Q3 2022 Tencent Holdings Ltd Earnings Call

Unknown Executive: Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited, non-IFRS financial measures.

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

This presentation also contains some unaudited non.

<unk> 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 <unk>.

Unknown Executive: that should be considered in addition to, but not as a substitute for, measures of the group's financial performance propelled.

Unknown Executive: propelled in accordance with IFRS for a detailed discussion of risk factors and non-IFRS measures.

For a detailed discussion of risk factors and non <unk> measures.

Unknown Executive: Please refer to our disclosure documents in the IR section of our website.

Refer to our disclosure documents on the IR section of our website.

Unknown Executive: Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a

Let me now introduce the management team on the Webinar Tonight.

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

Unknown Executive: Press and Martin Lau will discuss the strategy review. Chief Strategy Officer, James Mitchell, will provide a business review. Chief Financial Officer, John Lowe, will conclude with financial.

President Martin Lau will discuss strategy review chief.

Chief Strategy Officer, James Mitchell will provide a industry view Chief Financial Officer, John Lowe will conclude with financial discussion before we open the floor for questions.

Unknown Executive: John Lau will conclude with a financial discussion before we open the floor for questions. I will now pass it to Pony. Thank you, Wendy.

I will now pass it to pony.

Thank you Wendy.

Huateng Ma: Good evening. Thanks, everyone, for joining us. During the third quarter, we streamed our cost and activated new revenue-generating services. Returning to Year-on-Year Earning Growth. We also delivered the quarter-on-quarter earning group, with some tailwind from positive. Total revenue was 140 billion RMB, down 2% year-on-year, but 5% quota.

Good evening everyone.

<unk> for joining us.

During the third quarter, we streamlined our cost and up to three new revenue generating services.

Returning to year on year earnings growth.

We also delivered a quarter on quarter earnings growth with a solid tailwind from positive seasonality.

Total revenue was 140 feet at RMB, four 2% year on year, but up.

5% quarter on quarter.

Huateng Ma: Gross profit was 62 billion RMB, down 1% year-on-year but up 7% quarterly. Non-IFRS operating profit was 41 billion RMB, flat year-on-year and up 12%. Non-IFRS net profit achievable to equity holders was 32 billion RMB, up 2% year-on-year and 15% quarterly. We generally retain our first place positions in active, including social, games, long-form video, news, music, literature, payment, and mobile broadcasts.

Gross profit was $6 2 billion RMB.

1% year on year, but up 7% quarter on quarter.

Non <unk> operating profit was 41 billion RMB.

That year on year and up 12% while down quicker.

Non <unk> net profit attributable to equity holders was 32 billion RMB up 2% year on year and 15% quarter on quarter.

Yeah.

For all of our key services.

We generally it became our first phased our persistence in activities, including associated gains for long form video news music.

The true payment and mobile browsers.

Martin Lau: Combined MAU of WeChat and WeChat was $1.3 billion. Mobile devices MAU of QQ was 574 million. I will now hand over to Martin for a strategy review. Thank you, Pawnee, and good evening and good morning to everybody.

<unk> was one points we beat it.

Mobile devices MCU of QQ was 574 million.

I will now hand over to Martin for a strategy review.

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

Martin Lau: And lastly, for the strategy review, I discussed how we have positioned ourselves to improve efficiencies, develop new revenue streams, and so revive our profit growth. Today, I will update you on our progress and some early stage results. In addition, I will touch on our latest steps in returning capital to shareholders. Let's start off with the progress of our efficiency initiative. First, we further tightened our control on marketing costs, pulled back from projects with low cost efficiency, and focused our resources on core products. As a result, selling and marketing expenses decreased by 32% year-on-year and by 10% quarter-on-quarter.

And last quarter strategy review I discussed, how we have positioned ourselves to improve efficiencies.

New revenue streams and still revise our profit growth today I will update you on our progress and some early stage results. In addition, I would touch on our latest steps in returning capital to shareholders.

Martin Lau: Second, we achieved a significant margin improvement in business services. Those profits grew both year on year and quarter on quarter, benefiting from our proactive approach to generate high quality revenue. Third, we optimized bandwidth and server utilization associated with video accounts, bringing down our operating costs per video view significantly. Fourth, with our rationalization of non-core and underperforming businesses, we optimized our workforce and controlled staff. At the end of the third quarter, our total headcount was down as compared to the end of the first quarter.

Start off with the progress of our efficiency initiatives.

We further tightened our control on marketing costs put back from projects with low cost efficiency and focused our resources on core products as a result, selling and marketing expenses decreased by 32% year on year and by 10% quarter on quarter.

We achieved a significant margin improvement in business services gross profit grew both year on year endpoint in quarter benefiting from our proactive adjustments to generate high quality revenue.

Third we optimized bandwidth and server utilization associated video can bring down our operating cost per video view significantly.

Fourth with our rationalization and noncore and underperforming businesses, we optimized our workforce and controlled staff cost.

At the end of the third quarter, our total head count was down as compared to the end of the first quarter, excluding severance pay total staff costs increased at a low single digit growth rate year on year.

Martin Lau: Excluding severance pay, total staff costs increased at a low single-digit growth rate year-on-year. However, while the macro environment is still challenging, our efficiency initiatives enabled us to achieve slightly positive year-on-year growth in profits, representing a significant improvement over the last few quarters. Looking forward, we are making encouraging progress in developing new high-quality revenue streams in the following three key growth areas. Video accounts, and in-feed ads revenue has been ramping up fast since we made additional inventory available on a daily basis in mid-August. We are on track to exceed 1 billion RMB in quarterly revenue in the fourth quarter. For international games, we launched new hits Tower of Fantasy and Goddess of Victory in Nikkei, demonstrating our strong publishing capability.

While the macro environment is still challenging our efficiency initiatives enabled us to achieve slightly positive year on year growth in profit representing a significant improvement over the last few quarters.

Looking forward, we are making encouraging progress in developing new high quality revenue streams in the following three key growth areas.

Video accounts in feed ads revenue has been ramping up fast since we made additional inventory available on an basis in mid August we are on track to exceed 1 billion RMB in quarterly revenue in the fourth quarter.

For International Games, we launched new hits tower authenticity and got us the victory Nicky.

Administrating, our strong publishing capabilities, our new strategic partnership with Ubisoft women and enable us to bring more AAA franchises to mobile globally.

Martin Lau: Our new strategic partnership with Ubisoft will enable us to bring more AAA franchises to mobile globally and PC titles to China. Together with the growing pipeline of a group of studios across genres and platforms globally, our international games business is well-positioned for significant expansion over time. For SAS, we're currently prioritizing scale expansion, as there are precedents in the rest of the world that demonstrate how these services can be monetized by industry leaders.

PC titles to China.

With a growing pipeline.

Group of studios across genres and platforms globally are inches national games business is well positioned for significant expansion over time.

SaaS. We're currently prioritizing scale expansion is there a precedent in the rest of the world, which demonstrates how these services can be monetized by industry leaders. We have recently launched a subscription bundle combining we come Tencent meeting and Tencent docs together, which is seeing good adoption among larger enterprises.

Martin Lau: We have recently launched a subscription bundle combining Wecom, Tencent Meeting, and Tencent Docs together, which is seeing good adoption among larger enterprises. In addition, we're encouraged to see positive signals across the path of macro and regulatory normalization for FinTech services. Commercial payment volume growth recovered in the third quarter. On the regulatory front, we received approval for investment in Samsung property and casualty insurance in China.

In addition, we're encouraged to see positive signals across the path of macro and regulatory normalization.

Fintech services.

Commercial payment volume growth recovered in the third quarter.

On the regulatory front, we received approval for investment in Samsung property and casualty insurance in China for.

Martin Lau: For domestic games, we received approval for a new game publishing license and an amendment to an existing license in September. We believe more licenses will be forthcoming in the future. For advertising, revenue grew quarter after quarter, even excluding new contributions from mutual accounts in feedlabs. We are on track to resume year-on-year growth in late 2022. Next, I would like to update you on our capital allocation, with which we start from a position of both cash flow and asset strength.

Domestic games, we received approval for a new game publishing license and an amendment to an existing license in September .

Leave more licenses will be forthcoming in the future.

Advertising revenue grew quarter over quarter, even excluding new contribution from mutual accounts in feed ads.

Are on track to resume year on year growth in late 2022.

Okay.

Next I would like to update you on our capital allocation.

With which we start from a position of both cash flow and asset spreads.

Martin Lau: We operate a diversified portfolio of businesses, spending across social networks, games, advertising, and fintech services, each of which generates robust cash flow even under the current environment. Consequently, we generated operating cash flow of $25 billion over the past 12 months. After taking into account payments for capital expenditure, media content, and lease liabilities, our free cash flow amounted to $15 billion. On the asset side, as of the end of September 2022, we will have total gross cash of $44 billion. Stakes in listed companies with a fair value of US$75 billion and stakes in unlisted companies with a carrying value of US$48 billion.

We operate a diversified portfolio of businesses spanning across social networks games advertising and Fintech services, each of which generates robust cash flow even under the current environment.

Currently we generated operating cash flow of $25 billion over the past 12 months after taking into account payments for capital expenditure media content and lease liabilities, our free cash flow amounted to $15 billion U S dollars.

On the asset side as of the end of September 2022, we have total gross cash of 44 billion U S. Dollars Stakes in listed companies with a fair value of 75 billion U S dollars and stakes in unlisted companies with a carrying value of 48 billion U S dollars.

Okay.

Martin Lau: This combination of cash flow generation and liquid asset holdings enables us to simultaneously invest in our business while returning capital to shareholders. We believe we are fully supporting organic and strategic investments which benefit our business. For example, for Organic Investments, where deploying capital into growth areas was highlighted, namely video accounts, international games, and SaaS products, as well as ecosystem enhancements such as nurturing a vibrant e-commerce ecosystem for Weixin and upgrading our backend infrastructure

This combination of cash flow generation and liquid asset holdings enable us to simultaneously invest in our business, while returning capital to shareholders. I believe we are fully supporting organic and strategic investments, which benefit our business for organic investments we're deploying cash.

Little into growth areas with highlight it.

Namely video accounts international games, and SaaS products as well as ecosystem enhancements such as nurturing a vibrant e-commerce ecosystem formation and upgrading our back end infrastructure.

Martin Lau: Strategic investments, we continue to invest in companies that are complementary to our core business group, such as our recent investments in partnership with Ubisoft and Friend Software, to name a couple. At the same time, we are also returning more capital to shareholders. For the past 10 years, we've paid out cash dividends, which represented a payout ratio of approximately 10% of our non-IFRS earnings. Additionally, since the beginning of the year, we have bought back three billion U.S. dollars worth of shares.

For strategic investments will continue to invest in companies that are complementary to our core business growth such as our recent investments in partnership with <unk> and <unk> software to name a couple.

At the same time, we're also returning more capital to shareholders for the past 10 years with payout cash dividends, which represented a payout ratio of approximately 10% of our non <unk> earnings.

Since the beginning of the year, we have bought back a $3 billion worth of shares.

Martin Lau: In March 2022, we will pay the dividend in kind through the distribution of JD.com shares, which amounted to $13 billion US dollars of value to shareholders. So, to date, we have returned a total of over $18 billion to our shareholders. Today, we are declaring a special interim dividend of Meituan shares worth approximately 20 billion U.S. dollars, which will be distributed to shareholders in March 2023. Qualifying shareholders will receive one Meituan share for every Tencent share they hold. This distribution in kind is equivalent to about $16.6 HKD per Tencent share based on yesterday's closing price. So with that, I'll pass to James to talk about our business review. Thank you, Martin.

In March 2022, we paid a dividend in kind through distribution of TV dot com shares, which amounted to $13 billion of value to shareholders. So to date. We have returned a total of over $18 billion U S dollars to our shareholders.

Today, we are declaring a special interim dividend on May 20 shares worth approximately $20 billion U S.

Dollars, which will be distributed to shareholders in March 2023 qualifying.

<unk> shareholders will receive one may 'twenty sure Ed.

Every $10 10 shares they hold.

This distribution in kind is equivalent to about $16 six Hong Kong dollars pretense and share based on yesterday's closing price.

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

Thank you Martin for the third quarter of 2022, our total revenue was down 2% year on year.

James Gordon Mitchell: For the third quarter of 2022, our total revenue was down 2% year-on-year. EAS represented 52% of our total revenue, within which the social network sub-segment was 21%, domestic games 22%, and international games 9%. Online advertising was 15%, and FinTech and business services were 32% of total revenue. The value-added services segment revenue was 72.7 billion remin B, down 3% year-on year. Social network revenue was down 2% year-on-year to 29.8 billion renminbi.

<unk> represented 52% of our total revenue within which the social networks sub segment was 21% domestic games, 22% and international games, 9% online advertising was 15% and Fintech and business services was 32% of total revenue.

The value added services segment revenue was $72 7 billion renminbi down 3% year on year, Social network revenue was down 2% year on year to $29 8 billion renminbi revenue and music and game related live streaming services decreased while revenue from video accounts live streaming service increase reflects more users adil.

James Gordon Mitchell: Revenue from music and game-related live streaming services decreased, while revenue from video accounts for the live streaming service increased, reflecting more users, additional content, and enhanced recommendation efficiency to better match users to content. However, 10-cent video subscription revenue decreased slightly year-on-year as content scheduling delays resulted in subscriptions dipping. However, we increased RQues as we adjusted membership pricing. Our self-commissioned drama series, Love Like the Galaxy, which we released in July, ranks number one by video views across all online platforms in China for the quarter.

<unk> content and enhanced recommendation efficiency to better match users to content.

Samsung video subscription revenue decreased slightly year on year as concepts scheduling today's results in subscriptions Chipping. However, we increased our previously adjusted membership pricing.

Soft commissioned drama series like the Galaxy, which relates to July ranks number one by video views across all platforms in China for the quarter.

James Gordon Mitchell: Our music subscription revenue increased year-on-year, driven by more paying users. Our domestic game revenue was down 7% year-on-year to $31.2 billion RMB, as transitional challenges resulted in lower paying user counts. Honor of Kings and Peacekeeper Elite contributed decreased revenue due to the minor protection measures which took effect from September 2021 onwards.

Our music subscription revenue increase year on year, driven by more paying users.

Our domestic game revenue was down 7% year on yet steady one shipper in renminbi as transitional challenges resulted in lower paying user accounts honour of Kings Peacekeeper elite contributed decreased revenue due to the mining protection measures, which took effect from September 2021 onwards.

James Gordon Mitchell: New Games, Wild Rift, Return to Empire, and League of Legends esports manager contributed incremental revenue. Our international games revenue increased 3% year-on-year, or 1% in constant currency terms, to 11.7 billion renminbi. A robust performance from Valorant, the successful launch of Tower of Fantasy, and Miniclip's acquisition of Subway Surfers and release of new games drove the growth. Turning to social networks, we leveraged the extensive reach of Weixin and the ease of use of mini-programs to better assist the real economy.

New games Wild Rep returned to Empire and league of Legends esports manager contributed incremental revenues.

International games revenue increased 3% year on year or 1% in constant currency terms to 11 7 billion renminbi, a robust performance from battlefront. The successful launch of tower, a fantasy and many clips acquisition of subway surfers from release of new game strives to cry.

James Gordon Mitchell: Mini-programs surpassed 600 million daily active users, representing a year-on-year increase of more than 30%. However, daily mini-program activations grew even faster, by over 50% year-on-year. Additional commerce and municipal service use cases contributed to growing the number of users and the daily activations per user. We deepen the adoption of mini programs among food and beverage, apparel, and footwear brands, and shopping malls and department stores. These offline merchants and brands are increasingly integrating membership programs and loyalty points into their mini programs as they build out multi-channel retail. The Health Code Mini programs help users verify their health and travel status with over 320 billion visits year-to-date, facilitating continuity of business activity. On QQ, we provided more scenarios than the Super QQ show for social interaction.

Turning to social networks, we leverage the extensive reach inflation and the ease of use of mini programs to better assess the real economy.

Any program surpassed 600 million daily active users representing a year on year increase of more than 30%.

Daily Mini program Activations for even faster by over 50% year on year additional commerce municipal service use cases contributed to growing the number of users and the daily Activations per user.

The adoption of mini programs, among food and beverage apparel and footwear brands and shopping malls and department stores is offline merchants and brands are increasingly integrating membership programs and loyalty points into that many programs as they build out multichannel reach out.

The health card mini programs help users to verify that health and travel status, but I have a 320 billion visits yesterday facilitating continuity of business activity.

On <unk>, we provided more scenarios and Super QQ shave, a social interaction we collaborated with brands such as Gucci and KFC to launch virtual spaces, where users can conduct immersive interactions. For example, users can participate in online to offline campaigns collect branded virtual items and socialized with other fans.

James Gordon Mitchell: We collaborated with brands such as Gucci and KFC to launch virtual spaces where users can conduct immersive interactions. For example, users can participate in online to offline campaigns, collect branded virtual items, and socialize with other fans. Moving to domestic games, with the implementation of our industry-leading minor protection program, we've become fully compliant with China government regulation, fostering a healthier industry environment. Time spent by users aged under 18 years old has decreased by 92% year-on-year, and constituted 0.7% of total time spent in July 2022.

Moving to domestic games with the implementation of our industry, leading minor protection program, we've become fully compliant with China government regulation fostering a healthier industry environment time spectrum users aged under 18 yourselves is decreased by 92% year on year and constituted seven 7% of total time spent in July .

'twenty two.

James Gordon Mitchell: On the other hand, our add-on user base and user engagement increased year-on-year. For the month of September, our combined PC and mobile game add-on TAU rose by a double-digit percentage year-on-year, and our total add-on player time spent grew by a single-digit percentage year-on-year. Time spent growth was driven by existing titles such as Honor of Kings, Peacekeeper Elite, and Crossfire on mobile and PC, as well as new titles such as Wild Rift and Arena Breakout.

On the other hand adopt user base and user engagement increase year on year for the month of September our combined PC and mobile game <unk> rose by a double digit percentage year on year and our title add off hire time spent grew by a single digit percentage year on year time spent growth was driven by existing titles such as honour of Kings Peacekeeper elite.

And crossfire mobile and PC as well as new titles, such as what risks arena breakout.

James Gordon Mitchell: For extending the longevity of our IP franchises, taking one example, Crossfire, which is a game we first published on PC 14 years ago. As a result of innovation in areas such as player versus environment mode and ranked mode, Crossfire PC remains the leading game in the FPS genre on PC in China and grew its grossing receipts by a high single-digit percentage year-on-year in the first nine months of this year. In 2015, we published Crossfire Mobile, developed by Timmy Studio Group, significantly increasing the overall number of people playing Crossfire games in China.

We're extending the longevity of our IP franchises, taking one example, cross spot which is a game. We first published on PC 14 years ago. As a result of innovation in areas such as player versus environment mode and ranked mode. Crossfire PC remains the leading game in the Fps genre on PC in China and grew its gross receipts by high.

Single digit percentage year on year in the first nine months of this year.

In 2015, we publish crossfire mobile developed by Timmy studio, Greg significantly increasing the overall number of people think crossfire games in China benefiting from localized content insights Crossfire mobile remains one of the top 10 mobile games by time spent and crossing the seats in China today.

James Gordon Mitchell: Benefiting from localized content insights, Crossfire Mobile remains one of the top 10 mobile games by time spent and gross receipts in China today. And we continue enriching the Crossfire franchise, professional esports events, and cross-media collaboration, such as the live-action drama series on Tencent Video. International Games were extending the success of our key internally developed franchises. Benefiting from Riot's eSports experience, the Valorant Champions Tournament became the most popular eSports event industry-wide for tactical shooter games, expanding Valorant's fanbase and driving record-high gross receipts for the game itself in the third quarter. In October, Supercell released the biggest ever content update, Town Hall 15, The Clash of Clans, which boosted user engagement and in-game consumption.

And we continue enriching across five franchise professional esports events and cross media collaboration such as a live action drama series on Tencent video.

International game, so we're extending the success of our key internally developed franchises.

And if fitting from vibes esports experience the fat around champions tournament became the most popular esports event industry wide tactical shooter games, expanding <unk> fan base to driving record high grossing proceeds from game itself in the third quarter.

On October <unk> released the biggest ever content uptake townhall <unk>, the clash of clans, which boosted user engagements in game consumption.

James Gordon Mitchell: Clash of Clans represents a lasting franchise, generally ranking as the top strategy game by annual grossing receipts worldwide since its launch, including year-to-date this year. We've also achieved breakthroughs in publishing, investing in studio, and licensed games with the release of two major new titles, leveraging our content marketing and user community management capabilities. Tower of Fantasy, an open-world MMORPG developed by Perfect World, which we released in August, became the second most popular MMORPG by daily active users internationally in the quarter.

Cash of clients represents a lasting franchise generally ranking of the top strategy game by annual gross receipts worldwide since its launch including yesterday Scf.

We've also achieved breakthroughs in publishing Investees studio and licensed games with the release of two major new titles, leveraging our content marketing and user community management capabilities.

Our fantasy and O promote MMORPG developed by perfect World, which we released in August became the second most popular MMO RPG by daily active users internationally in the quarter and achieved notable commercial success in the most competitive markets ranking first by grossing the seats in Japan and <unk> in the United States.

James Gordon Mitchell: It achieved notable commercial success in the most competitive markets, ranking first in grossing seats in Japan and second in the United States. Nikkei, a sci-fi RPG shooter with anime graphics developed by our investee studio ShiftUp, was the highest grossing mobile game internationally in the first 10 days following its November launch. Nikkei's success demonstrates how we can empower small investment studios to commercial success with our operational know-how and infrastructure scale. For online advertising, our revenue was 21.5 billion renminbi in the third quarter.

Mkay, a SIFI RPT shoot it with anime graphics developed by our Investees studio shipped up was the highest grossing mobile game internationally in the first 10 days following its November launch.

<unk> success demonstrates how we can empower small investees studios to commercial success with our operational know how and infrastructure scale.

So online advertising our revenue was $21 5 billion renminbi in the third quarter the rate of year on year decline has narrowed from 18% from the second quarter to 5% third quarter benefiting from the initial monetization of PDL accounting feed ads improvements into games E Commerce, net MCT categories and lapping of certain industry.

James Gordon Mitchell: The rate of year-on-year decline has narrowed from 18% in the second quarter to 5% in the third quarter, benefiting from the initial monetization of video accounts and feed ads, improvements in the games, e-commerce, and FMCG categories, and the lapping of certain industry-specific headwinds from 2021. Sequentially, our advertising revenue grew 15%, benefiting from positive seasonality, the initial monetization of video accounts In the video accounts, we saw particularly robust demand from FMCG and high-end brands.

Specific headwinds from 2021 sequentially, our advertising revenue grew 15% benefiting from positive seasonality. The initial monetization of video accounts in feed ads and our ongoing efforts to improve that targeting technology.

Video accounts, we saw particularly robust demand from the FMC Chi and high end brands.

James Gordon Mitchell: Advertising in video accounts is complementary and incremental to our existing advertising revenue, excluding video accounts, ad revenue elsewhere which grew year-on-year, particularly from mini-programs. Within the media subcategory, our long-form video ad revenue decreased year-on-year, primarily due to fewer releases of drama series and tough comparisons versus airing the Tokyo Olympic Games in the year-ago period. Looking at fintech and business services, segment revenue was 45 billion renminbi, up 4% year-on-year and 6% quarter-on-quarter.

Advertising and video accounts as complementary incremental to our existing at the type C revenue, excluding video accounts AD revenue elsewhere, and why shouldnt prove year on year, particularly from many programs.

Within the media subcategory, our long form video AD revenue decrease year on year, primarily due to fewer releases of drama series and tough comparisons versus ARINC, the Tokyo Olympic games, and the year ago period.

Looking at Fintech and business services segment revenue was 45 billion renminbi up 4% year on year, and 6% quarter on quarter. The Fintech services year on year revenue growth was higher compared to the previous quarter, mainly benefiting from a recovery in commercial payment activities, both offline and online.

James Gordon Mitchell: For fintech services, year-on-year revenue growth was higher compared to the previous quarter, mainly benefiting from a recovery in commercial payment activities, both offline and online. Our commercial payment volume achieved double-digit year-on-year growth, with notable expansion in categories such as groceries, dining services, and transportation.

Partial payment volume achieved double digit year on year growth.

With notable expansion in categories, such as groceries dining services and transportation.

James Gordon Mitchell: For business services, our revenue declined slightly year-on-year. However, gross profit increased significantly both year-on-year and quarter-on-quarter. Gross profit growth benefited from us exiting or scaling back certain loss-making activities, such as deeply discounted contracts for content delivery networks, and also from us shifting the revenue mix toward internally developed products and away from projects with a high proportion of subcontracting activity. We're striving to help non-internet industries embrace digital transformation, which is boosting our revenue from offline sectors such as financial services, industrials, and automotive, highlighting a few examples of our industry solutions.

Our business services, our revenue declined slightly year on year. However, gross profit increased significantly both year on year on quarter on quarter gross profit growth benefited from us exiting of scaling back certain loss, making activities such as deeply discounted contracts for content delivery network and also from us shifting the revenue mix toward internally.

Developed products and away from projects with a high proportion of subcontracting activity.

We're striving to help non internet industries embrace digital transformation, which is boosting our revenue from offline sectors, such as financial services industrial and automotive highlighting a few examples of our industry solutions Tencent cloud enterprise enables those customers such as banks and municipalities, who prefer to store data on that price.

James Gordon Mitchell: Tencent Cloud Enterprise enables customers, such as banks and municipalities, who prefer to store data on their private clouds, to integrate and deploy our public cloud products within their private clouds. Tencent Cloud AI Digital Humans provides AI chatbots to customers in sectors such as financial services and tourism, enabling automated customer support. Tencent's real-time communication is increasingly deployed in industrial use cases such as enabling remote control for mining and container trucks so that our customers can scale their operating costs and provide their drivers with a safer working environment, and public sector organizations such as hospitals and schools are increasingly using our key software as a service tool, facilitating their efficient collaboration and online education provision. And now I'll pass this to John.

But clubs to integrate and deploy our public cloud products within that private clouds.

<unk> cloud AI digital humans provides AI chat bots to customers in sectors, such as financial services and tourism, enabling automated customer support.

Real time communication is increasingly deployed in industrial use cases, such as enabling remote controls the mining in container trucks, so that customers can scale their operating costs and provide that drivers with a safer working environment.

And public sector organizations, such as hospitals and schools are increasingly using our <unk> software as a service tools facilitating their efficient collaboration and online education provision.

John Lowe: Thank you, James. Hello, everybody. For the first quarter of 2022, total revenue was 140.1 billion renminbi, down 2% year-on-year or up 5% quarter-on-quarter. Cross-profit was 62 billion Remembe, down 1% year on year or 7% quarter and quarter. Net other gains were 20.9 billion Rememble, down 9% year-on-year or up 373% quarter and quarter, which were many non-Aivirus such as items, such as net gains on dim disposal and disposals of certain investments, including a 41.3 billion remand-be gain from dim disposal of C, Net Fair Value Losses from Revaluation of Certain Investments and Impairment Provisions against Certain Investments in Online Entertainment and FinTech Verticals, Operating profit was $51.6 billion RMB, down 3% year-on-year, or up 72% year-on-year.

Now I'll pass to John Thank you James Hello, everybody or the first quarter of 2022, so the revenue worth $140 1 billion renminbi down 2% year on year or up 5% quarter on quarter.

Gross profit was 62 billion renminbi down, 1% year on year or 17% quarter on quarter.

The gains were $20 9 billion renminbi down 9% year on year or up.

373% quarter on quarter, which were remaining on <unk>, such as items, such as net gains on disposal and disposals of certain investments, including $41 3 billion renminbi gain from disposal of <unk>.

Net fair value losses from revaluation of certain investments and impairment provisions against the investment in online at save a Nancy intact verticals.

Operating profit was $51 6 billion renminbi down 3% year on year or up differently.

<unk>, 2% Q on Q.

John Lowe: Their finance costs were 2 billion RMB, likely to spike year-on-year or up 8% quarter-on-quarter. Their Q-on-Q change was mainly due to increased interest expense, partly offset by increased foreign exchange gains. The share prices of Associates and JVs were $3.7 billion RMB compared to $5.7 billion RMB last year.

Net finance costs were two <unk> last week, but year on year or up 8% quarter on quarter.

Q on Q change was mainly due to increased interest expense, partially offset by increased foreign exchange gains.

Losses of associates, and JV was frequency of delivery AMD compared to $5 <unk> last year.

So and I have our share of profits was $2 4 billion renminbi compared to shift losses or zero per crude that they're going to be last year, reflecting improved profitability of certain domestic associates due to that cost for <unk>.

John Lowe: Non-IRS share of profits was $2.4 billion RMB compared to share losses of $0.3 billion RMB last year. Refracting improved profitability at certain domestic associates due to the cost control measures. Interspect.

<unk>, Inc.

John Lowe: Income tax expenses increased by 30% year on year to 7.1 billion revenue, and the effective tax rate was 15.5%. iVirus Net Profit Attributable to Equity Holders was $39.9 billion RMB, up 1% year-on-year and 115% quarter-on-quarter. Diluted EPS was $4.104 RMB, up 0.7% year-on-year or 114% quarter-on-quarter. On a non-IRF basis, operating profit was 40.9 billion renminbi, largely stable year-on-year or up 12% quarter-on-quarter. Net profit attributable to equity holders was 32.3 billion renminbi, up 2% year-on-year or 15% quarter-on-quarter. Diluted EPS was 3.306 renminbi, up 1% year-on-year or 14% year-on-year.

Income tax expense increased by 30% year on year to $7 1 billion renminbi, mainly due to a provision of withholding tax during the quarter.

The effective tax rate was 15, 5%.

<unk> net profit attributed to equity holders was $49 9 billion renminbi up 1% year on year and 115% quarter over quarter.

EPS was 410 or renminbi up to seven year on year, seven zero, plus 7% year on year.

Our 114% quarter on quarter.

On the <unk> of IRS basis, operating profit was $40 rather than be lastly, stable year on year or up 12% quarter on quarter net.

Net profit attributable to equity holders was $32 3 billion renminbi up 2% year on year or 15% quarter on quarter.

EPS was $3 three zero, rather than be up 1% year on year or 14% Q on Q.

John Lowe: Moving on to gross margin, the overall gross margin was 44.2%, stable year-on-year or up 1 percentage point quarter-on-quarter. Gross margin for VAS was 51.7%, down 1.3 percentage points year-on-year or up 1.1 percentage points quarter-on-quarter. The Y&Y margin decrease is mainly due to a revenue mix shift from higher margin game services to lower margin video account live streaming services. The Q on Q margin improvement reflected our cost optimization efforts within the family.

Moving onto gross margin.

Gross margin was 44, 2% stable year on year.

One percentage point quarter over quarter.

Gross margin for Vas was 51, 7% down one three percentage points year on year or up one one percentage point quarter over quarter.

The wireline margin decrease was mainly due to a revenue mix shift from higher margin game services through lower margin video live streaming service.

The Q on Q margin improvement our.

Cost optimization efforts within this segment.

John Lowe: Gross margin for online advertising was 46.3%, broadly stable year-on-year, or up 5.7 percentage points quarter-on-quarter. The Q on Q margin improvement benefited from the initial monetization of video accounts in the apps, as well as efficiency measures we implemented within the site. Gross margins of FinTech and business services were 33.3%, up 4.8 percentage points year-on-year for stable quarter-on-quarter. The year-on-year margin improvement was proven by proactive efforts to reduce loss-making crowd services activities, leading to a healthier revenue mix and reduced cost-savings on Operating Expenses.

Gross margin for online advertising was $46, 3% broadly stable year on year or up five seven percentage points quarter on quarter.

Q on Q margin improvement benefited from the initial monetization of BT.

Cognitive apps as well as efficiency measures that we implemented within the segments.

Gross margin for Fintech and business services was 33, 3% up four eight percentage points year on year or stable quarter on quarter. The.

The year on year margin improvement was driven by our proactive efforts to reduce loss, making services activities, leading to the healthcare revenue mix and reduced cost base.

On operating expenses.

John Lowe: Selling and marketing expenses decreased to 7.1 billion renminbi or 5.1% of revenues due to cost efficiency initiatives, as we mentioned earlier. R&D expenses were $15.1 billion RMB, up 10% while broadly stable queue-on-queue. The year-on-year increase was driven by a higher staff force. R&D expenses were 10.8% of revenue. CNA expenses excluding R&D were 11.4 billion RMB, up 12% year-on-year or 2% year-on-year. The year-on-year increase was due to higher operating lease and office expenses, as well as staff work.

Selling and marketing expenses decreased to $7, <unk> renminbi or fastest five 1% of revenues due to cost efficiency initiatives.

Elliot.

R&D expenses were $15 1 billion renminbi up 10% while roughly.

Broadly stable Q on Q.

Year on year increase was driven by higher SaaS for us.

R&D expenses were 10, 8% of revenues.

G&A expenses, excluding R&D were $11 4 billion renminbi up 12% year on year, while 2% Q on Q the year on year increase was due to higher operating lease and office expenses as square staff workers.

John Lowe: At Quaradena, we had approximately 109,000 employees, up 1%.

At quarter end, we had approximately 109000 employees up 1% year on year or down 2% quarter in Florida.

John Lowe: and year-on-year or down 2% quota and quota. Let's take a look at our Operating and Net Margin ratios. Non-IRS Operating Margin was 49.2% of 0.5% point year-on-year, or 1.8% point quarter-on-quarter. Nonia virus net margin was 23.8%, up 1 percentage point year-on-year, or 2.2 percentage points.

Let's take a look at our operating and net margin ratios.

<unk> operating margin was 49, 2% up <unk> five percentage point year on year, or one eight percentage points quarter on quarter.

Non <unk> net margin was 23, 8% up one percentage point year on year or two two percentage points quarter on quarter.

John Lowe: Finally, I will summarize some key cash flow and balance sheet metrics. Total cutbacks were 2.4 billion RMB, down 66% year-on-year or 21% quarter-on-quarter within total cutbacks. Operating capex was 1.1 billion RMB, down 81% year-on-year or 49% quarter-on-quarter as we proactively re-assessed on- and Titan Outstanding Plans for the Year. Non-operating CapEx decreased by 9% year-on-year to 1.3 billion RMB.

John Lowe: [inaudible] Finally, I will

Finally, I will summarize some key cash flow and balance sheet metrics.

Total Capex was $2 4 billion renminbi down 66% year on year or 21% quarter on quarter within total Capex upgrading capex was $1 1 billion renminbi down 81% year on year or 49% quarter four as we proactively.

Actively reassess or.

And tighten our spending plans for the year.

Nonoperating capex decreased by 9% year on year to $1 3 billion renminbi.

John Lowe: Operating cash flow for the quarter was 41 billion renminbi, stable year-on-year or up 15% quarter-on-quarter. Pre-cash flow for the quarter was $27.6 billion RMB, up 15% year-on-year or 23% year-on-year, reflecting our disappearing capex spending. At that position, $27.3 billion in revenue compared to $24.3 billion, opened their revenue last quarter. The sequential change was due to the effect of foreign currency translation differences on our US dollar denominated debt. Partly offset by a stronger pre-cash flow generation.

Operating cash flow for the quarter was 41 billion renminbi stable year on year or up 13% quarter on quarter free.

Free cash flow for the quarter was $27 6 billion renminbi up 15% year on year or 23% Q on Q, reflecting disciplined capex spending.

Net debt position was 27 3 billion renminbi ahead to 'twenty.

For pillar remedy last quarter.

Sequential change was due to the effect of foreign currency.

Currency translation differences.

<unk> solar is nominated debt.

Partly offset by stronger free cash flow generation.

Thank you.

Unknown Executive: Thank you. Thank you, Joan. Now we are open to questions. If you are dialing in by phone, please press five to raise a question and then press six to unmute yourself. If you are accessing from

Thank you John .

Now we are open the floor for the questions.

Alright dialing in by phone face <unk> to raise a question and then <unk> on mute yourself.

Unknown Executive: Tencent Meeting or Board Meeting Application, please click the Raise Hand button at the bottom left. We will take one question and up to one hundred, one follow-up questions.

I think from the Tencent meeting meeting application.

The Raytheon button at the bottom left.

Take one main question up to women one follow up question each time.

Unknown Executive: one follow-up question each time. Our first question will come from William Packer from Accenture. Hi Management, many thanks for taking my question. Firstly, cost progress in recent quarters has been an important support for a return to profit growth, even though G&A costs continue to grow. Am I correct to think that this growth includes one-off restructuring costs associated with headcount reduction and other savings? Could you quantify those one-off costs to help us think about underlying cost growth?

Our first question will come from that impact.

The accident year.

Hi management, many thanks for taking my question.

Firstly cost progress in recent quarters has been an important support for our return to profit growth, even though G&A costs continued to grow.

Correct to think about this growth includes one off restructuring costs associated with head count reduction in office savings could you quantify those one off costs to help us think about underlying cost growth.

Unknown Executive: And then secondly, my follow-up question, in terms of domestic gaming, top line momentum has weakened again. How should we think about a return to top line growth for that segment? Do you need new IP for future game approvals? Or can the easing of the minor gaming revenue headwinds and potentially improving macro be sufficient? Thank you. Yeah, you're right that we have included all the one-off restructuring costs in GMA, XIMD, under the staff training course.

And then secondly, my follow up in terms of domestic gaming topline momentum as we can begin how should we think about the return to top line growth for that segment do you need new IP from future game approvals can be easing of the mine of gaming revenue headwind comps and potentially improving macro be.

Thank you.

Yes, you are right that we have included all the one off restructuring cost in G&A ex IMD Understaffed horse.

Unknown Executive: total IRA, R&D

Yeah.

Total SG&A R&D.

Unknown Executive: Excellarance payment, well, On a year-on-year basis, we have increased by a very low single digit. So we can quantify using this basis.

Ex severance payment.

<unk>.

On a year on year basis would have increased by very low single digits.

So we can while quantified.

I think the spaces.

Unknown Executive: So Will, on the domestic game question, you call out the right three factors which have been hindering industry growth and our growth, namely minor protection measures, the lack of new game licenses, which is very important in a supply-driven industry, and also the challenging macroeconomic environment. Now in terms of what it would take for us to successfully reboot our domestic game revenue growth, then the industry, and we are lapping the minor protection measures as of September from a grossing receipts perspective. Of course, there are a few months in which the grossing receipts from prior quarters get amortized into our P&L, but that effectively is behind us on a cash flow basis.

So we're around the domestic game question you called out the right three factors, which have been entering the industry growth and <unk> growth.

Namely minor protection measures.

The lack of new game licenses, which is very important in a supply driven industry and also the challenging macroeconomic environment.

Now in terms of what it would take for us to successfully re boost domestic game revenue growth then.

The industry and we.

Lapping the minor protection measures as of September from a gross receipts perspective of course.

Few months in which the gross receipts from prior quarters get amortized into our P&L, but that effectively is behind us.

Cash flow basis.

Unknown Executive: We believe that in order for the revenue growth to sort of significantly and sustainably reaccelerate, we would likely benefit from one of the other two changes coming through, and in terms of the other two factors, if both of those factors turn positive, then we would see a faster rate of game revenue growth. But one of those factors turning positive, alongside the lapping in of minor protection measures, you know, we think would be sufficient to answer your question positively. Well, the next question comes from Addie Leung from the Bank of Japan.

We believe that in order for the.

Revenue growth to sort of notably Unsustainably reaccelerate.

Would likely benefit from one of the other.

Two chain.

Changes coming through and in terms of the other two factors then we expect more new game licenses.

More commercial games.

Come through relatively quickly on the other hand, we.

Don't have any great insight change when the macroeconomic improvement will turn up.

Of course it.

Both of those factors turn positive.

Then we would see a faster rate of game revenue growth, but one of those facts is trending positive alongside the laskin mining protection measures.

That would be sufficient to answer your question positively.

Well.

Next question comes value, adding Alexander with Bank of America.

Unknown Executive: from the Bank of up there. [inaudible] Good evening. Okay. Two questions on your thesis, maybe the first one to follow up on the questions about games. So with fewer licenses, for comments. Are we going to change our development strategy for the upgrades of the existing games in order to maximize, kind of like a lifetime style, lifetime value? So that's the first question. And then, secondly, regarding the video account advertising, could you provide some feedback you have heard from advertisers? Your return on investment, et cetera, and any area for further improvement?

Your line is open.

Good morning.

Well, thank you everyone.

Two questions on your pieces, maybe the first one.

To follow up on the question about gains.

So with a.

Right.

Okay.

Okay.

Are we going to change our development strategy.

The upgrades of the existing games in order to maximize the lifetime style.

Lifetime value. So that's about the first question and then secondly regarding <unk> could you clarify some feedback you have heard from advertisers.

Return on investment.

<unk> and <unk>.

LIFO Flotek improvement thank you.

Unknown Executive: Yeah, thank you, Eddie. So in terms of the fewer domestic game licenses and change to our game development strategy, then, you know, we have indeed changed our game development strategy, although the full effects of the change will, you know, take a few quarters to show through. So first of all, we're focusing our resources on, you know, fewer, bigger, higher impact, higher production value, new games, and, you know, many of those new games also have a global asset as opposed to purely single-country aspirations.

Unknown Executive: Yeah, thank you, Eddie.

Yes. Thank you Eddie so in terms of the fewer domestic game licenses and change like game development strategy than we have indeed changed.

Changed our game development strategy, although the full effects of the chain.

Take a few quarters to show through so first of all we are focusing our resources on fewer bigger.

Higher impact higher production value.

Games and in many of those new games also have global aspirations as opposed to purely single country aspirations.

Unknown Executive: Secondly, we are indeed spending more time and resources upgrading and energizing our big existing games. And in my opening remarks, we talked at length about the example of Crossfire. And then thirdly, we actually do believe that there will be further issuance of new game licenses in the near future, and so to some extent, this headwind the game industry will mitigate as more new games are released. Secondly, on your question around advertiser response to the in-feed ads on the video account, you know I would say that the first noteworthy point is that video accounts actually deliver quite a differentiated audience who, by and large, are not consuming other short-form video services.

Secondly, we R&D spending more time and resources upgrading an energizing up big existing games and we talked at length about the example of cross fire in the opening remarks.

And then thirdly, we actually do believe that that will be.

Further issuance of new game licenses in the nearer future and so to some extent.

Headwinds to the game industry will will mitigate as more new games released.

Secondly on your question around advertise.

Response to the in feed ads on the video accounts.

And I would say that.

The first.

The point is <unk>.

Video accounts actually delivered quite a differentiated audience.

By and large are not consuming other short form video services.

Unknown Executive: And so, in comparison to the rest of the industry, where there's a very high overlap between users of service A and service B and service C and service D, video accounts are a differentiated audience, and advertisers like that because they can reach people whom they otherwise wouldn't be able to reach on incumbent platforms. And that, in turn, has meant that the video accounts are particularly popular with advertisers who value that additional reach, such as fast-moving consumer goods companies and such as high-end brands, which in turn has meant that the eCPM that we're achieving on the video accounts is very robust.

And so in comparison to the rest of the industry, where that's a very high overlap between uses of surface say in service fee and circuit C and surface T V.

Video accounts is a differentiated audience.

Advertisers like that because they can reach people, whom they otherwise were unable to reach an unencumbered platforms.

That in turn has meant that the video accounts, particularly popular with advertisers who value of that additional reach such as fast moving consumer goods companies such as high end brands, which in turn has meant that the.

CPM that we're achieving on the PGM accounts its very robust.

Unknown Executive: It's at a premium to any of the incumbents, and it's also at a premium to Weixin Moments. Now, in terms of areas for improvement from an advertiser feedback perspective, the key area for improvement in their eyes is simply that we, that they would like to purchase more inventory, and therefore they would like us to release more inventory, which we are periodically doing. But right now, we're in an excess demand situation. Thank you.

At a premium to any of the incumbents Senate. It's also at a premium to <unk> environments.

In terms of areas for improvement from an advertiser feedback.

The key area for improvement in their eyes is simply that we.

We'd like to purchase more inventory and therefore, they would like us to release more inventory, which we are periodically doing but right now we're in an excess demand situation. Thank you.

Thank you.

Unknown Executive: Our next question comes from Chi Yap from CDB. Hi, good evening management. Can you hear me? Yes, we can.

Our next question comes from a J, yes.

Yes.

Your line is open.

Good evening management can you hear me.

Yes, we can okay.

Unknown Executive: Okay, yeah, thank you for taking my questions. Congratulations on the solid profit speeds and also the May 12 dividend. I have two questions. First one on online advertising. We observed that the ad budget as related to the event sponsorship and also the brand awareness campaign seems to have experienced a little bit more stable budget allocation lately as compared to the traffic league ad dollars in the past few years.

My question.

Congrats on the solid profit.

Davidson.

I have two questions first one on online advertising.

Sure.

But that's related to the events.

And also the brand awareness campaign seems to be.

A little bit more stable.

Occasionally as compared to the topically.

In the past few years, so given Tencent diversified media property across for example, Mckesson.

The deal calls.

Months.

As we position to have a stronger value proposition to gain more Hasbro mindshare.

Economy right.

Unknown Executive: So given Tencent diversified media properties across, you know, for example, Tencent music and video accounts, you know, the moment, will this actually position Tencent to have a stronger value proposition to gain more advertising revenue my share with the economy gradually rebounding? My follow-up question is on gaming. So we also noticed, I'm not sure if we are correct, but it seems like the PC games are showing a little bit more resilience in retaining the existing gamers and also attracting some of the return gamers. So will we actually also reallocate more development resources to introduce more content updates on some of the older PC games to revive the game's interest?

My follow up question on Turkey.

Paul.

So we also know Keith I'm not sure.

It seems like the PC.

Hey, James shorten a little bit lumpy.

Thank you mark and muscle attracting some of it will be torn demos. So will we actually also reallocate more development before to introduce more content on some of the older PC games to revive the demos interest. Thank you.

Unknown Executive: Thank you.

Unknown Executive: Thank you, Alicia. So on the advertising question, then, in general, the Chinese online advertising market is primarily or predominantly performance ads, and then a minority of branded ads. And then within performance ads, there's Contractual Performance Advertising, where the advertiser desires performance measured by sort of traditional awareness and reach metrics, as well as transactional metrics. And then there's more purely transactional performance advertising, where the advertiser is very purely focused on transactional metrics, and that would be true for perhaps mobile game companies, e-commerce companies, and so forth. And I think that Tencent plays across all of those.

Thank you Alicia so on the advertising question then in general the China online advertising market is primarily a predominantly performance stats and then a minority of branded apps and then within the performance ads.

Contractual performance advertising.

The advertise it desires.

Performance measured by sort of traditional awareness and reach metrics as well as transactional metrics and then thats more purely transactional performance advertising by the advertiser is purely focused on transactional metrics and that would be true.

Perhaps mobile game companies e-commerce companies, and so forth and I think that Tencent plays.

Place across all of those obviously are historic strength, that's more within the branded advertising.

Unknown Executive: Obviously, our historic strength is more within branded advertising. But in recent years, as we have nurtured a very substantial gross merchandise volume flow through our mini programs, we have created more sort of native endemic demand for performance advertising, both contractual performance and transactional performance. And then more recently, with the release of advertising inventory in video accounts and, in the future, advertising inventory within our search engine, we think we have the right inventory that is especially suitable for transactional performance advertisers. So historically, we were sort of most suited to branded advertisers and contractual performance advertisers. But increasingly, we have both the use case and the ad inventory that is suitable for transactional performance advertisers.

But in recent years as we have not shared a very substantial gross merchandise volume flow through our many programs.

And we have created more sort of native our endemic demand.

For performance advertising, both contractual performance on transactional performance and then more recently with the release of advertising inventory and video accounts and in the future advertising inventory within App search engine than we think we have the right inventory that is especially sue.

<unk> four <unk>.

Transactional performance advertisers. So historically, we were sort of most suited to the branded advertisers and the contractual performance advertisers, but increasingly we have put the use case and the AD inventory that is suitable for transactional performance advertisers.

Unknown Executive: And then on your question about PC games, then, um, Yes, we are, as I mentioned in response to Eddie's question, investing more in our big existing games. It's also the case that we have a number of, you know, PC games in development globally. And, you know, some of them are pretty substantial.

And then on your game question around PC games then.

Yes, we are as I mentioned in response to Eddie's question investing more in big existing games.

It's also the case that we have a number of.

PC games in development.

Globally some of them are pretty substantial so riot.

Unknown Executive: So, you know, Riot's Valorant is a PC first game. And, you know, that's become one of the most successful PC games across the industry, both in terms of critical reception but also in terms of becoming a, you know, billion-dollar annual revenue franchise. And then, you know, many of the game studios we have acquired in the past five years outside China are PC game first. So, if you look at Steam today, I think the number two title behind Call of Duty is [inaudible]. And, you know, for them, when they release PC games, it's often a situation where the game is released across both mobile and PC and is interoperable, but the games are crafted with mobile in Thank you. Thank you, Alicia. Our next question comes from Gary of Morton Stanley.

Valerie.

First game, that's become one of Bemis successful PC games.

Cross the industry both in terms of critical reception, but also in terms of becoming a.

$1 billion revenue franchise.

And then many of the games studios, we have acquired in the past five years outside China.

PC game for US if you look at steam today, I think the number two titled behind quota Judy is.

We will have a 40000 Doc tight which is created by a studio quarter fat shock in Europe , and Sweden that is one of our subsidiaries in that game actually hasn't launched yet, but it's not material number three gaining steam rankings.

So anyway.

We.

China's studios have become somewhat mobile first.

And for them when they release PC games, it's often a situation by the game is released across both mobile and PC and interoperable.

James have crafted with mobile front of mind versus many of our overseas studios like riot in Fat Shaw.

PC for US and then move to the PC game to other platforms later, thank you.

Thank you Alicia.

Next question comes from Gary <unk>.

Andy.

Your line is open.

Unknown Executive: Hi, thank you for the opportunity and congratulations on the strong results. I have two questions.

Hi, Thank you for the opportunity and congratulation on the strong results.

Unknown Executive: The first one is a follow-up on video accounts. I think you mentioned that video account ads seem to be complementary to our WeChat ad platform and also kind of differentiated from other short video peers. So when this platform becomes a bigger kind of ad revenue pool, how should we think about where the ad budgets are going to come from? Is it more from other short video peers, other formats of ads?

I have two questions first one is a follow up on <unk> accounts.

I think you mentioned that the PTO accounts seems to be complementary to our <unk>.

At platform and also kind of differentiate it by modest short video peers. So when.

<unk> becomes a bigger kind of at rapidly.

Core.

How should we think about where the AD budgets are going to come.

They are coming from more from other short veto peers.

Unknown Executive: And then by that time, should we expect inevitably some kind of cannibalization on our existing kind of ad revenue from other platforms? And then our follow-up question is related to our investment portfolio. Given that criteria is to consider divestment when the associates become more kind of financially capable in exchange with industry leadership, when I look at the rest of the portfolio, it seems like there are some other side support which have reached that kind of status or definition.

And then by that time should we expect inevitably some some kind of cannibalization on existing pads.

At rapid or amount of platform.

And then a follow up question is related to our investment portfolio given the criteria is to consider divestment when subsidiary when they associates become more kind of.

Financially capable we'd stay with industry leadership, when I look at the rest of the portfolio. It seems like there are some other site support associates, which have reached that kind of.

Status of definition.

So how should we think about.

Unknown Executive: So how should we think about, you know, those associates we are, you know, which are, you know, approaching the Meituan kind of mature state. So in terms of video accounts right now, I think very clearly, as we have seen from the evidence, that demonetization is actually incremental for us. There are a number of aspects of it. Number one is that the time that people spend on video accounts is actually purely incremental, and it's actually a very sizable amount. That's one.

Both associated we are.

Which are approaching database, one kind of matures.

Thank you.

So in terms of your video accounts right now.

<unk>.

Clearly as we have seen from the evidence of that.

The monetization of this actually incremental for us.

There are a number of aspects of it number one is that the time that people spend on video accounts is actually a purely incremental and it's actually a very sizeable amount.

Unknown Executive: And two, in terms of revenue, we saw the budget as being incremental because, you know, when we started scaling, the video account's revenue actually reached a significant scale. In fact, we talk about it being on track to reach a billion RMB per quarter. And that ramp-up is actually achieved without impacting any other of our advertising revenue or advertising budget as put in by the advertisers. And we also view video accounts as very complementary to our ecosystem, as they actually work very well with our mini-programs, as well as other parts of our ecosystem, including official accounts, including Vcom.

That's in one and two is in terms of the revenue we saw at the budget as being incremental because when we start scaling.

The video accounts revenue it actually reached a significant scale.

In fact, we talked about it is on track to reach 1 billion RMB per quarter.

So that ramp up is actually.

Cheap without impacting any other of our advertising revenue or advertising budgets as put in by the advertisers.

And we also view video accounts as very complementary to our ecosystem as it actually works very well with our mini programs as well as other parts of our ecosystem, including official accounts, including E com.

Unknown Executive: The ecosystem as a whole actually helped the merchants to build a private domain for them. And in the past, the merchants could only bring traffic to the mini-programs through offline touchpoints and some advertising on our Weixin ecosystem. But now, the video accounts actually allowed a considerable amount of ad inventory to be added, and the traffic can be through video accounts; it can be through video accounts like streaming.

The ecosystem as a whole actually help the merchant to build a private domain.

And in the past.

<unk> Ken.

We bring traffic to the mini programs through offline touch points and some advertising on our <unk> ecosystem, but now.

The video accounts actually allowed.

Considerable amount of AD inventories to be added and traffic can be a few video accounts can be through video accounts like streaming and that actually allow us the merchants to really bring much more traffic into their immediate programs and that as a whole really complements the or.

Unknown Executive: And that actually allows the merchants to bring much more traffic into their mini-programs. And that, as a whole, really complements the overall ecosystem of Weixin. And in terms of where the revenue will be coming from, I think part of it is actually from existing revenue that's spent on other short video platforms. Some of the revenue will actually be coming from e-commerce because as merchants want to build their private domain, they may actually look at the spending that they put into all other channels and try to build something which is of highest value to them, which we believe private domain is, and it also involves some of our existing advertisers spending more money on our platform.

Ecosystem operation.

And in terms of where the revenue will be coming in but I think part of it is actually from <unk>.

Existing revenue.

Spent on other short video platforms.

Some of the revenue will be actually coming from e-commerce right because it has.

Merchants want to build their private domain. They may actually look at the spending that they put in or other channels and try to build something which is of highest value to them, which we believe private domain is.

And.

And it also involve some of our existing advertisers are spending more money on our platform.

Unknown Executive: And Gary, in terms of your question around the strategic thinking around distributions and comparing the Meituan distribution with the prior JD distribution, then if you look at the Meituan announcement on page seven, there's a section called reasons for and benefits of the distribution in kind. It's actually a distribution in kind, I'm not sure how to pronounce species, so we'll say it's distribution in kind. And there we give three criteria which are among the criteria we consider when we're deciding whether it's appropriate to distribute an investment.

And Gary in terms of your question around the strategic thinking around distributions.

Comparing.

May 'twenty distribution with the prior JV distributions and if you look at the major one announcement on page seven that section called reasons for and benefits of the distribution and kind, it's actually distribution issue.

But I'm not sure how to pronounce specie similar sites distribution and kind and that we give.

Three criteria, which are among the criteria, we consider when we're deciding whether it's appropriate to distribute an investment in.

Unknown Executive: And one of those criteria is the financial strength of the investee, a second one is the industry positioning of the investee, and a third one is our investment returns. And so if you look at Meituan, for example, through that lens, then in terms of industry positioning, it's obviously extremely strong, being the clear leader in food delivery and in-store and so forth. If you look at the investment returns, then we've had very good returns on the investment of around 30% IRR.

One of those criteria is the financial strength of the investing.

Minus the industry positioning of the Investor deck and a third one is our investment return. Some so if you look at.

May 'twenty for example through that.

That land spend in terms of industry positioning it's obviously.

<unk> strong being the clear leader in food delivery.

In store and so forth.

If you look at the investment returns and with hatch.

Good returns on the investment of around 30%.

Unknown Executive: And if you look in terms of its financial profile, then it is profitable. It's not as profitable on a headline basis as JD was when we distributed it, but that's because Meituan, as you well know, is investing in community group buying and other new services to expand it. Addressable Market Longer Term. So anyway, those are three of the criteria that help explain our thinking around distribution and specifically why we chose to distribute JD and why we now choose to distribute Meituan. Thank you.

And if you look in terms of financial profile than it is profitable it's not as profitable on a headline basis as J D wells can be distributed but thats because matewan as you well know is investing in our community group buying and other new services to expand.

Addressable market longer term so anyway, those are three of the criteria Thats help.

Explain our thinking around distributions.

And specifically why we chose to distribute J D and widely now choose to distribute matewan. Thank.

Unknown Executive: And I will add to the fact that we obviously want to distribute the shares from a point of strength, right? You know, as we look at what James talked about in terms of strength in financial profile, in industry position. And at the same time, when we look at the shareholder base, we actually see from an institutional investor perspective that there's actually a very big overlap of the biggest shareholders between us and Meituan, which means that there will be a lot of institutional investors who want to get their hands on the Meituan shares.

Thank you and I will add to the fact that we.

Obviously.

To distribute the shares from a point of strength right as well.

Look at.

What what James talked about in terms of.

In financial profile industry position.

And at the same time, when we look at.

The shareholder base, we actually see from institution Investor perspective, that's actually a very big overlap of the biggest shareholders between us and May <unk>, which means that there will be a lot of institutional investors, who want to get them as one shares.

Unknown Executive: And at the same time, as we look at an investment like Meituan, we have actually made a very big financial gain from it already. And that's why we would like to allow our shareholders to start making their own decisions about what to do with the shares. But I would say, as I talk about a lot of it, there's a lot of overlap in terms of the biggest institutional investors. And I also believe that some investors may actually want to sell their shares.

And at the same time.

<unk>.

As we look at.

The investment like May 'twenty, we actually made.

Very big financial gain from it already.

That's why we would like to allow our shareholders to stop making their own decisions about what to do with the shares but I would say.

Talk about a lot of there's a lot of overlap in terms of the biggest institutional investors and I also believe that some investors may actually want to sell the shares.

Unknown Executive: But a lot of the investors would probably be like me, right? Who... We'll be holding on to the majority of the Meituan shares for a very long period of time because I'm actually very excited about the prospect of the company. Thank you, Gary. Our next question comes from Robin Zhu of Burns. Hi, thank you.

A lot of the investors would be probably like me who.

We will be holding on to the majority of debate when shares.

For a very long period of time because.

Actually very excited about the prospect of the company.

Thank you Jeremy our next question comes from Robyn Thanks, Dan.

Unknown Executive: Thanks, management, for taking my question. I guess a couple of things. Just one, if we take a step back on, you know, returning cash to shareholders beyond these kind of periodic, big distributions, how should we think about the sort of run rate of cash returns? You raised the run rate of buybacks a couple of weeks before the blackout for these results. Should we think of that as kind of a new sustainable level? And would management ever consider announcing a formal cash payout policy, you know, incentive free cash flow or, or anything like that? So that's, that's one and then two.

Hi, Thank you. Thanks management for taking my question I guess, a couple of things.

One if we take a step back on returning cash to shareholders beyond these kind of periodic.

Big distributions, how should we think about the sort.

Run rates.

Cash returns.

You raised the run rates of buybacks.

A couple of weeks before the blackout for these results.

How should we think of that as kind of a new sustainable level and with management ever consider announcing a formal cash payout policy sense of free cash flow or anything like bonds. So thats.

That's one and then two.

Unknown Executive: Obviously, there's been a lot of progress made on cutting costs and scaling back different bits of the business. I'd be curious to hear how you think about when to go on the front foot again to start sending more money to drive more growth and how we switch from where we are now to that. In terms of capital allocation, I would say, you know, we're not a utility, right? We're a growth-driven company. So I would say we're not going to have a return or dividend-driven thinking in our capital allocation.

Obviously, there's been a lot of progress made on cutting costs and scaling back different bits of the business.

I'd be curious to hear how you think about when to go on the front foot again to start spending more money on driving more growth.

And how we switched from where we are now.

Thank you.

In terms of capital allocation I would say we're not.

Utility right.

Our growth driven company. So I would say, we're not going to have a return or dividend yield.

Driven thinking in our capital allocation.

Unknown Executive: So if you look at the three sources of capital return that we talk about, one is the dividend, the other one is the straight buyback, and then we talk about distributions in kind. Each one of them is actually of a different nature, right?

So if you look at the three sources of capital return that we talk about one is dividend the other one of share buyback and then we.

<unk> talked about.

Distribution in kind.

Each one of them is actually of a different nature I think in terms of the dividend. It is.

Unknown Executive: I think, you know, in terms of the dividends, it is a program, and we have been distributing about 10% of our non-IFRS earnings, and over time, we may actually increase that, depending on how we look at the reinvestment opportunities. But then, the share buyback is actually a way for us to return the excess cash flow, and that will be calibrated against investment opportunities, investing in other people, other companies' shares. And it is true that given the industry environment right now, we are being more selective in terms of our investments, so that's why we actually have more cash to conduct share buybacks and especially when our shares are actually very attractively valued, given our strong operations, cash flow generation, as well as we actually have a basket of investment portfolio, which is also a share buyback actually gives us more exposure to that.

Program and.

We have been at.

Distributing about 10% of our non <unk> earnings and over time, we may actually increase that depends on what.

How we look at that the reinvestment opportunities, but then share buyback has actually.

As.

A way for us to return the excess cash flow and that will be calibrated against investment opportunities.

Other people other companies shares and it is true that given the industry environment right. Now we are being more selective in terms of our investment. So that's why we actually have more cash.

To conduct share buyback and especially when our shares is actually.

They are attractively valued given R. R.

Our strong operation and this cash flow generation as well as we actually have a basket of investment portfolio, which is also.

Sure It actually gives us more exposure to that so that's why this year, we have actually stepped up our share buyback in a pretty significant way, but we actually manage in a dynamic way.

Unknown Executive: So that's why this year we have to actually step up our share buyback in a pretty significant way, but we actually managed it dynamically. In terms of the distribution in kind, that's actually a more case-by-case basis, and the reasons and considerations, I think James has already talked very clearly about. So those are all of different natures.

In terms of distribution inclined that's actually more of a case by case basis and that the <unk> Adams considerations I think James have already talk very clearly about so those are all of different natures. Overall, we do not want to have a target viewed at the same time I think.

Unknown Executive: Overall, we do not want to have a target yield, but at the same time, I think we're very thoughtful and we're very proactive in terms of returning capital to the shareholders as we see fit in order to maximize shareholder return. Now, in terms of the investments, I would say, I would refer you to page 4 of our strategy section. I think we actually talked about the fact that we have a very strong cash flow generation capability as well as a very large holding of liquid assets, and all of them would be more than enough to fund our organic growth, strategic growth, as well as our capital return to the shareholders. So we have more resources than we need to do all these things at the same time, and they don't actually conflict with each other.

We're very thoughtful Ed and so we are very proactive in terms of returning capital to shareholders as we see fit in order to maximize the shareholder return.

Now in terms of the investment so I would say I would refer you to.

Page four of our strategy section I think we actually talked about the fact that we have a very strong cash flow generation capability as well as a very large holding of liquid assets and all of them will be more than enough to fund.

Our organic growth strategic growth.

Well as our capital returning to the shareholders. So we have more resources than we need to do all these things at the same time and they don't actually conflict with each other.

Thank you.

Unknown Executive: Thank you. Our next question comes from Natalie Wu of Hightone International. Hi, good evening. Thanks for taking my question. I have two as well.

Thank you. Our next question comes from Natalie <unk>.

Hi, Tal International.

Hi, good evening, Thanks for taking my questions I have two the first one regarding the regulation.

Unknown Executive: The first one is regarding regulation. Since there are some easing signs from the regulatory environment in China these days, so just wondering any updates on recent regulatory developments that can be sensed from the company side? And how should that affect your fundamentals next year?

Think that math, some easing signs from regulatory environment in China. These days, so just wondering any updates on <unk>.

<unk> the bandwidth that can be found company side and how should that affect your.

<unk> fundamentals next year.

And second lines regarding the enterprise services.

Unknown Executive: of your enterprise services. Just wondering, what should we think of the model title?

Just wondering how should we think of the monetization.

Unknown Executive: Modernization potential for your enterprise app family, including Tencent Meeting, and Price, WeChat, etc., will be a material contribution in 1 to 3 years. Thank you. Thank you.

<unk> potential for your enterprise App, Annie, including Tencent meeting enterprise, Wechat et cetera will be material contribution in Q.

I want to say, yes. Thank you.

Unknown Executive: So on the regulation side, in the last earnings call, we actually updated you that the recent regulatory direction is actually training toward supporting healthy development of the industry, completing the ratification, and also carrying out the normalized regulation. So based on recent government communications, I think it basically confirms that this direction continues. More noticeably, we noticed that in the Party Congress report, it mentioned that China would accelerate the development of the digital economy and further integrate it with the real economy as a measure to drive high-quality growth.

So on the regulation side in the last earnings call, we actually updated Q that the reasons are regulatory direction is actually trending toward supporting healthy development of the industry.

To complete the ratification and also to Carryout normalized deregulation.

So based on the reasons government communications I think.

Basically confirms this direction continues.

More noticeably we notice to for example.

Party Congress report, you mentioned that China will accelerate the development of the digital economy and for the integrated with the real economy.

As a measure to drive high quality growth.

Unknown Executive: Also, after that, in a late October NDRC report recognized the achievement of the digital economy in the past decade, and the report also advocates a digital economy of greater strength, quality, and scale by developing digital technology and integrating that with the real economy. So all in all, the direction, I think the only few is still very consistent with what we said last time.

Also after that in a late October and DRC report recognizes the achievement of the digital economy in the past decade.

The report also advocates of digital economy of greatest strengths, the quality and scale by developing digital technology and integrating that with real economy.

So all in all the direction I think we feel is still very consistent with what we said last time.

Unknown Executive: And I think what's changed is that, in particular, there are some steps and some regulatory approvals that signal a more normalized regulatory environment that confirms this regulatory direction. So this includes in the fintech area; we have received approval for investment in a Samsung property and casualty insurance company in China. In the online gaming area, we have received approval for new banhao and also a banhao amendment in September, and we do expect to receive more banhaos in the coming future.

I think what's changed is that in particular there are some.

Steps and some regulatory approvals that signals more normalized regulatory environment that confirms.

This.

Regulatory direction.

This include in the Fintech area, we have received approval for investment in Samsung property <unk> Casualty insurance company in China.

The online gaming area, we have received approval for new Bond Hall, and also on how amendment in September and we do expect to receive more bond house in the coming future.

Unknown Executive: And in the area of investment and also antitrust, we received SAMR's approval for a JV with China Unicom. So all these specific actions and approvals actually signify that I think the overall regulatory environment is actually trending toward a more supportive environment. And, Natalie, on your question about whether our enterprise services would bring a material revenue contribution in one to three years, then, The future is uncertain, but I think it's unlikely we would see a material revenue contribution relative to our total revenue within one year.

In the area of investments and also antitrust we've received <unk> approval for a JV with China Unicom, so or these specific actions and approval is actually signifies that I think the overall regulatory environments I've seen trending towards more supportive.

And lastly on your question about whether our enterprise services.

<unk> bring material revenue contribution in one to three years spend.

The futures uncertain, but I think it's unlikely we would see a material revenue contribution relative to our total revenue within one year over the longer term then we believe these services will lend themselves to good monetization and if you look at the experience of zoom and slack and teams and so forth I think.

Unknown Executive: Over the longer term, then, we believe these services will lend themselves to good monetization. And if you look at the experience of Zoom and Slack and Teams and so forth, I think they speak to that longer-term opportunity. How quickly we get from the near-term situation where we're focused primarily on distribution to the longer-term opportunity around monetization is partly a function of the competitive landscape. And so that's the situation that we're in today.

I speak to that.

Longer term opportunity how quickly can we get from the near term situation whereby focused primarily on distribution. So the longer term opportunity around monetization is partly a function of the competitive landscape.

So thats the situation that we're in today as Martin mentioned, we do have a paid subscription product bundling Tencent meeting be common sense that docs together, that's seeing some good early adoption by larger enterprises, but we view this summer.

Unknown Executive: As Martin mentioned, we do have a paid subscription product bundling Tencent Meeting, Wecom, and Tencent Docs together, and that's seeing some good early adoption by larger enterprises. But we view this as something with a longer gestation cycle versus our video accounts and international game initiatives, which are turning into material revenue more immediately. Thank you.

Something with a longer gestation cypress versus up video accounts in international game initiatives.

Turning intramuscular revenue more immediately thank you.

Thank you. Our next question comes from John Choi of Taiwan.

Unknown Executive: Thank you. Our next question comes from Joan Choi of Daiwan.

Unknown Executive: Okay, thank you very much for taking my question. I have a question about, I think last quarter you guys said that your business is a lot more cyclical than before, given that the nature of our core businesses is now more, you know, highly correlated with the economy. So as we are seeing, you know, Thank you so much for joining us today, and I appreciate that you guys are doing a lot more on the, [inaudible] I think in terms of macro, the third quarter was actually quite good, because there was a recovery from the second quarter, in which there were a lot of lockdowns.

Okay. Thank you very much for taking my question I have on the question about I think last quarter, you guys said that.

Your business is more cyclical.

Before given that the nature of our core businesses are now more highly correlated with the economy, So as youre seeing.

Some improvements.

Nos into macro and also the COVID-19 situation along with.

External factors improving are we seeing better visibility into areas like advertising.

The services you guys could go into later this year early this year other than next year does that mean, we should see a better tailwind.

We see for the cyclical businesses.

Quick follow up about your business services.

I appreciate that you guys are doing a lot more on the.

You can see this quarter, we're seeing our gross profit increased both sequentially and also on an annual basis.

How should we think about the margins more in the mid to long term as you compare to our self versus all of our global peers. Thank you.

I think in terms of macro third quarter was actually.

Good.

Because there is a recovery from the second quarter in which there were a lot of Lockdowns, but then I think the beginning of the fourth quarter was even a bit clouded the gains due to more sporadic lockdowns around the country.

Unknown Executive: But then I think the beginning of the fourth quarter was a little bit clouded again due to more sporadic lockdowns around the country. So I think the short term will probably still be quite volatile, but I think overall, we do believe. In the medium term, the economy will definitely start to improve, and as a result, we're confident about the medium term. But for now, I think it's going to be a little bit volatile for this period of time.

So I think.

The short term will probably be still quite.

Volatile, but I think overall, we do believe.

In the medium term the economy would definitely to start to improve and as a result, we're confident about the medium term, but for now I think it is.

Is going to be a little bit.

Volatile in this.

Period of time.

Unknown Executive: I think on the business services question, the situation in China from a margin perspective is so dissimilar to the situation in the rest of the world that it's hard to draw analogies. You know, generally speaking, in the rest of the world, the companies that provide infrastructure as a service, such as Amazon and Google, are not, don't have very substantial software as a service businesses, and then there's companies like... Oracle that provides software-as-a-service with less infrastructure, and of course, Microsoft does bridge the gap, but for comparison in China, there's several big companies that do infrastructure, platform, and software-as-a-service together, including ourselves.

I think on the business services question that the situation in China from a margin perspective, so just similar to the situation in the rest of the world that it's hard to.

Drew analogies that generally speaking the rest of the companies that provide infrastructure as a service such as Amazon and Google are not certain.

After a substantial software as a service businesses and then there's companies like <unk>.

Oracle provide.

Provide software as a service with less infrastructure and of course, Microsoft does bridge the gap, but.

For comparison in China.

That's several big companies that to your infrastructure platform and software as a service together, including ourselves. So that's one difference in how the difference is the competitive behavior is just similar I think in the western World.

Unknown Executive: So that's one difference. Another difference is that their competitive behavior is dissimilar. I think in the Western world, when web services were growing very quickly, margins were expanding, and now as web services revenue growth slows, there's some pressure on margins as companies fight more intensely for market share. In China, it's the other way around. When the industry was growing very quickly, then margins were very weak, and in some cases, declining, because everyone was jumping in to try and grab their slice of the pie and maximize their slice of the pie. versus now, with the more difficult environment the industry has been in for the last year, you actually see in some cases, including our own, that weaker revenue is accompanied by stronger margins as we refocus on the most sustainable and highest quality businesses within the Thank you.

Web services.

We're growing very quickly margins expanding and now as the services revenue growth slows. That's some pressure on margins. That's the company's fight more intensity for market share in China. It's maybe the other way round when the industry was growing very quickly then margins were very weak and in some cases declining.

This jumping into to try and grab that slice of the pie and maximize that slice of the pie versus now with the more difficult environment. The industry has been in the last year, you actually see in some cases, including our Orion Dutch.

Weaker revenue is accompanied by stronger margins as we've refocused on the most sustainable.

And highest quality businesses within within the business services mix.

Thank you. Our next question comes down gone up.

Unknown Executive: Thank you. Our next question comes from Ronald Huang of Goldman Sachs.

Goldman Sachs.

Okay.

Unknown Executive: Thank you. Thank you, Pony, Martin, James, and John.

Unknown Executive: First, I want to ask you about FinTech, because we have read about it. You noted the double-digit growth in commercial payments. So as our business continues to have profits driven from the kind of gains as to FinTech, now, how is our progress in the financial hold call restructuring? And is that on track? And what are our latest strategies across these commercial payment, wealth management, and lending businesses in this macro environment, and particularly given the change in COVID measures this year and next year?

Thank you. Thank you Tony Martin Jameson John .

So I just wanted to ask about Fintech, because we read about this.

The double digit growth in commercial payment. So as our business continues to have profits driven from kind of games to add to Fintech now how is the progress in the financial Holdco restructuring and.

Is that on track and what our latest strategies and kind of across these commercial payment wealth management and lending businesses in this macro environment and particularly given the change in corporate measures this year.

And next year. Thank you.

Unknown Executive: So in terms of the financial holding company, we do believe that, um, we would want to embrace having a financial holding company license, and we're in the process of understanding the requirements, interacting very closely with the regulators, and also making the requisite preparation for it, because we do see that the regulatory oversight and potential opportunities of having a financial holding company license are beneficial, and the internal organization changes that need to happen will not really cause a material impact on So we are working proactively on that, but at this point in time, we don't really have an update for you yet. When we have an update, we'll let you know.

So in terms of the financial holding company.

You believe that.

We would want to embrace.

Having a financial holding company license.

And in the process of.

Understanding the requirements and <unk>.

<unk> very closely with the regulators and also make the requisite preparation for it.

Because we do see that.

Regulatory oversight and potential opportunities of <unk>.

A financial holding company license, it's beneficial and the internal organization changes that need to happen, we're not really cost material impacts to the business.

So we are working.

Proactively on that.

At this point in time, we don't really have an update for you yet when we have an update we will let you know.

Unknown Executive: In terms of the payment business as well as the financial services business, I would say it's actually very important for us to focus on a few things, right? You know, number one is really compliance, and we have spent a lot of time making sure that all the services are actually complying with the new regulatory requirements and regime. and along the way, we have actually spent a lot of time working on compliance, but the requirements have been going up as required by regulators, and we have been spending a lot of resources and effort to upgrade our compliance. And especially, this is a bit challenging given the scale of the service that we have. But I think, you know, we have really been able to achieve that.

In terms of the.

Payment business as well as the financial services business I would say, it's actually very important for us to.

Focus on a few things right number one is really a compliance and then we have spent a lot of time, making sure that all the services actually complying with the new regulatory requirement in Virginia.

And all of them the way, we have actually spent a lot of timing.

Working on compliance, but the requirements have been going up as required but regulators and we have been spending a lot of resources and effort to upgrade our compliance.

And especially this is a bit challenging given the scale of the service.

<unk> service that we have but I think we have really.

Unknown Executive: And second, it's really about risk management, because given a challenging macro environment, it's actually very important for us to manage risk in a very proactive way. And thirdly, leveraging our payment services, which connects with a lot of offline merchants, and especially small and medium merchants, so that we can actually help them to cope with the challenges on the macro side, and then help them to generate more business. And we also have rebate programs, so that would actually help them during these difficult periods.

Been able to achieve that and second is really about risk management because.

Kevin.

Challenging.

Our regular.

Macro environment, it's actually very important for us to manage risks very proactively.

Thirdly is actually leveraging our <unk>.

Payment services, which connects with a lot of offline.

Merchants, especially small and medium merchants, so that we can actually help them to come.

But the challenges on the macro side and help them to generate more business.

And we also have rebate programs, so that would actually help them with these difficult periods.

Unknown Executive: We actually felt that, once we go through this period of sporadic lockdowns and from time to time there are actually challenges on the offline side, we should actually return to a pretty good backdrop of organic growth, and the payment would actually help to generate business for our lending business as well as for our wealth management business. So I think over the longer, mid to long term, it's actually with good potential. But right now, I think it's actually very important for us to work through this relatively challenging period. Got it. Thank you, Martin.

We actually felt that.

Once we go through with the.

This period of.

Sporadic locked arms and from time to time, there's actually challenges on the offline side we.

Should actually returned to pretty good.

Backdrop of organic growth and the payment would actually help too.

To generate business for.

Our lending business as well as far as well.

Wealth management business, so I think over the longer.

Mid to long term.

<unk>.

With good potential, but right now I think it is.

We are very important for us to.

Walk through this.

Relatively challenging period.

Unknown Executive: And maybe a full-up question on our returning capital to shareholders. So after JD and May Twan, I think most of our positions and investments are now either not Hong Kong listed stocks or maybe relatively smaller in size. So I think how should we think about the future strategies for the investment portfolio, particularly how do we balance the recycling of capital for ourselves in reinvesting into areas of growth? You mentioned software companies or international games versus kind of contributing to shareholders. How do we balance these two?

Got it thank you Martin and maybe a follow up question on returning capital to shareholders. So after JD and Matewan I think most of our positions investments are now either not Hong Kong listed stocks or maybe relatively smaller in size. So I think how should we think about the future strategies for the vessel.

Portfolio.

Particularly how do we balance the recycled capital for ourselves and reinvesting into areas of growth that you mentioned about software companies or international games versus kind of distributing to shareholders.

Balance these these too.

Unknown Executive: I think, as Martin spoke about in his introductory comments, you know, we don't necessarily need to do it because we do generate $15 billion of free cash flow a year. And so the $15 billion of free cash flow has been pretty sufficient, you know, not only to fund our investments in our own infrastructure and in our own new products, as well as investments in other companies that are complementary to us, such as Ubisoft and FromSoftware, but also to fund a very heavy volume of buybacks on top, and then with the distributions in kind, you know, a separate incremental return of capital to shareholders that will be more periodic in Thank you. Thank you, James. Thank you.

I think it's matson spoke to in his introductory comments.

We didn't necessarily need to do it because we do generate $15 billion of free cash flow a year and so the <unk>.

<unk> billion dollars of free cash flow has been pretty sufficient not only to fund our investments in our own infrastructure.

And our new products as well as investments in other companies the complementary such as you'd be suffering from software, but also to fund a very heavy.

Volume of buybacks on top and then the <unk>.

Distributions in kind of.

A separate incremental return of capital to shareholders that will be more periodic in nature rather than continue.

Thank you.

Thank you James.

Yes.

Unknown Executive: Our next question comes from Charlene Liu of HSBC. So I have two questions. The first one is regarding the cloud business. Tencent Cloud recently set up a JV with China. Can management discuss the rationale for this collaboration, how it can benefit the company's cloud business, and also should we expect increasing collaboration with SOEs of sorts going forward? That's the first question.

Our next question comes from the shelling mayor of HSBC.

So I have two question.

The first one is regarding our cloud business.

Tencent cloud. This is recently set up a JV with China Com can management discuss the rationale for this collaboration and how it can benefit the company's cloud business and also should we expect increasing collaboration with Esso ease of sort going forward NASA first question.

Unknown Executive: For the second question, I would like to sort of point out that, you know, in the past couple of months, Tencent has stepped up its shared buyback to offset the sell down pressure from the process. And we also, you know, observe that. the share prices responded quite favorably to reports that they potentially had taken over the process date, even though it was subsequently being denied. Can we seek your thoughts on what you would consider a favorable outcome for Tencent in this sort of sell-down process? Could you shed light on sort of, do you have a preferred type of strategic, you know, shareholding? Yeah, so.

For the second question I would like to sort.

Sort of pointed out that in the past couple of months cancer has stepped up share buyback to offset the sell down to pressure from process.

We also.

Or if that the share price has responded quite favorably to reports synthetic potentially taking over.

Process day, even though it was subsequently deemed denied.

We seek your thoughts on what you would consider a favorable outcome for Tencent in this sort of felt that passes.

Could you shed light on sort of do you have a preferred tablets strategic.

Shareholder et cetera, Thank you very much.

So.

Unknown Executive: For the JB with China Unicom, it's actually a focus on distributing CDN and multi-edge computing products that are co-developed by Tencent and Unicom. So it's a joint force in order to leverage our development capability resources as well as our customer base in order to promote these products. And we believe the business would have good prospects going forward, but right now, the business plan is still being drawn up, and the short-term financial benefits will be limited.

Before the JV with China Unicom is actually focusing on.

Distributing CDN and multi edge computing products that is co developed by Tencent and JD com. So it's.

Joint force in order to leverage our development capability.

Resources as well as our customer base in order to.

Promote these products.

We believe that.

Business would have good prospects going forward, but right now.

The business plan is still being drawn up and the short term financial benefits that will be limited.

Unknown Executive: In terms of significance, I would say that approval from SAMR is actually more of a significant event for us in this particular JV. And in terms of finding collaboration partners, we actually work on it on a case-by-case basis, looking at the business case, as well as what resources each party can actually bring to the table. And I think there's no specific trend toward whether it's a private company or SOEs or any sector.

In terms of the significance I would say that the approval from SM SM or it's actually more of a significant event for us.

This particular.

And in terms of finding collaboration partners right, we actually.

Work on it on a case by case basis looking at the business case as well as what are the resources that each party can actually bring to the table.

<unk>.

There is no specific trend towards whether it's a private company or <unk> or any sector that we look at these opportunities on the case on case basis.

Unknown Executive: We look at these opportunities on a case-by-case basis. On your question around whether we've stepped up share buybacks to offset the selldown from process and, you know, what a favorable outcome to all of this would be, then it is factually correct that during the last trading window, our buyback volume was similar to, slightly greater than, the process selldown volume during the same trading days. But I want to emphasize that, you know, we've been a listed company for a long time, and we've very frequently bought back shares when the share price has declined sharply in our history as a listed company, irrespective of whether, you know, NASPA or anyone else was selling shares or not selling shares at the time.

On your question around why.

We have stepped up share buybacks to offset the sell down process and what a favorable outcome to all of this would be then it is factually correct that during the last trading window.

Buyback volume was similar to slightly greater than that.

The sell down in volume during the same trading days.

I wanted to emphasize that.

We've been a listed company for a long time and with very frequently bought back shares and the share prices declined sharply in our history as a listed company irrespective of weather.

So.

Anyone else with selling shares or not selling shares at the time. So the buyback decision is primarily around where we see value.

Unknown Executive: So the buyback decision is, you know, primarily around, you know, where we see value and much more so than around flow issues. To put it another way, In the very short term, if a shareholder sells X amount of shares and we buy back Y amount of shares, then, of course, that superficially net neutral from a flow perspective, but from a value perspective, which is what we care about, it's value accretive because the shareholder who's selling shares is not actually increasing the share count, versus when we buy back shares, we do cancel the shares, we buy back, and therefore decrease the share counts.

And.

Much more so than around flow issues to put it another way.

In the very short term.

Hold ourselves X amount of shares we buy back Y amount of shares then of course that superficially net neutral from a flow perspective, but from a value perspective, which is what we care about is value accretive because the shareholder who's selling SaaS is not actually increasing the share count versus when we buy back shares we do cancel the shares.

Buybacks, therefore decrease the share counts and so thats value accretion for our remaining shareholders over time.

Unknown Executive: And so there's value accretion for our remaining shareholders over time. I think that in terms of favorable outcomes, you know, that's a decision for a process, but, you know, Process has stated that it views this as an exercise that's necessitated by the abnormally large discount NAV at which Process was trading when it announced this exercise. And, you know, that discounted NAV has narrowed somewhat. And, you know, processes said that should make the difference?

And I think that in terms of favorable outcomes. That's a decision for a process, but the process has stated that it views this as a.

And exercise Thats necessitated by the abnormally large discount to NAV.

Process was trading with an announced this exercise.

That discount to NAV has narrowed somewhat.

Yes.

Unknown Executive: account to NAB narrow to certain levels, then, you know, there could be changes to this policy. So anyway, it's something that, you know, we're obviously very aware of, but it's not a primary consideration for us when we're looking at our capital return policy, including our buyback activity. Thank you.

Should the discount to NAV be narrowed certain levels, then that there could be changes to this policy. So anyway, it's something that we're obviously very aware off.

It's not a primary consideration for us.

With looking at our capital return policy, including our buyback activity.

Thank you.

Understood. Thank you.

Unknown Executive: Thank you, Charlene. We should take the last question from Alex Yao of J.P. Morgan.

Thank you Shirley.

You should take that last question from Alex Yao of Jpmorgan.

Unknown Executive: Good evening and thank you, management, for taking my question. Two questions from my side.

Good evening and thank you mentioned <unk> for taking my question two questions from my side first.

Unknown Executive: The first one is on the domestic gaming monetization this quarter. The domestic gaming revenue declined by 2% on a quarter-by-quarter basis against a positive seasonality and a new game launch. What caused such an abnormal seasonality in this quarter?

First one is on the domestic gaming monetization this quarter.

The domestic gaming revenue declined by 2% on quarter over quarter basis against a positive seasonality and new new game launch.

Cost of such a normal seasonality in this quarter and then second wise on the interplay between monetization of video accounts and the content ecosystem.

Unknown Executive: And then the second one is the interplay between monetization of video accounts and the content ecosystem of video accounts. You guys observed that monetization of video accounts didn't help the content ecosystem of video accounts at all. I understand this is the early stage of monetization, but intuitively, I think improving the monetization capability of the ecosystem should introduce more financial incentives to content creators. Therefore, it should be positive for the content ecosystem. Thank you.

Video accounts.

Hi.

You guys observed.

Amortization of video accounts helped or content ecosystem of video accounts at all I'd almost and this is still early stage of monetization, but intuitively I think.

Improving monetization capability of the ecosystem should have introduced more financial incentive to their content creators with here for you. So it should be.

Positive with the content ecosystem. Thank you.

Unknown Executive: Alex, so on your first question, I may not have understood it exactly, but the short answer is there's a different seasonality for our game cash flows versus our game reported revenue. However, in previous years when the overall industry and we within it were growing quickly, that seasonality was not apparent as it is this year when the industry has been stagnant. So to get more granular and specific, you know, the game industry in China typically sees a peak in terms of cash flow generation and gross receipts during the Chinese New Year period.

Alex So on your first question I may not have understood. It exactly but the short answer is that's a different seasonality for our game cash flows first game reported revenue. However in previous years, when the overall industry and be within it we are growing quickly and that seasonality was not apparent as it is this year.

The industry has been in stagnation.

To get more granular on specific.

Industry in China typically sees.

Peak in terms of cash flow generation grocery receipts during the Chinese new year period.

Unknown Executive: And we then amortize those cash flow receipts into our P&L over a period of several months. And so the cash flow, the receipt strength in the Chinese New Year translates into reported revenue strength in Q1 to an extent, but more in Q2 and then also in Q3 before decaying toward the end of the year. And again, in previous years, that seasonality hasn't been as obvious as it is this year. So that's basically the short answer to your question that when you look at the sequential trend for game revenue from Q2 to Q3, it is somewhat influenced by the fact that in Q2, we capture more of the Chinese New Year peak spend in our reported revenue. And then, as we go through the back half of the year, that fades away due to the approval cycle.

We then amortize those cash receipts into our P&L.

Period of several months.

So the cash flow the receipts.

Strength in the Chinese year translates into reported revenue strength.

In Q1 to an extent, but more in Q2 and then also in Q3 before decaying towards the end of the year.

And.

Again in previous CSI seasonality hasnt been as obvious as it is this year.

So that's basically that the short answer to your question that when you look at the sequential trend game revenue from Q2 Q3. It is somewhat influenced by the fact that in Q2, we capture more of the Chinese new year peak spend in our reported revenue and then as we go through the <unk>.

Back half of the year that that fades away Q2, the approval cycle.

Unknown Executive: So in terms of the content ecosystem and monetization, I would say at this stage, monetization does not really have a lot of impact on the content ecosystem. But having said that, the content ecosystem has become richer and richer and has consistently been built up for video accounts, primarily because of the fact that the traffic has been increasing and our targeting technology has been improving so that we can actually allocate the traffic more specifically to the different content providers.

So in terms of the <unk>.

Content ecosystem and.

Monetization I won't say at this stage the monetization does not really have a lot of.

Impact on the content ecosystem, but having said that connect with us and have been.

Become richer and richer and has been.

Consistently built for video accounts, primarily because of the fact that the traffic has been increasing.

Our targeting.

Technology has been improving so that we can actually allocates the traffic.

Specifically to the different content providers and content providers once they start to accumulate users and once they start having traffic right now they can actually monetize.

Unknown Executive: And the content providers, once they start to accumulate users and once they start having traffic right now, they can actually monetize one way or the other on their own. And our in-feed ads are actually independent from that. But over the long term, I think there's going to be more interaction between the two because once we start having live streaming e-commerce, then basically, a lot of the content providers will actually also have live streaming, and when they start doing e-commerce, and when there are a lot of merchants looking for content developers who also want to do live streaming, they want to look for streamers, then they will start advertising within their video accounts, and that So I think over the longer term, monetization and the content ecosystem would actually have a stronger interaction and a more conducive relationship.

Unknown Executive: Thank you, everyone.

One way or the other on their own.

Our in feed ads is actually independent from that but.

But over the long term I think there's going to be more interaction between the two because once we stop having life streaming E. Commerce, then basically a lot of the.

Content.

Providers would actually also have like streaming and when they start to e-commerce and when they are a lot of merchants looking for.

Content developers, who also want to do like streaming.

They wanted to look for streamers, then they would start advertising within our video accounts and that will bring traffic to the live streamers and as a result that they can actually generate more revenue. So I think.

Over the longer term monetization and the content ecosystem would actually have a stronger interaction as well.

Conducive relationship.

Thank you everyone. We are now ending the webinar.

Unknown Executive: We are now ending the webinar. Thank you all for joining our results webinar today. If you wish to check out our press release and

You all for joining our results webinar today, if you wish to check out our press release and other financial information. Please visit the IR section of our company website at Www.

Unknown Executive: For other financial information, please visit the IR section of our company website at www.com.

Unknown Executive: The replay of this webinar will also be available. Thank you, and see you next quarter.

Dr <unk> and Dot com.

This webinar will also be available soon thank you and see you next quarter.