.

Thank you.

Hi, Charlie and thank you for that question so.

James Gordon Mitchell: Charlene, thank you for their questions. So in terms of inferring trends in the first few months of 2022, that seems to be a logical inference, in terms of Tencent advertising trends versus the industry as a whole, For the last several quarters, there's been a pretty notable impact on us relative to the industry due to our advertiser mix, which has spilled over into certain categories of advertiser that are heavily regulated, sharply reducing their bidding, and therefore pulling down effective revenue per thousand impressions.

In terms of inspiring.

Trends in the first few months of 2022.

That seems to be a logical inference intensive 10.

<unk> advertising trends versus the industry as a whole.

For the last several quarters thats been a pretty notable impact.

On us relative to the industry to issue a hot appetizer mix.

Which is spelled out.

Two.

And our categories of appetite.

Heavily regulated.

Sharply reducing that bidding and therefore pulling down.

Our effective revenue per thousand impressions, specifically, if you look at the.

James Gordon Mitchell: So specifically, if you look at the online education sector, then a year ago, that was low to mid-teens percent of our total advertising revenue, and in the fourth quarter, that dropped to a low single-digit percentage of our total advertising revenue. So that sector all by itself largely explains the decline in advertising revenue year-on-year. There's obviously a number of additional factors that work around regulations for the advertising industry itself, but generally speaking, the greatest impact has been from the regulations on advertiser categories, such as education, games, and insurance, and then there's been a lesser impact from measures that have the effect of reducing our ad inventory, such as the limitation on loading screen ads. And then measures that provide us with ongoing ad inventory but reduce the targeting around the a So I hope that that answers the advertising question.

Nine expectations set than a year ago that was low to mid teens percentage of our total advertising revenue and in the fourth quarter that dropped to a low single digit percentage of our total advertising revenues.

And as that sexual by itself largely explains the decline in advertising revenue.

Yeah.

There's obviously a number of additional factors that work around the regulations for the advertising industry itself, but generally speaking the greatest impact has been from the regulations on appetizer categories, such as agitation gains in insurance.

And thats been a lesser impact from measures.

The effect of reducing our ad inventory.

Is the.

Limitation on loading screen ads.

Then measures that.

Provide us with ongoing AD inventory budge.

Would you sort of targeting around the adding countries such as the personal information protection.

I've had a smaller negative impact.

Hope that answers the advertising.

Advertising question.

Absolutely.

James Gordon Mitchell: Absolutely.

Charlene Liu: My follow questions are still related to online advertising. I would like to know, you know, regarding the new law,

And my follow up question.

It's still related to online advertising I would like to know.

Regarding the new laws I'm clear labeling up I think you know one click the close features how should we think about all potentially quantify the impact on our advertising business in <unk>.

Yes.

Charlene Liu: [inaudible]

Charlene Liu: on our advertising business in terms of

And thank.

Thank you.

Yeah, I would refer back to the previous answer meaning that if you look at the negative factors hurting our advertising revenue in the fourth quarter than the biggest negatives with us related to regulations on specific advertiser industries.

The regulations on us as an advertising media outlet, but less impactful and then within the regulations on us.

More impactful does that complete you can move the inventory.

The less impactful with us adjusted how we use the inventory so I think the changes that you referred to.

Looming into future fit into that last category historically has been less impactful for us.

James Gordon Mitchell: Yeah, I would refer back to the previous answer, meaning that if you look at the negative factors hurting our advertising revenue in the fourth quarter, then the biggest negatives for those related to regulations on specific advertisers or industries, the regulations on us as an advertising medium were less impactful. And then within the regulations on us, the more impactful were those that completely removed inventory. So I think the changes that you refer to as looming in the future fit into that last category and, historically, have been less impactful for us. Thank you very much, James. Thank you again.

James Gordon Mitchell: Thank you.

Understood. Thank you very much Jean Thank you again.

<unk>.

Operator: Operator, please stop the next question. Yes, thank you. Our next question comes from the line of Kenneth Fong of Credit Suisse. Please go ahead and ask your question.

Operator please.

Next question.

Yes. Thank you.

Our next question.

Comes from the line.

Kenneth Fong from credit Suisse.

Go ahead.

Ask your question.

Kenneth Fong: Good evening. Thank you, Mitchell, for taking my question. I have a question on the investment side. Late last year, we distributed our JD shares as dividends, and we also did dispose part of our stake in C. So given that we still have a very sizable investment on our balance sheet, what should we think about and what sort of criteria should we use in terms of unlocking the value for our remaining investment?

Thank you management for taking my question I have a question on the investment side.

Late last year, we distributed our J D shares as dividend.

We also disposed part of our <unk> C. So given that we still have a very sizable investment on our balance sheet. So how should we think about what are the criteria. We would think in terms of unlocking the value for our remaining investment in.

Kenneth Fong: And for the policy, given that our share price is significantly higher than the added value of our company, how should we also think about balancing between share buyback, new investment, and unlocking our investment on a balance sheet? Thank you.

For the proceeds given that our share prices are significantly under value. How should we also think about that.

<unk> between like share buybacks, leaving.

Investment in unlocking our investment on our balance sheet. Thank you.

James Gordon Mitchell: Portfolio Distributions and Exit, then there are a couple of perspectives to bear in mind. One perspective is a portfolio management perspective that, as an investor, we actively invest very largely in private companies but have not yet. Over 80% of our investments are typically in private companies. On the other hand, at any point in time, the majority of our portfolio by market value is in public companies. And that's because we have a long history of investing in companies when they're private and then, you know, helping them grow until and beyond them becoming public companies.

Our portfolio of distributions.

Exits.

<unk>.

That's a couple of.

Perspectives to bear in mind, one perspective, as a portfolio management perspective.

As an investor we actively invest right largely in private companies.

Is that over 80% of our investments are typically in private companies on the other hand at any point in time, the majority of our portfolio by market value is in public companies and that's because we have a long history of investing companies spend their private.

And then helping them grow until and beyond them, becoming public companies. So.

James Gordon Mitchell: So, you know, that's where we play, so to speak, and as a consequence, it is incumbent on us to continually be divesting, reducing our stakes in publicly listed companies in order to fund continued investments in private companies and help them grow and become all that they can be. In addition, there's a capital perspective, which is that while we invest in other companies, we also look at the appeal of investing in our own stock price, and at times when we consider our own stock price highly attractive, then we may step up the investment in our own stock versus investments in other companies. So,

<unk>.

That's where we play so to speak.

As a consequence it is incumbent on us to continually be divesting reducing off stakes in publicly listed companies.

In order to fund our continued investments in private companies and help them grow and they come or they can be.

In addition to as a capital perspective, which is that while we invest in other companies.

The appeal of investing in our own stock price and at times, when we can set up our own stock price highly attractive.

Step up in investments in our own stock of us as investments in other companies.

So.

James Gordon Mitchell: In reality, every year for the past several years, we've conducted billions of dollars of divestment. In the last four months, we've conducted two divestments, or distributions, which you referenced, J, D, and C, that were unusually high profile, and it has put the spotlight on the fact that we are divesting, but that is not new news, and it's just part of a continual process which has attracted more scrutiny than usual in the past few months.

In reality every year for the past several years with conducted billions of dollars of divestments.

The last four months with conducted two divestments, so distributions with you referenced radiancy.

Unusually high profile.

It has put the spotlight on the fact, we divest.

That is not new news.

And it's just part of a continual process, which has attracted more strictly an issue in the past few months.

James Gordon Mitchell: So that's your first question. In terms of your second question about how we balance investments in the business versus investments in other companies versus buybacks and so forth, then our core business is highly cash flow generative, and our core business is very capable of funding the investments internally that we're making in areas such as video. Accounts, Enterprise Software, and International Game Expansion. Beyond that, we do invest in other companies as well, and when we're considering the merits of investing in other companies versus conducting share buybacks or distributions directly to shareholders, then, of course, there's a number of variables we look at, one of which is the relative valuation of our own stock.

So that's on your first question in terms of your second question about how do we thought in <unk>.

Investments in the business versus investments in other companies versus buybacks and so forth.

Ken.

Our core business is highly cash generative.

Our core business.

It seems like Haiti funding.

Investments in telling you that we're making in areas such as video.

<unk> enterprise software and international gaming expansion.

Beyond that we do invest in other companies as well.

And when they are considering the merits of investing in other companies.

Conducting share buybacks or distributions directly to shareholders.

Of course, there's a number of variables, we look at one of which is the relative valuation.

On stock and you can see that in the past few months, we have been active in cancer.

James Gordon Mitchell: And so you can see that in the past few months, we have been active in terms of buying back shares on the market, and we've also declared our regular dividends. So those are the three channels through which we've been returning capital to shareholders.

The distribution in kind at the J D stop looking at it in terms of buying back shares on the market and it's also just a regular dividend. So those are the three channels through which we have been returning capital to shareholders.

Thank you James.

Thank you.

Operator: Our next question is from the line of John Choi of Iowa.

Our next question is from the line of John Choi of Daiwa.

Please go ahead with your question.

Hyungwook Choi: Yes, thank you. And good evening. Thank you for taking my question. I have a question and probably will follow up a bit later.

Yes. Thank you good evening and thank you for taking my question I have a question on probably a fall off a bit later first of all about your head count I guess you guys are starting to kind of a so called a rightsize head count and some of the.

Hyungwook Choi: First of all, about your headcount. I guess you guys are starting to kind of do the so-called right side headcount in some of the business areas. So I would like to know how this, you know, so-called right side headcount will perhaps, you know, have an impact on our growth strategy.

Business area, So I would like to know how would this.

Alright.

Perhaps.

All have an impact to our growth strategy for some of the key growth areas that you guys mentioned that SaaS video kind of international games.

Hyungwook Choi: and for some of the key growth areas that you guys mentioned.

Hyungwook Choi: International Games going forward, are we, in general, should we?

Going forward are we in general should we be expecting more of a reasonable growth with better profitability going forward and a quick follow up on perhaps is on your investment side that you just mentioned James do you think that the market volatility.

Hyungwook Choi: be expected more above reasonable growth but with better profitability going forward and a quick follow-up.

Hyungwook Choi: Perhaps on the investment side that you just mentioned, James, given that the market volatility, you know, a lot of the private and public valuations of these companies have come down a lot. Does this mean, apart from your shared buybacks that you just discussed, is it a good opportunity for us to be more strategic on some of the opportunities that you guys have been doing in the past, such as small game studios and others? And what are some of the challenges and opportunities that you see in this area? Thank you.

The private and public.

<unk> of these companies have come backlog does this mean apart from your share buybacks that you. Just discussed are we is it a good opportunity to be us to be more strategic on some of the opportunities that you guys have been doing the past such as small game studios and others and what are the some of the challenges and opportunities that you see in this area. Thank you.

James Gordon Mitchell: Thank you for the question, Jones. I'll start with the investment question. So I would say that valuations have become more volatile, and consequently, we've become more active. And you can see that with the JD and the VC situations, but we've also been more active on divestments in a number of other situations as well. So, year-to-date, our rate of divestments is running at... Approximately the same as our rate of investment in many billions of dollars.

Thank you for the question John So I'll start with the investment question.

So I would say that the.

Valuations have become more volatile.

And.

Consequently, we have become more active.

You can see that with the J D.

The C situations.

We've also been more active on divestments and a number of other situations as well so year to date our rate of divestments is running it.

Approximately the same as our rate of investments.

Many billions of dollars range.

James Gordon Mitchell: And there are investments we've made in public companies where the valuations have held up very well. And so we've taken the opportunity to adjust our stakes in those public companies and free up capital to invest in situations where valuations have dropped very sharply, macroeconomics, including our own stock price.

And.

There are investments we've made in public companies by the valuations have held up quite well and so.

We've taken the opportunity to adjust us take some of those public companies and free up capital to invest in situations where.

<unk> have dropped sharply because of macroeconomic Colorado reasons, including our stock price.

Martin Lau: So that's on the investments front, and then I think Martin will address the question about headcounts and whether control of headcount will result in us having slower growth in video accounts, enterprise software, and international games. Well, in terms of control of headcounts, the main background is that if you look at the headcount growth for the past few years, it has actually been quite rapid. And part of that is actually driven by the fact that we have been investing in strategic areas, but part of it is actually driven by increased competition within the industry and also expansion of our businesses into many different areas. And I think that we have actually talked about a shift in terms of the overall industry paradigm, and now the entire industry is actually focused on core businesses and more efficiency and more cost rationalization.

So that's on the investments front and then I think Matson will address the question about <unk>.

Counts and weather.

<unk> got control of head Count will result in us having slower growth in video accounts enterprise software and international games.

Well in terms of.

Control of head count.

Yes.

Maine Pac one is that if you look at the.

The.

The head count growth for the past three years it has been actually quite rapid.

<unk>.

We're part of that is actually driven by the fact that we have been investing in.

Strategic areas, but part of it is actually driven by increased competition.

Within the industry.

And also.

Expansion of our businesses into many different areas.

I think what we have actually talked about.

Shifts in terms of the overall industry.

<unk> and.

Now the industry is actually focus.

On on.

Our core businesses and.

For more efficiency.

It's more cost rationalization so.

Along this what we are going to be doing in terms of.

Martin Lau: So alongside this, what we are going to be doing in terms of controlling headcount is that in some of the non-core businesses, we will streamline or, in some cases, we may exceed. [inaudible] But in certain areas where there's a very fast growth in terms of headcount, we will slow it down. And every year we have natural turnover, and in some cases, we actually sort of slow down the replacement of those turnovers.

Controlling headcount is that.

In some of the non core businesses streamline or in some cases, we may exit.

And.

In.

In certain areas.

Areas, where there is a very fast growth in terms of head count we would slow it down.

And every year, we have natural turnover and in some cases, we're actually going to be a slowdown to replacement of the turnovers.

Martin Lau: But overall, what we will be seeing is that our headcount will still be higher by the end of the year than the previous year. We'll continue to invest in key strategic areas, and we'll continue to invest in our core businesses, and we'll continue to hire people with special expertise and technology expertise. We'll continue to hire outstanding fresh grads. But at the same time, it's really a rationalization of some of the non-core and underperforming businesses that, in the future, would be more noticeable.

But overall, what we would be seeing is that our head count would still be higher by the end of the year than the previous year, we'll continue to pursue.

Invest in key strategic areas will.

We'll continue to invest in our core businesses.

And so we continue to hire.

Hi.

People with special expertise and technology expertise will continue to hire outstanding.

Outstanding Fresh grads.

But at the same time.

It's really a rationalization of some of the noncore and underperforming businesses.

<unk>.

Martin Lau: So that's the way we think about it. Overall, we want to increase the muscle of the overall organization. So in terms of the key areas of growth, in terms of the core businesses that we want to grow for the long run, we'll continue to invest. So, you know, it won't have an impact on those businesses.

Be more noticeable so thats the way, we think about it that so overall, we want to increase.

The muscle of the overall organization.

So in terms of the key.

There is growth in terms of the core businesses that we wanted to grow for the long run.

Continue to.

Hi.

To invest so it's not going to have an impact on those businesses.

Operator: Operator, shall we take the next question? Yes, thank you. Our next question comes from the line of Galy Nguyen of TLSA. Please go ahead with your question. Hi, management for the opportunity to ask the questions. My question is on the gaming side. Previously,

Okay shall we take the next question yes. Thank you. Our next question comes from the line of Kevin in that.

CLSA. Please go ahead with your question.

Hi, Thank you management what opportunities you asked the questions.

My question is on the gaming side previously you mentioned that with Iraq.

Galy Nguyen: mentioned that we direct some of the resources to handle the protection of minors. I wonder if that is done so we can reallocate the resources back to our community.

Houses to handle with the protection of minors.

Linda.

Got it so we can reallocate the resources sector.

Galy Nguyen: Development. And how do you see the domestic game market growing in 2022 if there's no new game approval for the whole year? Thank you.

And how do you see the domestic game market growth for 2022.

No we can accrue for them.

Yeah.

Thank you.

Hi, Thank you for the question so.

James Gordon Mitchell: Hi Eleanor. Thank you for the question. We can't be very helpful with the domestic game market growth because this is still a somewhat product-driven industry and we don't have perfect visibility into what the rest of the industry is up to. But, you know, the generalization: there are a large number of games that have already received their ban out, have not yet been published, and we assume will be published in the course of 2022.

We can't be very helpful. On the domestic gaming market growth because this is still a somewhat driven industry and we don't have.

Visibility into what the rest of the industry adopt too.

But as a generalization there are a large number of games that.

We have already received that.

Not yet being published.

We assume.

It will be published in the course of 2022. It's also true looking at history that in periods, when there's fewer new game releases the existing games.

James Gordon Mitchell: It's also true, looking at history, that in periods when there are fewer new game releases, existing games may grow faster than they otherwise would. Now I think that in the past few months that hasn't happened because of the direct and, more especially, the indirect impact of the minor protection measures, but at least for ourselves and, we think, for our larger peers in the game industry, we've now collectively, fully and completely implemented those measures, back from implementing the new minor protection measures toward upgrading and enhancing the game content.

Faster than they otherwise would.

In the past few months that hasn't happened because of the direct and more especially the indirect impacts of the minor protection measures.

But at least for ourselves and we think our larger peers from the game industry.

We've now collected the fully and completely implement those measures and some of the resources can be shifted back from.

Implementing a new mine a protection measures toward.

Creating and enhancing the game content.

Operator: Thank you. Operator, let's move to the next question. Yes, thank you. Our next question comes from the line of Gary Yu of Morgan Stanley. Please go ahead, your line is open.

Thank you operator, let's move to the question yes. Thank you. Our next question comes from the line of Gary Morgan Stanley . Please go ahead. Your line is open.

Hi, Thank you for the opportunity to ask questions I have one question regarding.

Gary Yu: Hi, thank you for the opportunity to ask a question. I have one question regarding margin and cost, and I may have a follow-up on regulation. So last year, we talked about investment in three areas and, therefore, you know, expecting slower profit growth. This year, in addition to continuing to focus on these areas, we also talked about, you know, other costs, optimization, and potentially, you know, margin enhancement from that perspective. So how should we look at the margin outlook in 2022, and indirectly, how should we look at the kind of profit growth relative to, you know, revenue going forward? I would say.

Margin and costs and I may have a follow up on regulation.

So last year, we talk about.

Investment in three areas and therefore.

A slower profit growth.

This year. In addition to continue focus in this area. We also talk about the other cost optimization.

Potentially.

Margin enhancement from that perspective, so how should we look at margin outlook in 2022.

And indirectly how should we look at the kind of profit growth relative to revenue going forward. Thank you.

Sure.

I would say.

Okay.

Martin Lau: Those are transition years. I think 2020-2021 we face an industry in which everybody is actually trying to grow and expand, and there's a very tough, but healthier and sustainable growth mode for the industry. And so that's why everybody is actually doing cost optimization and rationalization. So I would say, you know, that these two years are years in transition for different reasons. And once we have actually gone through the optimization across the board, on marketing costs, on staff costs, and on operating costs, then we'll probably see a more stable type of margin structure starting in 2023. Thank you.

Those that transition.

2000 to 2020 into 'twenty, one we face.

An industry in which everybody who is actually trying to.

Grow and expand in this very tough.

Competition across the boards ranging from talent.

Competition too.

Aggressive marketing and <unk>.

And that's sort of driving a lot of the margin compression that you talk about that and that's not just for us and that's actually for the entire industry.

<unk>.

During the presentation, we actually talk about there is actually a fundamental shift in terms of the industry paradigm.

From this growth.

At all cost to a much more fundamental and.

And to value based efficiency based.

And.

And healthier and sustainable growth mode for the industry as well.

That's why everybody who is actually doing.

Cost optimization and rationalization, so I would say.

These two years on a year of some transition for different reasons.

And once we.

We have actually gone through.

The optimization across the board on marketing cost on staff cost and on operating costs and then we'll probably see more.

More stable type of margin structure, starting from 2023.

Gary Yu: And I have a follow up on regulations, and specifically related to our FinTech business. So how should we look at the potential risks of, you know, a separation of WeChat pay from our, you know, main WeChat apps, or at least some risk or potential limitation on sharing data between the FinTech business and rest of our core business, if there is any regulatory change on the corporate structure, different things, right, you know, some from a corporate structure perspective, you're probably referring to the financial holding company, and this is one one exercise that we're doing.

Thank you and I have a follow up on regulations.

Specifically related to office tenants.

So how should we look at the potential risk of you know.

A separation of our wechat pay from our main wechat apps or at least some risk.

With all potential limitations on sharing data.

Between the Fintech business and rest of our core business. If there was any regulatory change on the corporate structure. Thank you.

What do you do that.

Different things right from a corporate structure perspective, you're probably referring to the financial holding company and this is.

One one.

Exercise that we're doing.

<unk>.

Working.

Gary Yu: We are working very closely with the regulators investigating our eligibility and our needs to establish a financial holding company. And very clearly, the lack of a true body is actually trying to use the financial holding company to monitor systemic risk and to reduce systemic risk, which we think is actually positive for both the industry as well as for the companies which have been given the license to be a financial holding company.

Very closely with the regulators and investigating are our eligibility.

Our.

Our needs to establish financial holding company.

Very clearly.

Regulatory body is actually.

Trying to USD, a financial holding company to monitor.

Just on the risk and to reduce systemic risk.

It's actually positive for both the industry as well as for the companies, which have been given the license to be a financial holding company and we actually have seen that shoe financial holding company license being issued so the same where I can be criteria will become clearer over time and we felt if we can.

Gary Yu: And we have actually seen the two financial holding company licenses being issued. So the framework and the criteria will become clearer over time. And we felt if we fulfilled the criteria and we needed to establish a financial company, then we should embrace it. And we felt there needed to be some organizational change, but it should not impact the business in a material way. And so overall, it should be neutral, short-term, and over the long run, we felt it would be positive because [inaudible] The regulators have always been in favor of the licensed entities, right? You know, based on the experience that we have seen on WeBank, it's very clear that the licensed entities would actually see more regulatory recognition and support. Thank you. That's very clear.

If you were to criteria and how we need to establish a potential company.

We're embracing and we sell it to their needs to be some organizational change, but it should not impact the business in a material way and so overall it should be neutral short term and over the long run we felt it would be part of it because.

The regulators have always.

<unk>.

Supportive of the licensed entities right now based on the experience that we have seen on re bank, it's very clear that the licensed entities that would actually see.

More regulatory recognition and support.

Thank you that's very clear.

Martin Lau: Thank you. Our next question is from the line of William Packer of BNP Paribas. Please go ahead. Hi Matt, everybody, thanks for taking the time.

Thank you. Our next question is from the line of.

William Packer.

Your parents that please.

Go ahead.

Hi management, Thanks for taking my questions two please.

William Henry Packer: and the Ohio High Management Board. Thank you. Thank you. William, you're a little bit quiet, at least for me.

The domestic gaming from southpaw limitation will you have you are a little bit quiet.

Me.

William Henry Packer: Hi, can you hear me better now? Yes, much better. Great, sorry about that.

Could you give me better now yes, much better.

All of that.

Martin Lau: On the domestic gaming front, thus far, restrictions on time and spend have been focused on minors. Should we expect any restrictions on adult time or spending on games? And then, as a follow-up, on the last call, you talked about some of the wider technological and cultural benefits of the domestic gaming industry. Do you think those arguments are gaining traction with the relevant stakeholders? Thanks.

On the domestic gaming from.

Thus far restrictions on time and spend to bring focus to maintenance.

Should we expect any restrictions on time spent.

Spend on guidance and then as a follow up on the last call you talked to some of the wider technological and cultural benefits the domestic gaming industry.

Those arguments are gaining traction with the relevant stakeholders.

Martin Lau: Well, we think that the vast majority of detentions are actually on the line of protection. And this is something the industry has been very focused on. And we know the regulators have been very focused on this, and we're making good progress on that. We can speculate on whether there will be additional regulations or not, right, but so far, we haven't heard anything. And in terms of the benefits of games, I think, number one, it's actually very clear, it's actually very factual that the entire tech industry is actually a big ecosystem in which applications actually drive technological improvement, and it drives hardware and software improvement. And it's just factual. And I think, you know, as we are able to demonstrate, as we continue to demonstrate the fact, it should be more understood by all kinds of stakeholders.

What we think.

But the vast majority of detentions entry on Miami protection business.

Industry has been very focused on and we know the regulators have been very focused on and we're making good progress on that we can't speculate on whether there are additional regulations or not right, but so far we haven't heard.

<unk>.

In terms of.

The benefits.

Benefits of games I think.

S. S number one it's actually very clear, it's actually better spectral that.

For the entire industry is actually a big ecosystem in which applications actually drive.

Technology improvement and could drive hardware and software improvement and it's the spectral and I think as we are able to demonstrate as we continue to demonstrate the fact.

It should be more understand.

Understood by all kinds of stakeholders.

Yeah.

Thanks for calling.

Thank you.

Alicia Yap: Your question is from the line of Alicia Yap of Citigroup. Hi, thank you. Good evening, management. Thanks for taking my questions.

Our next question is from the line of Alicia Yap Citigroup. Please go ahead.

Hi, Thank you I'm Gonna evening management, Thanks for taking my questions.

Alicia Yap: I have a first question on the broader value-added service outlook. So it seems like after the regulatory headwinds in games, domestic gaming revenue could enter a new norm of slower growth. And then we also see various digital content and community platform revenues also face a number of regulatory and competition headwinds. So could you help us to look beyond the short-term challenges and how should we think about a longer-term sustainable growth profile for the broader value-added service revenue stream? Do you think we need some breakthrough of new business models or even some new infrastructure setting such as the metaverse or others to revive the growth potential for these sectors?

First question's on the broad value added service.

James Gordon Mitchell: And then I have a follow-up question.

So it seems like after the regulatory headwinds.

The domestic gaming Robyn.

After a slower growth and then you've got some feedback.

Our content.

Platform revenue was also faced a number it sounds like if I can be any competition happening.

So could you help us to look beyond the short term challenging and how should we think about a longer term sustainable growth profile.

The broad value added service revenue stream.

Anything we need some great too often you have a business model or even some new infrastructure setting such as some others to revise the growth potential for the <unk>.

And then I have a follow up.

James Gordon Mitchell: So, Alicia, on your first question about whether we're entering a new normal of, you know, no growth in value-added services revenue, then, you know, if you refer back to the 2018 period, there was a similar deceleration in game industry growth in China for comparable reasons. And at that time, there was a great deal of discussion around, you know, new normals and X-growth and so on and so forth And, you know, of course, over the next couple of years as new games came to market, those fears and concerns moved into the background. And, you know, I think that that's the situation we're in now.

Sorry Michele.

First question about weather.

Entering a new normal.

No growth for value added services from you then.

If you would have thought back to the 2018 period that was.

Similar deceleration in game industry growth in China for.

Comparable reasons and at that time, there was a great deal of discussion around in a new normal as an ex growth and so on and so forth.

And of course over the next couple of years.

New games come to market does.

It sounds to me.

In the background and I think that that's the situation. We're in now the game industry is actually.

James Gordon Mitchell: The game industry is actually the youngest, it's the most vigorous, and it's the most well positioned to benefit from technological change of all the entertainment industries. And entertainment itself is a superset of industries that are generally growing faster than GDP growth due to the satisfaction of Maslow's hierarchy of needs. So our belief is that China's economy will grow rapidly over time. Entertainment and leisure spending will grow more rapidly, and then activity around games will also grow very rapidly.

The youngest gets the most vigorous and it's the most.

Well positioned to benefit from technology change with all the entertainment industries and the entertainment itself is a super set of industries that are generally growing faster than GDP growth.

Satisfaction with <unk> hierarchy of needs. So our belief is that the China economy will.

Grow rapidly over time.

Entertainment and leisure spending will grow more rapidly.

Then our activity around games will also grow right.

Very rapidly.

James Gordon Mitchell: And to the extent that metavers and other concepts layer on top, then that's beneficial. And, of course, we have our international game business, which is subject to different regulatory cycles and hasn't experienced the deceleration that domestic businesses experience. But I think overall, we have a pretty constructive view of the industry as a whole, both now and for the future.

To the extent that manifest as an other concepts lay around on top that's beneficial and of course, we have our international game business, which is subject to different regulatory cycles.

The rest of the deceleration domestic businesses experienced but I think overall, we have a pretty constructive view on the industry as a whole.

Both now and for the future.

I see thank you second question on <unk> can you clarify a little bit.

Alicia Yap: I see. Thank you.

So first our true up adjustment.

Revenues that you mentioned in the.

Perhaps the leaf so is this a one quarter catch up on some deferred Ah shall we see on the next couple of quarter. There will also be this catch up so.

James Gordon Mitchell: Second question is, can you clarify a little bit on the supercell true up adjustment revenue that you mentioned in the, you know, press release? So is this a one-quarter catch up on some deferral? Should we see in the next couple of quarters, there will also be this catch up. So how should we think about that? Thank you.

So how should we think about that thank you.

Yes, sorry for not quite.

James Gordon Mitchell: From a quantification perspective, then our international game revenue, excluding the Supercell catch-up, excluding FX changes, was 24% year-on-year, so that's, I think, a good reflection of the underlying growth trend. In terms of the nature of the catch-up, it was a recognition in the quarter of cash receipts that we had received in previous quarters but hadn't booked into the P&L in previous quarter

Quantification perspective than our international game revenue excavating the supercell cat shop executing.

FX changes was 24% year on year.

So that's I think a good reflection of the underlying growth trends in terms of the nature of the catch up it was a.

Our recognition in the quarter.

Cash receipts that we had received in previous quarters, but hadn't booked into the P&L in previous quarters.

James Gordon Mitchell: You know, from time to time, the auditors for our various game subsidiaries review the assumptions under which they translate cash receipts and revenue. And, you know, those assumptions can change because of changing player behavior, but they can also just change because of different theoretical assumptions, which was the case here. We previously calculated player life based on when players began playing the game. Now we're calculating player life based on when players begin spending money in the game.

From time to time.

What it does for our various game subsidiaries with you the assumptions on which they translate to cash receipts as revenue.

And those assumptions can change because of change in player behavior, but I can also just change because of different theoretical assumptions, which was the case here.

Previously calculated tire life based on one players.

Began playing the game that we're calculating the player life based on one class begin spending money in the game so that hasn't been a change in the underlying tie up behavior. That's just been a change in how we think about quantifying the lag from when they made a purchase within the game.

James Gordon Mitchell: So there hasn't been a change in the underlying player behavior; there's just been a change in how we think about quantifying the life from when they made a purchase within the game. Looking forward, we went through a similar exercise for Riot Games in the first quarter of 2022, and that will have a small negative impact on our international game revenue growth in the first quarter of 2022. So I think that, you know, for better or worse, there's a number of studios in a number of jurisdictions within our international game business. You know, that's a source of fundamental strength, but it's also a source of [inaudible] but the underlying recurring number was the 20% revenue growth that I recommended.

Looking forward we.

Through a similar exercise for riot games in the first quarter of 2022 and that will set a small negative impact on our international game revenue growth in the first quarter of 2022.

So I think for better or worse.

Number of studios in a number of jurisdictions within our international game business. That's the source of fundamental strength, but it's also a source of a quarterly reporting noise and timing noise will cancel out but in any given quarter.

The noise can be a negative factor positive factor in so that's why we just wanted to you mentioned in the fourth quarter. The headline number benefited from this in a positive adjustment.

But the underlying recurring number was.

<unk> revenue growth that I referenced.

Great. Thank you.

Thank you. Our next question comes from the line of Robin Zhu.

Operator: Thank you. Thank you. Thank you. Our next question comes from the line of Robin Zhu from Bernstein. Please go ahead, your line is open. Thanks, Benjamin. I just have...

Clean.

Go ahead your line is open.

Robin Zhu: Thanks, I just have a couple of questions, please, if I may. One is on enterprise fast growth, and you mentioned that you guys are growing this business. Firstly, could you comment on, you know, the state of the business and the impacts of macro, from the internet industry slowing down, you know, whether you're seeing any disruptions on this front. And if you could go into a little bit more detail on, you know, you mentioned you're pulling back from growth at all costs, which kinds of projects are being cut or are you doing less of, you know, in order to realign the business

Thanks, Matt.

Ill.

Couple of questions from me one is on the process growth I mean, you mentioned that you guys are growing this business.

Firstly could you comment on the.

The strength of the business.

The impact from macro from the Internet industry slowing down.

Whether youre seeing any disruptions on the phones and if you could go into.

Little bit more detail.

I mean, you mentioned youre, putting back from growth at all cost.

<unk> projects are being costs or are you doing less of.

In order to realign the business and then as a whole.

So if you could comment on the margin impact of course on enterprise sales I presume right now.

Robin Zhu: And then, as a follow-up, if you could comment on the margin impacts of growth in enterprise sales. I presume right now that business services as a whole is margin diluted to the overall business. Is there a timeline where you'd expect that to change, where it becomes margin accretive for FBS or business services to grow much faster than average?

Business services as a whole is theres margin dilutive its available business is there a timeline, where you'd expect to change where it becomes margin accretive for us or business services to grow much faster than average.

Martin Lau: Okay, on the cloud business. What was in the past was actually that we have been, and also the entire industry has been trying to grow the scale of the business so that you can actually get into as many customer relationships as possible. And then, in some cases, you would have to undertake very heavy discounts in terms of prices. Or, in some cases, you have to develop very custom-made solutions for customers.

Okay.

The cloud business.

What was in the past with actually that we happen.

And and also the antagonist here, that's been trying to grow that.

The scale of the business. So that you can actually sort of get into as many customer relationships as possible.

And then.

In some cases, you would have to undertake.

Have the discounts on in terms of prices.

In some cases develop very custom need solutions for.

Martin Lau: In some cases, the revenue is actually involving hardware resale, which you are going to be registering, very low margin or sometimes a negative margin. So, and then there's very big marketing costs and sales channel costs you have to provide in order to get the business. So this is sort of close to what we meant by growth at all costs.

Customer in some cases the revenue is actually involved in.

Hot where we sell in which you are going to be registering.

Very low margin or sometimes.

Negative margin so.

And then and then there is a very big.

Marketing costs.

Sales channel costs do you have to provide in order to get the business. So this is what we meant by growth at all cost.

Martin Lau: And I think, you know, over time, what we felt would be happening is that once we have reached the right kind of scale and also customer relationship, then we can actually start focusing on healthy growth, which includes the provision of products which are self-developed and which are more standard products which we can reuse over and over again for many different customers. And that's how we can actually defray the development cost over a much larger pool of revenue and pool of customers.

I think.

Over time, what we felt would be happening.

Is that.

We would be.

Once we have reached.

The rent kind of scale and also customer relationship then we can actually start focusing on healthy growth which include.

Provisioning of.

Of products, which are self developed and was a more standard products of which we can use over and over again for many different customers and that's how we can actually be free to development cost over a much larger pool.

Revenue and pool.

<unk>.

Martin Lau: And at the same time, we are going to be upselling our customers into paths, and a view pass would actually carry a much higher margin than ice and will be much more disciplined in terms of ice pricing and also in terms of not engaging in reselling hardware MLOs. In terms of the past, we have called out a number of different paths which are actually registering a good margin at the same time, which are growing quite nicely, including security, video cloud, real-time communication, database, and video on demand.

At the same time, we are going to be Upselling power.

Our customers into pass and this past week actually carry a much higher margin than ice.

And we'll be much more disciplined in terms of.

I used pricing and also.

In terms of.

In terms of.

Engaging in resell it.

Hardware at a loss.

In terms of the past, we have called out a number of different paths, which are actually registering good margin at the same time, which are growing quite nicely, including securities, including video cloud, including real time communication database video on demand and.

Martin Lau: And we felt that these past services would continue to grow over time and that would actually improve the quality of our business, as well as the margin profile of the business. And of course, within the enterprise, there are also files, which we actually also discussed in quite full length, right, you know, in terms of communications and collaboration tools. And I think we were given a very full account of that, so I'm not going to repeat what we talked about.

We felt that.

This.

Paas services would continue to grow over time and that would actually improve.

The quality of our business and as well as the margin profile of the business.

And of course within the enterprise. There is also the source, which we actually also discussed in quite linked with right in terms of the communications and collaboration tools and I didn't know like given the dairy to account for that so I'm not going to repeat what we talked about in.

Martin Lau: And overall, what you've seen is that the cloud business, including Eyes and Paths, is not just a margin dilutive idea; it's actually registering for that long. And also, for SaaS, it's incurring costs but not having any significant revenue. So these are actually loss-making businesses. But over time, if we can actually improve the margin profile of the cloud business, and at the same time, if we can start monetizing on SaaS, then the margin profile of these businesses would start to improve. So that's what we are engineering for in the mid to long term.

And overall, what <unk> seen is that the Clos.

Cloud business, including Ais and pass is.

March's margin dilutive, but it's actually registering net loss.

And also for SaaS.

Incurring costs to not having.

Any significant revenue. So these are actually loss, making businesses, but overtime. If we can actually improve the margin profile of the cloud business and at the same time, if we could.

Got to monetize it one SaaS and margin profile of these businesses.

Start to improve so thats, what we are entering into October the <unk>.

Mid to long term.

Thank you.

Operator: Our next question is from the line of Richard Kramer of Arrethe Research. Please go ahead.

Our next question is from the line of Richard Kramer rapidly usage.

Okay.

Richard Kramer: Thank you very much. One, just to follow on with Martin, from some of the comments you've made already, I know you've given some reasons in the mix and the backdrop, but page 27 makes it clear that these are record low margins for Tencent. And in this context of the transition from old to new paradigms and looking past what's obviously a difficult 2022, can you talk about whether the industry overall will see a lower level of medium-term structural profitability? And then I have a follow-up question for James. Thank you.

Thank you very much.

One just to follow on with Martin from some of the comments you've made already I know you've given some reasons in the mix and the backdrop, but the page 27 makes it clear that these are record low margins for Tencent and in this context, the transition from old to new paradigms and looking past, what's obviously a difficult 2022 can you.

Talk about whether the industry overall, we will see a lower level of medium term structural profitability and then I'll have a follow up for James Thank you.

Martin Lau: But I think the industry will see a structurally lower growth rate. In the past, if you look at the industry, profitable businesses are actually engineered for 20 plus percent to 30 percent growth rates. And there are a lot of businesses which are actually registering losses, right? And in some cases, huge losses, and really relying on the capital markets for support of their business.

But I think the industry will see a structurally lower growth rates right.

If you look at the industry.

Yeah.

Yeah.

The profitable business actually engineered for 20 plus percent to 30% growth rate.

There are a lot of the businesses in which actually registering losses right.

Some cases of huge losses.

And really relying on the capital markets fourth portions of their business and I think this overall.

Martin Lau: And I think industry structures have to change. And, and so, overall, the heavy loss-making companies would actually need to start rationalizing costs in a much more significant way. And then we, the profitable companies, would actually have to cope with a lower revenue growth rate. But I think, you know, it's going to be a more sustainable growth rate, and if we can actually do that, like, you know, then the margin profile coming out of this may actually be quite healthy.

Industry structure has to change.

And and.

So overall.

That's heavily loss, making companies would actually need to start rationalizing costs in a much more significant way and then.

We at the properties and companies should have too.

Cope with the lower.

Revenue growth rates, but I think.

It's going to be a more sustainable growth rate and if we can actually do that.

Then.

The margin profile coming out of this.

Maybe actually quite healthy.

Martin Lau: But we're really transitioning from a very abnormal industry structure for a couple of years. And then maybe a second one for James, just given the transition that you've laid out and the industry needing to go back to its roots. And clearly, around the world, there's a lot of scrutiny of what is thought of as big tech. Would you consider or might it make sense to devolve Tencent into a series of pure play businesses, beyond the financial holding company question, maybe spinning out the cloud and business services or other areas so that investors would have a choice of which elements of your business to own, and Tencent might not seem so large in the eyes of your regulators?

But maybe.

Maybe I missed something but we're really transitioning from from a very abnormal.

Industry structure for a couple of years.

Okay. Thanks, and then maybe a second one for James just given the transition that you've laid out in the industry needed to go back to its roots.

And clearly around the world, there's a lot of scrutiny of what it is thought of its big attack.

Would you consider or it might it make sense to devolve tencent into a theory of pure play businesses.

Beyond the financial holding company question, maybe spinning out the cloud and business services or or other areas. So that investors would have a choice of which elements of your business to own.

And Tencent might not seem so large in the eyes of your regulators.

Martin Lau: That's an interesting question, and I think I have more questions for Anit and for myself. No, I think, let me answer this question. This is highly speculative. I think this is not something that we should consider at this point in time. The most important thing is actually each one of the businesses have to be optimized for its own service and for its own sustainable and healthy growth. And I think that's actually more important than just sort of doing some re-engineering on how you draw up the piece. So I think that's what we're focused on. Thank you.

That's a interesting question and I think I've got more questions.

So.

No.

I think let me answer this question.

Speculate I mean I think this is not something that can be considered at this point in time.

The most important thing is actually each one of the businesses have to be.

Uh huh.

Optimized for four.

It's all service.

And that's the way, it's a sustainable healthy growth.

And I think that's actually more important than just sort of you're doing some.

Reengineering on how you dropped the pieces. So I think that's what we're focused on thank you.

Operator: Thank you, Preacher. Let's take the one last question. Yes, our final question comes from the line of Alex Yev, J.P. Morgan, he's called ahead.

Thank you operator, let's take one last question.

And our final question comes from the line of Alex Yao of Jpmorgan. Please go ahead.

Alex C. Yao: Thank you very much for taking my question. I have two questions.

Thank you management for taking my question.

Two questions one is on the gaming side of the business.

Given the sharp reduction keep in mind the revenue contribution to domestic gaming revenue should we expect a gaming revenue growth to remain weak.

Alex C. Yao: One is on the gaming side of the business. Given the sharp reduction in minor revenue contribution to domestic gaming revenue, should we expect gaming revenue growth to remain weak in the first half of 2022? And then I have a follow-up to Martin's comments on the financial holding company structure. Do you guys need to, or do you not need to, restructure the FinTech asset?

First half 2022.

And then I have a follow up.

Alex C. Yao: to a financial holding company structure. Thank you.

For margins of comments on our financial holding company structure do you guys need to do you guys need to restructure the phenotype of asset into a financial holding company structure. Thank you.

Hi, Alex.

James Gordon Mitchell: Hi Alex. On the first question, I mean, mathematically, we made the changes that reduced the time spent on revenue by minors during the course of the second half of 2021. And so there'll be a negative impact on our year-on-year growth rate through the first half. So on the financial holding company question, we're right now investigating both the need as well as our eligibility to get the license for that.

First question I mean, yes, mathematically we made the changes that.

Reduce the time spent on our revenue by minors.

During the course of the second half of 2021, and so that will be.

Negative impact on a year on year growth rate through the first half of 2022.

So on the financial holding company question right now investigating our.

Both the need as well as our eligibility to get the license for that.

James Gordon Mitchell: But what we're saying is that without this, it is not going to impact our business, and it's going to be neutral, and over the longer term, once we actually sort of receive the right license, it could be possible.

But what we're saying is that without this is not going to impact our business.

And.

It's going to be neutral.

Yes.

Over the longer term once if we actually sort of receive.

The REIT license it could be a positive.

Operator: Thank you, operator. We are closing the call now. 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. The replay of this webcast will also be available soon. Thank you, and see you next quarter.

Thank you operator, we are closing the call now if you wish to check out our press release and other financial information. Please visit the IR section of our company website.

unknown: [inaudible]

So it does concern dot com. The replay of this webcast will also be a bell.

Thank you and see you next quarter.

Yes.

Thank you and this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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Okay.

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Okay.