Q1 2023 Tencent Holdings Limited Earnings Call

May 17, 2023

Wendy Huang: Please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are subject to a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Now let me introduce the management team on the call tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview.

Operator: We recommend that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underpinned by a number of risks and uncertainties, and they may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited, non-biased financial measures that should be considered in addition to but not as a substitute for measures of the

Is being recorded.

Speaker 1: We advise that today's webinar is being recorded.

Speaker 2: Before we start the presentation, we would like to remind you that it includes four looking statements, which are on the line by a number of risks and uncertainties and may not be realized in the future for various reasons.

Speaker 3: Information about general market conditions is coming from a variety of sources outside of 10 cents.

Speaker 4: This presentation also contains some unaltered non-IFRS financial measures that should be considered in addition to but not as a substitute for measures of the group's financial performance propelled in accordance with IFRS.

Unknown Executive: The measures of the group's financial performance were promoted in accordance with ILO guidelines.

Unknown Executive: For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents.

Unknown Executive: Please see the brochure documents in the IR section of our website.

Speaker 5: For a detailed discussion of risk factors and IFRS measures, please refer to our disclosure documents on the IR section of our website.

Operator: Now, let me introduce the management team on the call tonight. Our Chairman and CEO, Pony Ma, will be taking a break.

Lincoln Kong: and Lincoln Kong with a short overview.

Speaker 6: Now let me introduce the management team on the floor tonight.

Wendy Huang: President Martin Lau and Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lo will conclude with financial discussion before we open the floor for questions. Now I will pass you to Pony.

James Gordon Mitchell: President Martin Lau and Chief Strategy Officer James Mitchell will provide a business review.

Speaker 7: Our Chairman and CEO Poni Ma will take off with a short overview. President Martin Lau and Chief Strategy Officer James Mitchell will provide a business review.

John Loh: Chief Financial Officer John Loh will conclude.

Unknown Executive: Financial Discussion Before we open the floor for questions, now I will pass it to Pony.

Unknown Executive: open the floor for questions. Now, I will pass it to Pony.

Speaker 8: Chief Financial Officer Zhong Lo will conclude with financial discussion before we open the floor for questions.

Pony Ma: Thank you, Wendy. Good evening. Thank you for joining us. During Q1, we resumed a double-digit revenue growth rate as our payment volumes benefit from and facilitate domestic consumption recovery. Our games revenue improved and our advertising revenue sustained rapid growth. Our non-IFRS net profit increased at a faster pace, reflecting a positive revenue mix shift, operational efficiency, and an easy base period. We are investing in our AI capabilities and cloud infrastructure to embrace the opportunities brought by foundation models, and expect AI to be a growth multiplier that enable us to better serve our users, customers, and society at large. Now let me go through the headline financial numbers for the quarter. Total revenue was CNY 150 billion, up 11% year on year and 3% quarter on quarter.

Pony Ma: Thank you, Wendy. Good evening. Thank you for joining us. During Q1, we resumed a double-digit revenue growth rate as our payment volumes benefit from and facilitate domestic consumption recovery. Our games revenue improved and our advertising revenue sustained rapid growth. Our non-IFRS net profit increased at a faster pace, reflecting a positive revenue mix shift, operational efficiency, and an easy base period. We are investing in our AI capabilities and cloud infrastructure to embrace the opportunities brought by foundation models, and expect AI to be a growth multiplier that enable us to better serve our users, customers, and society at large. Now let me go through the headline financial numbers for the quarter. Total revenue was RMB 150 billion, up 11% year-on-year and 3% quarter-on-quarter.

Speaker 9: Now I will pass it to Pony.

Huateng Ma: In the first quarter, we adopted the regime-adopted revenue flow rate as our payment volume.

Speaker 10: Thank you, Wendy.

Speaker 11: Good evening. Thank you for joining us.

Speaker 12: During the first quarter, we resume a top-ditch revenue growth rate as our payment volumes benefit from and facilitate domestic consumption recovery. Our camps revenue improved and our advertising revenue sustained graphic growth.

Huateng Ma: benefits from and facilitates domestic consumption recovery. Our GAMS revenue improved, and our advertising revenue sustained rapid growth. Our non-IFRS net profit increased at a faster pace, reflecting a positive climate of makeshift operational efficiency.

Speaker 13: Our non-IFIS net profit increase at a faster pace, reflecting a positive sample mix shift, operational efficiency, and an easy base period.

Huateng Ma: Efficiency and an EZ-based period.

Huateng Ma: We are investing in our AI capabilities and cloud infrastructure.

Huateng Ma: Thank you very much.

Speaker 14: We are investing in our AI capabilities and cloud infrastructure to embrace the opportunities flawed by foundation models and expect AI to be a growth multiplier that enables us to better serve our users, customers, and society at large.

John Loh: Now, let me go through the headline financial numbers for the quarter. Total revenue was RMB$150 billion, up 11% year-on-year and 3% quarter-on-quarter.

Speaker 15: Now let me go through the headline financial numbers for the quarter.

Speaker 16: Total revenue was 150 billion RMB up 11% year on year and 3% quarter on quarter.

Pony Ma: Gross profit was RMB 68 billion, up 19% year on year and 10% quarter on quarter. Non-IFRS operating profit was RMB 48 billion, up 32% year on year and 23% quarter on quarter. Non-IFRS net profit attributable to equity holders was RMB 33 billion, up 27% year on year and 10% quarter on quarter. With our key services, we focused on upgrading our technologies and product innovations. Our franchise in communications and social networks remains strong. Combined MAU of WeChat and QQ grew 6% year on year to 1.3 billion, while QQ mobile devices MAU grew 6% year on year to 597 million. For games, we expand our leadership via extending popularity of established franchise and success of newly released in China and international markets.

Pony Ma: Gross profit was RMB 68 billion, up 19% year-on-year and 10% quarter-on-quarter. Non-IFRS operating profit was RMB 48 billion, up 32% year-on-year and 23% quarter-on-quarter. Non-IFRS net profit attributable to equity holders was RMB 33 billion, up 27% year-on-year and 10% quarter-on-quarter. With our key services, we focused on upgrading our technologies and product innovations. Our franchise in communications and social networks remains strong. Combined MAU of WeChat and QQ grew 6% year-on-year to 1.3 billion, while QQ mobile devices MAU grew 6% year-on-year to 597 million. For games, we expand our leadership via extending popularity of established franchise and success of newly released in China and international markets.

John Loh: Gross profit was 68 billion RMB, up 19% year-on-year and 10% quarter-to-year.

Speaker 17: Growth profit was 68 billion RMB up 19% year-to-year and 10% quarter-to-quarter.

John Loh: Non-IFRS operating profit was 48 billion RMB, up 32% year-on-year and 23% quarter-on-quarter. Non-IFRS's net profit achievable to

Speaker 18: Non-IFIS operating profit was 48 billion RMB up 32% year-to-year and 23% quarter-to-quarter.

John Loh: Capital Holdings worth 33 billion RMB is up 27% year-on-year and 10% quarter-on-quarter.

Speaker 19: Non-IFRS net profit attributable to equitable holders was 33 billion RMB up 27% year-on-year and 10% quote-unquote.

Unknown Executive: and Tenpercent Quarter and Half.

Unknown Executive: With our key services, we focus on upgrading our technologies and product innovations.

Speaker 20: With our key services, we focus on upgrading our technologies and talk to innovations.

Unknown Executive: Our franchise in communications and social networks remains strong. Combined MAU of WeChat group percent year-on-year to 1.3 billion, while QQ mobile devices MAU group 6% year-on-year to 597 million.

Speaker 21: Our franchise in communications and social networks remains strong.

Speaker 22: Combine the MAU of reaching a reach at food percent year and year to 1.3 billion while QQ mobile devices, MAU, to 6% year and year to 597 million.

Unknown Executive: For GAINS, we expand our leadership via the extending popularity of established franchises.

Speaker 23: Forkans, we expand our leadership via extending popularity of established franchise and success of newly-leased in China and international markets.

Unknown Executive: franchise and the success of newly released films in China and international markets.

Pony Ma: For digital content, we retained our first place position by subscription account with high-quality content across video, music, and literature. In fintech services, commercial payment volume rebound sharply as consumption activities recovered in China. For cloud, we operate one of China's largest infrastructure as a service platforms and announced our high performance computing cluster in April, which will significantly enhance the efficiency of our foundation model chain. We are the second-biggest provider of PaaS in China by revenue. We operate leading SaaS tools such as Tencent Meeting, the most widely used standalone video conferencing apps. I will now hand over to Martin and James for business review.

Unknown Executive: For digital content, we retained our first-place position with a subscription account with high quality...

Speaker 24: For digital content, we obtained our first place position by subscription accounts with high quality content across video music and literature.

Unknown Executive: account with high-quality content across video, music, and literature. In fintech services, commercial payment volumes rebound sharply as consumption activity is decarbed in China. For cloud, we operate one of China's largest infrastructure as a service platforms and announce our high

Speaker 25: In FinTech services, commercial payment volume will fund sharply plus consumption at 50th department in China.

Unknown Executive: and announce our high performance.

Speaker 26: For cloud, we operate one of China's largest infrastructure as a service platform and announced our high performance computing cluster in April , which will significantly enhance the efficiency of our foundation model chain.

Unknown Executive: which will significantly enhance the efficiency of our foundation model chain. We are the second biggest provider of parts in China by revenue.

Speaker 27: We are the second biggest provider of paths in China by revenue.

Unknown Executive: And we operate leading source tools, such as Tencent Meeting, the most widely used.

Speaker 28: And we operate leading source to such a sensor meeting the most widely used stereo or video conferencing apps.

Unknown Executive: Please use their video conferencing as an app. I will now hand over to Marty and James for the business review. Thank you.

Martin Lau: Thank you, Pony. Good evening and good morning to everybody. For Q1 2023, our total revenue was up 11% year on year. VAS represented 53% of our total revenue, within which Social Networks sub-segment was 21%, Domestic Games sub-segment was 23%, and International Games was 9%. Online Advertising was 14% of total revenue, and Fintech and Business Services was 32% of total revenue. For our Value-Added Services segment, the revenue was RMB 79 billion, up 9% year on year. Social Networks revenue was up 6% year on year to RMB 31 billion, reflecting growth of in-game item sales and music subscription revenue. Our long-form video subscription revenue decreased 6% year on year due to delayed content releases during the first quarter.

Martin Lau: Thank you, Pony. Good evening and good morning to everybody. For Q1 2023, our total revenue was up 11% year-on-year. VAS represented 53% of our total revenue, within which Social Networks sub-segment was 21%, Domestic Games sub-segment was 23%, and International Games was 9%. Online Advertising was 14% of total revenue, and Fintech and Business Services was 32% of total revenue. For our Value-Added Services segment, the revenue was RMB 79 billion, up 9% year-on-year. Social Networks revenue was up 6% year-on-year to RMB 31 billion, reflecting growth of in-game item sales and music subscription revenue. Our long-form video subscription revenue decreased 6% year-on-year due to delayed content releases during the first quarter.

Martin Lau: Thank you, Pony. Good evening and good morning to everybody.

Speaker 29: I will now hand over to Martin and James for Business Review.

Speaker 30: Thank you, Pony. Good evening and good morning to everybody. For the first quarter of 2023, our total revenue was up 11% year on year. VAST represented 53% of our total revenue, within which...

Martin Lau: For the first quarter of 2023, our total revenue was up 11% year-on-year. VAST represented 53% of our total revenue, within which... Social networks sub-segment was 21%, domestic games sub-segment was 23%, and international games was 9%. Online advertising was 14% of total revenue, and FinTech and business services was 32% of total revenue.

Speaker 31: Social networks' sub-segment was 21%, domestic games' sub-segment was 23%, and international games was 9%.

Speaker 32: Online advertising was 14% of total revenue, and FinTech and Business Services was 32% of total revenue.

Martin Lau: For our value at a surface segment, the revenue was 79 billion, up 9% year on year. Social Network's revenue was up 6% year-on-year to 31 billion R&B, reflecting growth of in-game item sales and music subscription revenue. However, long-form video subscription revenue decreased 6% year-on-year due to delayed content releases during the first quarter.

For our value add a surface statement, the revenue was 79 billion, and we're up 9% year on year.

Social networks revenue was up 6% year and year to 31 billion RMB, reflecting growth of in-game item sales and music subscription revenue.

Martin Lau: However, we have taken steps to address this situation, including, number one, enhancing our content to cater to evolving user demands. For example, we released our self-commissioned drama series The Long Season in April, which became the highest-rated Domestic Drama Series in the past five years, per the DoBan Review Aggregator site. And, number two, extending our collaboration with short-form video services, which should help long-form content reach more users and capture more monetization opportunities.

A long-form video subscription revenue decreased 6% year and year due to delayed content releases during the first quarter. However, we have taken steps to address this situation, including number one enhancing our content, circuited to evolving user demands. For example, we released our self-commissions drama series the long season.

Martin Lau: However, we have taken steps to address this situation, including, number one, enhancing our content to cater to evolving user demand. For example, we released our self-commissioned drama series, The Long Season, in April, which became the highest-rated domestic drama series in the past five years per the Douban review aggregator site. Number two, extending our collaboration with short-form video services, which should help long-form content reach more users and capture more monetization opportunities. Music subscription revenue increased 30% year-on-year, driven by growth in paying users and output. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue resumed growth to 6% year-on-year and reached CNY 35 billion. On top of solid performance from key titles such as Honor of Kings, DNF, and CrossFire Mobile.

Martin Lau: However, we have taken steps to address this situation, including, number one, enhancing our content to cater to evolving user demand. For example, we released our self-commissioned drama series, The Long Season, in April, which became the highest-rated domestic drama series in the past five years per the Douban review aggregator site. Number two, extending our collaboration with short-form video services, which should help long-form content reach more users and capture more monetization opportunities. Music subscription revenue increased 30% year-on-year, driven by growth in paying users and output. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue resumed growth to 6% year-on-year and reached RMB 35 billion. On top of solid performance from key titles such as Honor of Kings, DNF, and CrossFire Mobile.

which became the highest rated

Domestic Drama Series in the past five years put the Dober and Re-Review aggregator sites. And number two, extending our collaboration with short form video services, which is to help long content reach more users and capture more monetization opportunities.

Martin Lau: Music subscription revenue increased 30% year-on-year, driven by growth in paying users on Apple. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue resumed growth to 6% year-on-year and reached 35 billion RMB, on top of solid performance from key data, such as Honored Kings, DNF, and Crossfire Mobile.

Music subscription revenue increased 30% year out there, driven by growth in paying users and output. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue irresumed growth to 6% year and year and reached 35 billion RMB.

On top of solid performance from key idols, such as On of Kings, the NF and Crossfire Mobile, new game Arena Breakouts, which we released in third quarter last year, also contributed notably to the growth.

Martin Lau: New game Arena Breakout, which we released in Q3 last year, also contributed notably to the growth. International games revenue increased by 25% year-on-year or 18% in constant currency terms to RMB 13 billion. The robust performance of Valorant as well as contributions from 2022 releases, Nikke, and Triple Match 3D drove up revenue. For communications and social networks, Weixin Video Accounts consumption continued to grow with rapid increases in time spent and video views. In order to drive its continued organic growth, we are nurturing a healthy and active creator community. First, in order to attract more creators and help them reach their target audience more efficiently, we have upgraded our onboarding programs with greater traffic incentives, wider creator coverage, and more effective recommendation tools. Second, we have enhanced the e-commerce infrastructure, enabling creators to benefit from sales commissions associated with e-commerce transactions.

Martin Lau: New Game Arena Breakout, which we released in the third quarter last year, also contributed notably to the growth. International games revenue increased by 25% year-on-year, or 18% in constant currency terms, to $13 billion RMB. The robust performance of Valorant, as well as contributions from 2022 releases Nikkei and Triple Match 3D, showed up revenue. For communications and social networks, which have video accounts, consumption continues to grow with rapid increases in time spent and video views. In order to drive its continued organic growth, we are nurturing a healthy and active creator community. First, to attract more creators and help them reach their target audience more efficiently.

International Games revenue increased by 25% year on year or 18% in constant currency terms to 13 billion RMB. The robust performance of valorant, as well as contributions from 2020 to releases in the NK and Triple Match 3D show up revenue.

For communications and social networks, which in video accounts, consumption continues to grow with rapid increases in time spent and video views. In order to drive its continued organic growth, we are nurturing a healthy and active creator community. First, we need to understand the value of video. Let's get.

In order to attract more creators and help them reach their target audience more efficiently, we have upgraded our onboarding programs with greater traffic incentives, wider creator coverage and more effective content creation tools.

Martin Lau: We have upgraded our onboarding programs with greater traffic incentives, wider creator coverage, and more effective concentration tools. Second, we have enhanced the e-commerce infrastructure, enabling creators to benefit from sales commissions associated with e-commerce transactions. For example, we enriched the customer management functionalities in the video accounts shop, facilitating creators to better engage with customers and increase sales conversion. As a result, our creative community is increasingly vibrant. In the first quarter, daily active creators and daily video uploads more than doubled year-on-year, while the number of creators with over 10,000 followers more than tripled year-on-year. On QQ, we deployed a new architecture to optimize development efficiency across operating systems on a unified code base.

Second, we have enhanced the e-commerce infrastructure, enabling creators to be benefiting from sales commissions associated with e-commerce transactions. For example, when rich did the customer a management function analysis and video accounts shop, facilitating creators to better engage with customers.

Martin Lau: For example, we enriched the customer management functionalities in Video Accounts Shop, facilitating creators to better engage with customers and increase sales conversion. As a result, our creator community is increasingly vibrant. In Q1, daily active creators and daily video uploads more than doubled year-on-year, while the number of creators with over 10,000 followers more than tripled year-on-year. On QQ, we deployed a new architecture to optimize development efficiency across operating systems on a unified code base. This new technology foundation also enhances user security with strengthened data encryption mechanisms and improved user's graphical experience with more advanced rendering solutions. We believe this upgrade will enable faster innovation in QQ's user experience going forward. Moving on to Domestic Games.

and increased sales conversion. As a result, our creator community is increasingly vibrant. The first quarter, daily active creators and daily video uploads more than doubled year-on-year, while the number of creators with over 10,000 followers more than tripled year-on-year.

Uncute, you!

We deployed a new architecture to optimize development efficiency across operating systems on a unified code base. This new technology foundation also enhances user security with strengthened data encryption mechanisms and improved users' graphical experience with more advanced rendering solutions.

Martin Lau: This new technology foundation also enhances user security with strengthened data encryption mechanisms and improves users' graphical experience with more advanced rendering solutions. We believe this upgrade will enable faster innovation in QQQ's user experience going forward. Moving on to domestic games, before discussing product and financial trends, I want to highlight that as a result of our continued and dedicated minor protection program, users aged under 18 contributed less than 1% of total time spent and gross revenues in the quarter. Time spent and gross receipts from users aged under 18 have reduced by 96% and 90% from three years ago respectively. We'll continue to take our societal responsibility with regard to game content and minor protection very seriously.

We believe this upgrade would enable faster innovation in QQ user experience going forward. We'll answer domestic games. Before discussing product and financial trends, I want to highlight that as a result of our continued and dedicated minor protection program. Users aged under 18 contribute at less than 1% of total time spent and gross proceeds in the quarter. Time spent and gross receipts from users aged under 18 reduced by 96% and 90% from three years ago respectively. We'll continue to take out societal responsibility with regards to games content and minor protection very seriously. Looking into the performance of our most popular games.

Martin Lau: Before discussing product and financial trends, I wanna highlight that as a result of our continued and dedicated minor protection program, users aged under 18 contributed less than 1% of total time spent and gross proceeds in the quarter. Time spent and gross receipts from users aged under 18 reduced by 96% and 90% from 3 years ago, respectively. We'll continue to take our societal responsibility with regard to games content and minor protection very seriously. Looking into the performance of our most popular games, Honor of Kings launched highly appealing Shanghai Jing-themed outfits with targeted marketing programs during the Chinese New Year season, contributing to record high quarterly gross receipts. CrossFire, a PC game we have operated since 2008, successfully attracted returning players with promotions targeting internet cafes.

Martin Lau: Looking into the performance of our most popular game, Honor of Kings launched highly appealing Shanghai Jing-themed outfits with targeted marketing programs during the Chinese New Year season, contributing to record-high quarterly gross receipts. Crossfire, a PC game we have operated since 2008, successfully attracted returning players with promotions targeting internet cafes. Crossfire Mobile, which we launched in 2015, released a popular themed map, outfit, and weapon items based on the virtual idol group created for the game.

On of kings launched highly appealing Shanghai-Jing themed outfits with targeted marketing programs during the Chinese New Year season, contributing to record high quarterly growth receipts.

Crossfire PC game we have operated since 2008, successfully attracted returning players with promotions targeting internet cafes.

Martin Lau: CrossFire Mobile, which we launched in 2015, released a popular themed map, outfit, and weapon items based on the virtual idol group created for the game. Both CrossFire and CrossFire Mobile achieved record high gross receipts in the quarter. Additionally, new games we launched recently in high potential genres have generated strong traction. Battle of the Golden Spatula, which has stayed as the number one auto battler game since launch in 2021, increased its gross receipts by more than 30% year-on-year in the quarter. We recently launched a fast-paced game mode that appeals to returning our new players, driving average DAU to a record high of over 10 million in April 2023.

Crossfire Mobile, which we launched in 2015, released a popular themed map, outfit, and weapon items based on the Virtual Idol Group created for the game.

Martin Lau: Both Crossfire and Crossfire Mobile achieved record-high gross receipts in the quarter. Additionally, new games we launched recently in high-potential genres have generated strong traction. The fight of Golden Spatula, which has stayed as the number one auto baffler game since launch in 2021, increased its gross receipts by more than 30% year-on-year in the quarter. We recently launched a fast-paced game mode that appeals to returning and new players, driving average DAU to a record high of over 10 million in April 2023.

Both CrossFi and CrossFi Mobile achieved record high grocery seats in the quarter.

Additionally, new games we launched recently in high potential genres have generated strong traction.

New games we launched recently in high potential genres have generated strong traction. The fight off.

Golden Spatula, which has stayed as the number one auto-buffler game since launch in 2021, increased its gross receipts by more than 30% year-on-year in the quarter.

We recently launched a fast-paced game mode that appeals to returning a new players, driving average DAU to a record high of over 10 million in April 2023.

Wendy Huang: Please click the raise hand button at the bottom left. Please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Now, let me introduce the management team on the call tonight.

Operator: Please click the raise hand button at the bottom left. And please be advised that today's webinar is being recorded. Before we start our presentation, we would like to remind you that it includes four forward-looking statements, which are underpinned by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited, non-biased financial measures that should be considered in addition to but not as a substitute for measures of the group's financial performance.

Please click the raise hand button at the bottom left. And please be advised that today's webinar is being recorded.

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

Information about general market conditions is coming from a variety of sources outside of 10 cents.

This presentation also contains some on-orderly-designive arts financial measures that should be considered in addition to, but not as substitute goals, measures of the group's financial performance propelled in accordance with IFRS.

Unknown Executive: financial performance is propelled in accordance with IFRS.

Unknown Executive: For a detailed discussion of risk factors and non-IFRS measures, please...

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

For a detailed discussion of respectors in nine of our measures, please refer to our disclosure documents on the IR section of our website. Now let me introduce the management team on the court night. Our chairman, CEO , Pony Malwa, is here with the short overview. President Martin Lau and Chief Strategy Officer, James Mitchell will provide a bonus for you.

Operator: Now, let me introduce the management team on the call tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President Martin Lau and Chief Strategy Officer, James Mitchell, will provide a business review. Chief Financial Officer, Joan Lo, will conclude this financial discussion before we open the floor for questions. Now, I will pass it to Tony.

Wendy Huang: Our chairman and CEO, Pony Ma, will kick off with a short overview. President Martin Lau and Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lo will conclude with financial discussion before we open the floor for questions. Now I will pass it to Pony.

Unknown Executive: Now, I will pass it to the next speaker.

Chief Financial Officer Zheng Lo will conclude with financial discussion before we open the floor for questions.

Martin Lau: Thank you, Wendy. Good evening. Thank you for joining us. During Q1, we resumed a double-digit revenue growth rate as our payment volumes benefit from and facilitate domestic consumption recovery.

Now I will pass it to Tony. Thank you, Wendy. Good evening. Thank you for joining us.

Huateng Ma: In the first quarter, we resumed a double-digit revenue growth rate as our payment volumes benefit from and facilitate domestic consumption recovery. Our GAMS revenue improved, and our advertising revenue sustained rapid growth. Our non-IFRS net profit increased at a faster pace, reflecting a positive time-to-mix shift, operational efficiency, and an easy base period. We are investing in our AI capabilities and cloud infrastructure to embrace the

In the first quarter, we assume a top-of-the-definite close rate as our payment volumes benefit from and facilitate domestic consumption recovery. Our games revenue improved, and our advertising revenue sustained rapid growth. Our non-IFIs net profit increase has faster pace.

Pony Ma: Our games revenue improved and our advertising revenue sustained rapid growth. Our non-IFRS net profit increased at a faster pace, reflecting a positive revenue mix shift, operational efficiency, and an easy base period. We are investing in our AI capabilities and cloud infrastructure to embrace the opportunities driven by foundation models, and expect AI to be a growth multiplier that enable us to better serve our users, customers, and society at large. Now let me go through the headline financial numbers for the quarter. Total revenue was RMB 150 billion, up 11% year on year and 3% quarter on quarter. Gross profit was RMB 68 billion, up 19% year on year and 10% quarter on quarter. Non-IFRS operating profit was RMB 48 billion, up 32% year on year and 23% quarter on quarter.

Pony Ma: Our games revenue improved and our advertising revenue sustained rapid growth. Our non-IFRS net profit increased at a faster pace, reflecting a positive revenue mix shift, operational efficiency, and an easy base period. We are investing in our AI capabilities and cloud infrastructure to embrace the opportunities driven by foundation models, and expect AI to be a growth multiplier that enable us to better serve our users, customers, and society at large. Now let me go through the headline financial numbers for the quarter. Total revenue was RMB 150 billion, up 11% year-on-year and 3% quarter-on-quarter. Gross profit was RMB 68 billion, up 19% year-on-year and 10% quarter-on-quarter. Non-IFRS operating profit was RMB 48 billion, up 32% year-on-year and 23% quarter-on-quarter.

reflecting a positive time-built makeshift operational efficiency and an easy base period.

Huateng Ma: the opportunities brought by foundation models and expect AI to be a growth multiplier that enables us to better serve our users, customers, and society at large.

We are investing in our AI capabilities and cloud infrastructure to embrace the opportunities grown by foundation models and expect AI to be a growth multiplier that enabled us to better serve our users, customers, and society allotages.

John Loh: Now let me go through the headline financial numbers for the quarter. Total revenue was $150 billion RMB, up 11% year-on-year and 3% quarter-on-quarter. Gross profit was 68 billion RMB, up 19% year-on-year and 10% quarter-on-quarter. Non-IFRS operating profit was 48 billion RMB, up 32% year-on-year and 23% quarter-on-quarter. Non-IFRS net profit attributable to equity holders worth 33 billion RMB was up 27% year-on-year and 10% quarter-on-quarter.

Now let me go through the head of my financial numbers for the quarter.

Total revenue was RMB150 billion, up 11% year on year and 3% quarter on quarter.

Growth profit was 68 billion RMB up 19% year-to-year and 10% quarter-to-quarter.

Non-IFRS operating profit was RMB48 billion, up 32% year-on-year and 23% quarter-on-quarter. Non-IFRS net profit attributable to equity holders was RMB33 billion, up 27% year-on-year and 10% quarter-on-quarter.

Pony Ma: Non-IFRS net profit attributable to equity holders was RMB 33 billion, up 27% year on year and 10% quarter on quarter. With our key services, we focused on upgrading our technologies and product innovations. Our franchise in communications and social networks remains strong. Combined MAU of Weixin and WeChat grew 6% year on year to 1.3 billion, while QQ mobile devices MAU grew 6% year on year to 597 million. For games, we expand our leadership via extending popularity of established franchise and success of new release in China and international markets. For digital content, we retained our first place position by subscription account with high quality content across video, music, and literature. In fintech services, commercial payment volume rebound sharply as consumption activities recovered in China.

Pony Ma: Non-IFRS net profit attributable to equity holders was RMB 33 billion, up 27% year-on-year and 10% quarter-on-quarter. With our key services, we focused on upgrading our technologies and product innovations. Our franchise in communications and social networks remains strong. Combined MAU of Weixin and WeChat grew 6% year-on-year to 1.3 billion, while QQ mobile devices MAU grew 6% year-on-year to 597 million. For games, we expand our leadership via extending popularity of established franchise and success of new release in China and international markets. For digital content, we retained our first place position by subscription account with high quality content across video, music, and literature. In fintech services, commercial payment volume rebound sharply as consumption activities recovered in China.

Unknown Executive: With our key services, we focus on upgrading our technologies and product innovations. Our franchise in communications and social networks remains strong. Combined MAU of WeChat group 2% year-on-year to 1.3 billion, while QQ mobile devices MAU 6%

With our key services, we focus on upgrading our technologies and product innovations. Our franchise in communications and social networks remains strong.

Combine the MAU of reaching a reach at 0.5% year to 1.3 billion while QQ mobile devices, MAU, 6% year to 597 million.

Unknown Executive: 6% year-on-year to $597 million.

Unknown Executive: For again, we expand our leadership via the extending popularity of the East.

Unknown Executive: established a franchise and the success of newly released in China and international markets for digital content.

For gains, we expand our leadership via extending popularity of established franchise and success of newly released in China and international markets.

Unknown Executive: And we retained our first place position by offering a subscription account with high quality.

For digital content, we retained our first place position by subscription account with high quality content across video, music, and literature. In fintech services, commercial payment volume rebounded sharply because consumption activities carpeted in China.

Unknown Executive: with high-quality content across video, music, and literature. In fintech services, commercial payment volumes rebound sharply as consumption activities decouple in China. For cloud, we operate one of China's largest infrastructure as a service platforms and announce our high

Pony Ma: For cloud, we operate one of China's largest infrastructure as a service platforms and announce our high-performance computing cluster in April, which will significantly enhance the efficiency of our foundation model chain. We are the second biggest provider of PaaS in China by revenue. We operate leading SaaS tools such as Tencent Meeting, the most widely used cloud video conferencing apps. I will now hand over to Martin and James for business review.

For cloud, we operate one of China's largest infrastructure as a service platform and announced our high-performance computing cluster in April , which will significantly enhance the efficiency of alpha foundation model chain.

Unknown Executive: and announce our high-performance computing cluster in April, which will significantly enhance the efficiency of our foundation model chain.

Unknown Executive: We are the second biggest provider of PASS in China by revenue. And we operate leading source tools, such as Tencent Meeting, the most widely used style of video conferencing app. I will now hand over to Marty and James for a business review. Thank you.

We are the second biggest provider of paths in China by revenue.

And we operate leading source tools such as TensorMeeting, the most widely used style of video conferencing as apps.

Martin Lau: Thank you, Pony. Good evening and good morning to everybody. For Q1 2023, our total revenue was up 11% year on year. VAS represented 53% of our total revenue, within which Social Networks sub-segment was 21%, Domestic Games sub-segment was 23%, and International Games was 9%. Online Advertising was 14% of total revenue, and FinTech and Business Services was 32% of total revenue. For our Value-Added Services segment, the revenue was RMB 79 billion, up 9% year on year. Social Networks revenue was up 6% year on year to RMB 31 billion, reflecting growth of in-game item sales and music subscription revenue. Our long-form video subscription revenue decreased 6% year on year due to delayed content releases during Q1.

Martin Lau: Thank you, Pony. Good evening and good morning to everybody. For Q1 2023, our total revenue was up 11% year-on-year. VAS represented 53% of our total revenue, within which Social Networks sub-segment was 21%, Domestic Games sub-segment was 23%, and International Games was 9%. Online Advertising was 14% of total revenue, and FinTech and Business Services was 32% of total revenue. For our Value-Added Services segment, the revenue was RMB 79 billion, up 9% year-on-year. Social Networks revenue was up 6% year-on-year to RMB 31 billion, reflecting growth of in-game item sales and music subscription revenue. Our long-form video subscription revenue decreased 6% year-on-year due to delayed content releases during Q1.

Martin Lau: Thank you, Pony. Good evening and good morning to everybody.

I will now hand over to Martin and James for business review. Thank you, Tony. Good evening. Good morning to everybody. But the first quarter of 2023, our total revenue was up 11% year and year. VAS represented 53% of our total revenue within which social networks' subsegment was 21%.

Domestic games of Settman was 23% and international games was 9%.

Online advertising was 14% of total revenue and FinTech and business services was 32% of total revenue.

Martin Lau: For our value-added service segment, revenue was 79 billion RMB, up 9% year-on-year. Social network's revenue was up 6% year-on-year to 31 billion RMB, reflecting growth of in-game item sales and music subscription revenue. Long-form video subscription revenue decreased 6% year-on-year due to delayed content releases during the first quarter.

For our value add a surface statement, the revenue was 79 billion on up 9% year on year.

Social networks revenue was up 6% year and year to 31 billion R&B, reflecting growth of in-game item sales and music subscription revenue.

A long-form video subscription revenue decreased 6% year and year due to delayed content releases during the first quarter. However, we have taken steps to address this situation, including number one enhancing our content, circuited to evolving user demand. For example, we released our self-commissions drama series The Long Season in April .

Martin Lau: However, we have taken steps to address this situation, including number one, enhancing our content to cater to evolving user demands. For example, we released our self-commissioned drama series, The Long Season, in April, which became the highest-rated domestic drama series in the past five years per the Douban review aggregator site. Number two, extending our collaboration with short-form video services, which should help long-form content reach more users and capture more monetization opportunities. Music subscription revenue increased 30% year on year, driven by growth in paying users and output. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue resumed growth to 6% year on year and reached CNY 35 billion. On top of solid performance from key titles such as Honor of Kings, DNF, and CrossFire Mobile.

Martin Lau: However, we have taken steps to address this situation, including number one, enhancing our content to cater to evolving user demands. For example, we released our self-commissioned drama series, The Long Season, in April, which became the highest-rated domestic drama series in the past five years per the Douban review aggregator site. Number two, extending our collaboration with short-form video services, which should help long-form content reach more users and capture more monetization opportunities. Music subscription revenue increased 30% year-on-year, driven by growth in paying users and output. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue resumed growth to 6% year-on-year and reached RMB 35 billion. On top of solid performance from key titles such as Honor of Kings, DNF, and CrossFire Mobile.

which became the highest rated domestic drama series in the past five years, put the Dober and Reveal aggregator sites. And number two, extending our collaboration with short form video services, which is to help long form content reach more users and capture more monetization opportunities.

Martin Lau: Music subscription revenue increased 30% year on year, driven by growth in paying users in APU. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue resumed growth to 6% year-on-year and reached 35 billion RMB, on top of solid performance from key data such as Honored Kings, DNF, and Crossfire Mobile.

Music subscription revenue increased 30% year-on-year, driven by growth in paying users in Apple. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity.

The domestic games revenue is consumed growth to 6% yarn year and reached 35 billion RMB.

On top of solid performance from keyditos, such as On of Kings.

Martin Lau: New game Arena Breakout, which we released in Q3 last year, also contributed notably to the growth. International games revenue increased by 25% year on year or 18% in constant currency terms to CNY 13 billion. The robust performance of Valorant, as well as contributions from 2022 releases, Nikke and Triple Match 3D, drove up revenue. For communications and social networks, Weixin Video Accounts consumption continued to grow with rapid increases in time spent and video views. In order to drive its continued organic growth, we are nurturing a healthy and active creator community. First, in order to attract more creators and help them reach their target audience more efficiently, we have upgraded our onboarding programs with greater traffic incentives, wider creative coverage, and more effective content creation tools.

Martin Lau: New game Arena Breakout, which we released in Q3 last year, also contributed notably to the growth. International games revenue increased by 25% year-on-year or 18% in constant currency terms to RMB 13 billion. The robust performance of Valorant, as well as contributions from 2022 releases, Nikke and Triple Match 3D, drove up revenue. For communications and social networks, Weixin Video Accounts consumption continued to grow with rapid increases in time spent and video views. In order to drive its continued organic growth, we are nurturing a healthy and active creator community. First, in order to attract more creators and help them reach their target audience more efficiently, we have upgraded our onboarding programs with greater traffic incentives, wider creative coverage, and more effective content creation tools.

Martin Lau: New Game Arena Breakout, which we released in the third quarter last year, also contributed notably to the growth. International games revenue increased by 25% year-on-year or 18% in constant currency terms to 13 billion RMB. The robust performance of Valorant as well as contributions from 2022 releases Nikkei and Triple Match 3D show up revenue. For communications and social networks, as well as vision video accounts, consumption continues to grow with rapid increases in time spent and video views.

DNF and Crossfire Mobile. New game Arena Breakouts, which we released in third quarter last year, also contributed notably to the growth.

International Games revenue increased by 25% year on year or 18% in constant currency terms to 13 billion RMB. The robust performance of valorants, as well as contributions from 2022 releases in the K and triple match 3D show up revenue.

For communications and social networks, Wation Video Accounts consumption continues to grow with rapid increases in time spent and video views. In order to drive its continued organic growth, we are nurturing a healthy and active creator community. First,

Martin Lau: In order to drive its continued organic growth, we are nurturing a healthy and active creator community to attract more creators and help them reach their target audience more efficiently. We have upgraded our onboarding programs with greater traffic incentives, wider creative coverage, and more effective concentration tools. Second, we have enhanced the e-commerce infrastructure, enabling creators to benefit from sales commissions associated with e-commerce transactions. For example, we enriched the customer management functionalities in the video accounts shop, facilitating creators to better engage with customers and increase sales conversion.

Martin Lau: Second, we have enhanced the e-commerce infrastructure, enabling creators to be benefiting from sales commissions associated with e-commerce transactions. For example, we enriched the customer management functionalities in Video Accounts Shop, facilitating creators to better engage with customers and increase sales conversion. As a result, our creative community is increasingly vibrant. In Q1, daily active creators and daily video uploads more than doubled year-on-year, while the number of creators with over 10,000 followers more than tripled year-on-year. On QQ, we deployed a new architecture to optimize development efficiency across operating systems on a unified code base. This new technology foundation also enhances user security with strengthened data encryption mechanisms and improved user's graphical experience with more advanced rendering solutions. We believe this upgrade will enable faster innovation in QQ's user experience going forward. Moving on to Domestic Games.

enabling creators to be benefiting from sales commissions associated with e-commerce transactions. For example, when rich did the customer a management for the final analysis and video accounts shop, facilitating creators to better engage with customers and increase sales conversion.

Martin Lau: As a result, our creative community is increasingly vibrant. In the first quarter, daily active creators and daily video uploads more than doubled year on year, while the number of creators with over 10,000 followers more than tripled year on year. On QQ, we deployed a new architecture to optimize development efficiency across operating systems on a unified code base. This new technology foundation also enhances user security with strengthened data encryption mechanisms and improved users' graphical experience with more advanced rendering solutions.

As a result, our creative community is increasingly vibrant. The first quarter, data active creators and daily video uploads more than doubled year-on-year, while the number of creators with over 10,000 followers more than triple year-on-year.

Uncute, cute.

We deployed a new architecture to optimize development efficiency across operating systems on a unified code base. This new technology foundation also enhances user security with strengthened data encryption mechanisms and improved user's graphical experience with more advanced rendering solutions.

Martin Lau: We believe this upgrade will enable faster innovation in QQ's user experience going forward. Moving on to domestic games. Before discussing product and financial trends, I want to highlight that as a result of our continued and dedicated minor protection program, users aged under 18 contributed less than 1% of total time spent and gross receipts in the quarter. Time spent and gross receipts from users aged under 18 were reduced by 96% and 90% from three years ago, respectively. We'll continue to take our societal responsibility with regard to game content and minor protection very seriously.

We believe this upgrade would enable faster innovation in QQ user experience going forward.

Martin Lau: Before discussing product and financial trends, I wanna highlight that as a result of our continued and dedicated minor protection program, users aged under eighteen contributed less than 1% of total time spent in gross proceeds in the quarter. Time spent and gross receipts from users aged under eighteen reduced by 96% and 90% from three years ago, respectively. We'll continue to take our societal responsibility with regard to games content and minor protection very seriously. Looking into the performance of our most popular games, Honor of Kings launched highly appealing Shanghai Jing-themed outfits with targeted marketing programs during the Chinese New Year season, contributing to record high quarterly gross receipts. CrossFire, a PC game we have operated since 2008, successfully attracted returning players with promotions targeting internet cafes.

We launched the domestic games.

Before discussing product and financial trends, I want to highlight that as a result of our continued and dedicated minor protection program. Users aged under 18 contribute at less than 1% of total time spent and gross proceeds.

Before discussing product and financial trends, I wanna highlight that as a result of our continued and dedicated minor protection program, users aged under 18 contributed less than 1% of total time spent and gross proceeds in the quarter.

Time spent and growth receipt from users aged on the 18 reduced by 96% and 90% from three years ago respectively. We'll continue to take out societal responsibility with regards to games content and minor protection very seriously. Looking into the performance of our most popular games.

Martin Lau: Looking into the performance of our most popular game, Honored Kings launched highly appealing Shanghai Jing-themed outfits with targeted marketing programs during the Chinese New Year season, contributing to record-high quarterly gross receipts. CrossFi, a PC game we have operated since 2008, successfully attracted returning players with promotions targeting internet cafes. CrossFi Mobile, which we launched in 2015, released a popular themed map, outfit, and weapon items based on the virtual idol group created for the game.

On of kings launched highly appealing Shanghai Jing themed outfits with targeted marketing programs during the Chinese New Year season contributing to red cat high quarterly growth receipts.

Crossfire PC game we have operated since 2008, successfully attracted returning players with promotions targeting internet cafes.

Martin Lau: CrossFire Mobile, which we'd launched in 2015, released a popular themed map, outfit, and weapon items based on the virtual idol group created for the game. Both CrossFire and CrossFire Mobile achieved record high gross receipts in the quarter. Additionally, new games we launched recently in high potential genres have generated strong traction. Battle of the Golden Spatula, which has stayed as the number one auto battler game since launch in 2021, increased its gross receipts by more than 30% year-on-year in the quarter. We recently launched a fast-paced game mode that appeals to returning and new players, driving average DAU to a record high of over 10 million in April 2023.

Crossfire Mobile, which we launched in 2015, released a popular themed map, outfit, and weapon items based on the virtual idol group created for the game. Both Crossfire and Crossfire Mobile achieved record high gross receipts in the quarter. Additionally,

Martin Lau: Both CrossFi and CrossFy Mobile achieved record high gross receipts in the quarter. Additionally, new games we launched recently in high potential genres have generated strong traction. The fight of Golden Spatula, which has stayed as the number one auto baffler game since launch in 2021, increased its gross receipts by more than 30% year-on-year in the quarter. We recently launched a fast-paced game mode that appeals to returning and new players, driving average DAU to a record high of over 10 million in April 2023.

New games we launched recently in high potential genres have generated strong traction.

in high potential genres have generated strong traction. The fight off.

Golden spatula, which has stayed as the number one auto-bathler game since launch in 2021. Increased its growth receipts by more than 30% year and year in a quarter.

We recently launched a fast-paced game mode that appeals to returning a new players, driving average DAU to a record high of over 10 million in April 2023.

Wendy Huang: First question comes from Alicia Yap from-

Operator: applied to raise the question and then press to unmute yourself. If you are accessing from the Tanzan meets a new meeting application, please click the rate and button at the point. We're going to take one-man questions, one follow-up question each time. The first question comes from Alicia.

As far as to raise the question and generate a press to unmute yourself. You are accessing from the 10th and 10th of the meeting application. Please click the raise and button at the end.

Alicia Yap: [inaudible] I... Alicia, can you speak up? Yeah, good evening management.

We would take one main question, one full of questions in each time. Um, this question comes down, we are going to show you up for all of this.

Alicia Yap: Hi, good evening.

Wendy Huang: Alicia, can you speak up?

Alicia Yap: Yeah. Good evening, management. Can you hear me?

Unknown Executive: Can you hear me? We can't hear you clearly. Maybe you should turn up the volume.

Hi. At least I can speak up.

Wendy Huang: Uh-

Martin Lau: Very clear.

Wendy Huang: We can't hear you clearly. Maybe you turn up the volume.

Yeah, good. It's a management technique. We count here, clearly. Maybe you turn up the volume.

Alicia Yap: Okay. Hi, can you hear me better now?

Alicia Yap: Okay, hi, can you hear me better now? Yeah, it's much better now. Okay, thank you. Thanks for giving me the chance to ask questions and congratulations on the solid set of results. First question related to your gaming business. It is delighted to see a number of the old franchise titles regain strong popularity and also achieve a record close receipt during the quarter. So based on your observations and what you have seen from your game performance, are there any notable differences in user gameplay behavior or the spending frequency or the willingness pattern that you could highlight that are quite different from what we saw during the pre-pandemic period?

Wendy Huang: Yeah, it's much better now.

Alicia Yap: Okay, thank you. Thanks for giving me the chance to ask questions, and congrats on the solid set of results. First question is related to your gaming business. I'm delighted to see the numbers of the old franchise titles regain strong popularity and also achieve record sales receipts during the quarter. So based on your observation and what you have seen from your game performance, are there any notable differences in user gameplay behavior or the spending frequency or the willingness pattern that you could highlight that are quite different from what we saw during the pre-pandemic period? Just wondering if, you know, some of this robust game activity that you experienced during the quarter is more attributed to your effective promotional campaign, or this is more, you know, the entire industry phenomenon.

Hi, can you hear me better now? Yeah, it's much better now. Okay, thank you. Thanks for giving me the chance to ask questions and congrats on the solid-sized results. First question related to your gaming business. It is delighted to see a number of the old franchise title begins.

in user games, game play, behavior, or the spending frequency or the willingness pattern that you could highlight that are quite different from what we saw during the pre-pandemic period. Just wondering if some of these robust game activity that you experience during the quarter is more attributed to.

Alicia Yap: I'm just wondering if some of the robust game activity that you experienced during the quarter is more attributed to your effective promotional campaign or this is more, you know, the entire industry phenomenon. Second question is on your business services. So, wondering what management views on the recent price cut action by the major peer and how that would affect Tencent's plan initiatives and also the industry landscape. Thank you.

Alicia Yap: Second question is on your business services. Wondering what management's view on the recent price cut action by the major peer, and how would that affect Tencent's planned initiative and also industry landscape? Thank you.

by the major peer and how would that affect 10% plant initiative and also industry landscape. Thank you.

Martin Lau: Yeah, thank you for the questions, Alicia. So, you know, on the game business, you know, not to be pedantic, but we feel very strongly that, you know, what you referred to as old games are, in fact, you know, evergreen games. If you look at our game portfolio, many of the biggest, most successful titles, including Honor of Kings, League of Legends, CrossFire Mobile, Peacekeeper Elite, PUBG Mobile, Arena Breakout, are, you know, competitive games, often team-based competitive games, that are designed to be balanced, fair, and playable, you know, for years or for decades. That is the reality that we're seeing across the industry with other similar team-based competitive games, and that is the reality we've really sought to nurture with these big evergreen games.

James Mitchell: Yeah, thank you for the questions, Alicia. So, you know, on the game business, you know, not to be pedantic, but we feel very strongly that, you know, what you referred to as old games are, in fact, you know, evergreen games. If you look at our game portfolio, many of the biggest, most successful titles, including Honor of Kings, League of Legends, CrossFire Mobile, Peacekeeper Elite, PUBG Mobile, Arena Breakout, are, you know, competitive games, often team-based competitive games, that are designed to be balanced, fair, and playable, you know, for years or for decades. That is the reality that we're seeing across the industry with other similar team-based competitive games, and that is the reality we've really sought to nurture with these big evergreen games.

James Gordon Mitchell: Thank you for the questions, Alicia. So, you know, in the game business, not to be pedantic, but we feel very strongly that, you know, what you referred to as old games are, in fact, evergreen games. If you look at our game portfolio, many of the biggest, most successful titles, including Honor of Kings, League of Legends, Crossfire, Crossfire Mobile, Peacekeeper Elite, PUBG Mobile, Arena Breakout, you know, competitive games, often team-based competitive games that are designed to be balanced, fair, and playable for years or for decades.

Thank you for the questions, Alicia. So on the game business, not to be pedantic, but we feel very strongly that what you referred to as old games are, in fact, evergreen games. And if you look at our game portfolio, many of the biggest, most successful titles, including...

Honor of Kings, League of Legends, Crossfire, Crossfire Mobile, Peacekeeper Elite, PUBG Mobile, Arena Breakout, in a competitive game, which often team-based competitive games, that are designed to be balanced, fair and playable.

James Gordon Mitchell: And that is the reality that we're seeing across the industry with other similar team-based competitive games. And that is the reality, you know, what we've really sought to nurture with these big, evergreen games. So, you know, in terms of why the games performed well in the first quarter, we believe it comes down largely to appealing content. We released appealing content, and players responded to that appealing content by investing, in some cases, more time and, in other cases, more money or both. And the more money translates into more gross receipts and, therefore, more revenue.

for years or for decades. And that is the reality that we're seeing across the industry with other similar team-based competitive games. And that is the reality, we're really sought to nurture with these big evergreen games. So in terms of why...

James Mitchell: In terms of why the games performed well in Q1, then we believe it comes down largely to appealing content. We released appealing content. Players responded to that appealing content by investing, in some cases, more time and in other cases, more money or both. And so more money translates into more gross receipts and therefore more revenue. In terms of, you know, whether there were special promotional campaigns, you know, we always promote the virtual outfits. I think over time, we've become progressively better at promoting the right virtual outfits, you know, at the right time of the calendar year. The business has become more akin to luxury goods, and that there are certain virtual outfits we promote to tie into the Lunar New Year.

The games performed well in the first quarter. Then we believe it comes down largely to appealing content. We released appealing content in a player's responded to that appealing content by investing in some cases more time and in other cases more money or both.

and to the more money translates into more grossy receipts and therefore more revenue. In terms of whether there were special promotional campaigns, we always promote.

James Gordon Mitchell: In terms of, you know, whether there were special promotional campaigns, you know, we always promote the virtual outfits. I think over time, we've become progressively better at promoting the right virtual outfits, you know, at the right time of the calendar year. So the business has become more akin to luxury goods, and there are certain virtual outfits we promote to tie into the Lunar New Year; there are others we promote to tie into the May Day holidays, the summer period, and so on and so forth.

the virtual outfits, I think over time we've become progressively better at promoting the right virtual outfits, at the right time of the card in the year. The business has become more akin to luxury goods and that there are certain virtual outfits we promote.

James Mitchell: There are others we promote to tie into the May Day holidays, into the summer period, and so on and so forth. That's you know, an ongoing trend as opposed to a single quarter phenomenon. In terms of how user behavior has changed from pre-COVID to today, we don't see a dramatic change. I think it's probably fair to say that you know, in the three years since China went into COVID, despite mixed economic trends, purchasing power has generally increased. You know, the removal of the minor game players skews up the spending power from you know, those who are still playing games who are older. Therefore, it's you know, natural that there's more you know, ability to spend more on high-quality content now than you know, was the case three years ago.

James Gordon Mitchell: But that's an ongoing trend as opposed to a single quarter phenomenon. And then, in terms of how user behavior has changed from pre-COVID to today, we don't see a dramatic change. I think it's probably fair to say that, you know, in the three years since China went into COVID, despite mixed economic trends, purchasing power has generally increased. You know, the removal of the minor game players uses up the spending power from those who are still playing games who are older.

to tie into the lunar new year there are others we promote to tie into the Mayday holidays into the summer period and so on and so forth but that's an ongoing trend as opposed to a single quarter phenomenon and then in terms of how user behavior has changed from

pre-COVID to today. You know, we don't see a dramatic change. I think it's probably fair to say that, you know, in the three years since China went into COVID, despite mixed economic trends.

Hutchison Power has generally increased. The removal of the minor game players skews up the spending power from those who are still playing games to older. So therefore, it's natural that there's more ability to spend more on high quality content.

James Gordon Mitchell: So, therefore, it's natural that there is more ability to spend more on high-quality content now than was the case three years ago. So that's in terms of the games, and particularly the evergreen games. There are many other kinds of games, including content-driven games, and we're seeking to reinforce our position in those other kinds of games. But the big games that we really talked about this quarter were typically these evergreen games.

James Mitchell: That's in terms of the games, and particularly the evergreen games. You know, there's many other kinds of games, including content-driven games, and we're seeking to reinforce our position in those other kinds of games. You know, the big games that we really talked about this quarter were typically these evergreen games. On the business services side, and specifically cloud and the impact of price cuts. You know, the impact of these price cuts on Tencent as a whole is, you know, not notable. As you know, cloud only represents a mid-single digit percentage of our total revenue. You know, within that, the price cuts only apply to infrastructure as a service, which is a subset of that mid-single digits.

now than, you know, what's the case three years ago? So that's in terms of the games, and particularly the Evergreen games. You know, there's many other kinds of games, including content driven games, and we're seeking to reinforce up position in those other kinds of games. But, you know, the big games that we really talked about this quarter, which is particularly these Evergreen games.

James Gordon Mitchell: On the business services side, and specifically cloud, and the impact of price cuts, you know, the impact of these price cuts on Tencent as a whole is not notable. As you know, cloud only represents a mid-single-digit percentage of our total revenue. Within that, the price cuts only apply to infrastructure as a service, which is a subset of that mid-single digit. And then even within infrastructure as a service, if you look at the price cuts that have been widely announced in the industry in recent weeks, they apply to long-term prepaid contracts.

On the business services side and specifically cloud and the impact of price cuts, the impact of these price cuts on 10 cent as a whole is...

You're not notable. As you know, cloud only represents a mid-single digit percent of our total revenue. Within that, the price cuts only apply to infrastructure as a service, which is a subset of that mid-single digits. And then even within infrastructure as a service, if you look at the price cuts that have been widely announced in the industry in recent weeks.

James Mitchell: Even within infrastructure as a service, if you look at the, you know, price cuts that have been widely announced in the industry in recent weeks, they apply to long-term prepaid contracts. You know, those long-term prepaid contracts are generally entered into by small and medium-sized businesses, but not by larger enterprises. You know, this is an industry where over time, the input costs of servers and bandwidth and so forth are generally falling, and it makes sense that the participants in the industry pass on those falling input costs into falling pricing to their customers. You know, the percentage of our revenue that is impacted by this particular round of price adjustments is, you know, in the few basis points range. It's not a major moving part for Tencent as a whole.

James Gordon Mitchell: And those long-term prepaid contracts are generally entered into by small and medium-sized businesses but not by larger enterprises. So this is an industry where, over time, the input costs of servers and bandwidth and so forth are generally falling. And it makes sense that the participants in the industry pass on those falling input costs into pricing for their customers. But the percentage of our revenue that is impacted by this particular round of price adjustments is in the few basis points range.

They applied to long-term prepaid contracts. And those long-term prepaid contracts are generally entered into by small and medium-sized businesses, but not by larger enterprises. So this is an industry where over time, the input costs of servers and bandwidth and so forth, the generally falling.

and it makes sense that the participants in the industry are on those falling input costs into falling pricing to their customers. But the percentage of revenue that is impacted by this particular round of price adjustments is in the...

James Gordon Mitchell: So it's not a major moving part for Tencent as a whole. What's more important for us is just continuing to double down on our competitive strengths within the cloud and continuing to provide the best possible service to our customers, of which price is one but not the only facet. Thank you.

James Mitchell: You know, what's more important for us is just continuing to, you know, double down on our competitive strengths within cloud, and continuing to provide the best possible service to our customers, of which price is one, but not the only facet. Thank you.

the few basis points range. So it's not a major moving part, the tensile end as a whole. There what's more important for us is just continuing to, in a double down on our competitive strengths within cloud and continues to provide the best possible service to our customers of which price is one, but not the only facet. Thank you.

Wendy Huang: Thank you. Thank you, Alicia. We will take the next question from Alex Yao from J.P. Morgan.

Alicia Yap: Thank you.

Wendy Huang: Thank you, Alicia. We will take the next question from Alex Yao from JPMorgan.

Unknown Executive: Thank you, Alicia. We will take the next question from Alexiel, from Jake Morgan.

We will take the next question from Alex L. Brown, Jake Morgan. Thank you, management, for taking my question and congrats on the strong quarter. I have two questions. Number one is...

Alex Yao: Thank you, management, for taking my question, and congrats on a strong quarter. I have two questions. Number one is on the balance sheets. The current deferred revenue increased sharply by 18% year-on-year this quarter. This is a big change compared to the trend in the past several quarters. Can you elaborate the reason? And should we expect a strong VAS and the gaming revenue in the next perhaps two to three quarters? And then the second question is around the fintech development. We noticed you guys recently launched an installment loan product to selected WeChat Pay payment users. Can you discuss how fast will you roll out the product to the rest of the WeChat Pay users? And how should we think about the financial impact on your fintech segment? Thank you.

Unknown Executive: Thank you management for taking my question and congratulations on a strong quarter. I have two questions.

Unknown Executive: Number one is... On the balance sheets, the current deferred revenue increased sharply by 18% young year this quarter. This is a big change compared to the trend in the past several quarters. Can you elaborate the reason?

On the balance sheet, the current deferred revenue increased sharply by 18% younger this quarter. This is a big change compared to the 20 in the past several quarters. Can you elaborate the reason? And shall we expect a strong VAS and the gaming revenue in the next?

Unknown Executive: And should we expect a strong VAS and gaming revenue in the next perhaps two to three quarters? And then the second question is around Fintech development. We noticed you guys recently launched an installment loan product to select Wish payment users. Can you discuss how fast you will roll out the product to the rest of the WeChat Pay users and what we should think about the financial impact on your FinTech segment? Thank you.

gatoesying payment users

Can you discuss how fast will it roll out the product to the rest of the within pay users and how should we think about the financial impact on your FinTech segment? Thank you.

James Mitchell: Yeah. Firstly, I would like to explain a little bit about, you know, what is inside the deferred revenue. Actually, there are a lot of components, you know, including the virtual game items, including business cooperation agreements, prepaid advertising, prepaid cloud, prepaid tokens. There's a lot of different type of prepays in there. In terms of year-on-year growth, I think it's more due to the fact that, you know, the online games, you know, actually doing very well in terms of the cash consumption. However, you know, Well, we should look at the total deferred revenue rather than just, you know, the current deferred revenue, because, you know, it represent, you know, some of the items that might extend, you know, beyond one year.

John Lo: Yeah. Firstly, I would like to explain a little bit about, you know, what is inside the deferred revenue. Actually, there are a lot of components, you know, including the virtual game items, including business cooperation agreements, prepaid advertising, prepaid cloud, prepaid tokens. There's a lot of different type of prepays in there. In terms of year-on-year growth, I think it's more due to the fact that, you know, the online games, you know, actually doing very well in terms of the cash consumption. However, you know, Well, we should look at the total deferred revenue rather than just, you know, the current deferred revenue, because, you know, it represent, you know, some of the items that might extend, you know, beyond one year.

Unknown Executive: Yeah, firstly, I would like to explain a little bit about what is inside the deferred revenue. Actually, there are a lot of components, you know, including virtual game items, business cooperation agreements, prepaid advertising, prepaid crowds, prepaid tokens, a lot of different types of prepays in there. So in terms of year-on-year growth, I think it's more due to the fact that, you know, the online games are actually doing very well in terms of cash consumption.

Yeah, first there I would like to explain a little bit about, you know, what is inside of the firm revenue. Actually, there are a lot of components, you know, including the virtual game items, including business cooperation agreements, prepare advertising, prepare craft, prepare tokens, a lot of different type of pay-as in there.

So in terms of year and year for a lot of things, it's more due to the fact that the online games, actually doing very well in terms of the cash consumption. However, well, if you look at the

Unknown Executive: However, you know, well, if you look at, you know, the total deferred revenue rather than just, you know, the current deferred revenue because, you know, it represents, you know, some of the items that might extend, you know, beyond one year. So if you look at, you know, the total deferred revenue, actually, it dropped by, you know, 1%.

We should look at the total difference rather than just the current difference. Because if you represent some of the items that might extend beyond one year. If you look at the total difference, actually it's dropped by 1%.

James Mitchell: If you look at, you know, the total deferred revenue, actually it dropped by, you know, 1%. On year-on-year, quarter-on-quarter basis, it increased by 17%, you know, due to reasons that I've mentioned. I think, you know, for BCA, it's quite natural that, you know, it will drop quarter-over-quarter because it is amortized, you know, according to the original contract. In terms of, you know, the prepaid advertising, actually, you know, it dropped, you know, partly due to seasonality and partly due to the BCA amortization that I've just mentioned. If you look at, you know, the deferred revenue, I suggest we should, you know, add the two up to arrive at the, you know, the actual, you know, deferred revenue, you know, for the whole company.

John Lo: If you look at, you know, the total deferred revenue, actually it dropped by, you know, 1%. On year-on-year, quarter-on-quarter basis, it increased by 17%, you know, due to reasons that I've mentioned. I think, you know, for BCA, it's quite natural that, you know, it will drop quarter-over-quarter because it is amortized, you know, according to the original contract. In terms of, you know, the prepaid advertising, actually, you know, it dropped, you know, partly due to seasonality and partly due to the BCA amortization that I've just mentioned. If you look at, you know, the deferred revenue, I suggest we should, you know, add the two up to arrive at the, you know, the actual, you know, deferred revenue, you know, for the whole company.

Unknown Executive: And on a year, quarter-on-quarter basis, it increased by 17%, you know, due to the reasons that I've mentioned. And I think, you know, for BCA, it's quite natural that, you know, it will drop quarter over quarter because it is advertised, you know, according to the original contract. And in terms of, you know, the prepaid advertising, actually, it dropped, partly due to seasonality and partly due to the BCA monetization that I've just mentioned.

And in terms of the prepared advertising, actually it dropped partly due to seasonality and partly due to the PCA monetization that just mentioned. So if you look at the different revenue, I suggest we should add the tool up to have arrived at the actual a different revenue for the whole company. In terms of the instalments, loan product, that's actually tied to consumption. So this is more like a somebody buys an item of high value, then it actually allows.

Unknown Executive: So if you look at, you know, the deferred revenue, I suggest we should, you know, add the two up to arrive at the, you know, the actual, you know, deferred revenue for the whole company. In terms of the installment loan product, that's actually tied to consumption. So this is more like a If somebody buys an item of high value, then, you know, it actually allows the user to select and pay for the item on an installment basis. And this is a product which we're pilot testing right now. And we're not in a hurry to roll it out on a broad basis.

Martin Lau: In terms of the installment loan product, that's actually tied to consumption. This is more like if somebody buys an item of high value, then you know it actually allows the user to select to pay for the item on an installment basis. This is a product which we're pilot testing right now, and we're not in a hurry to roll it out on a broad basis. This is a product which it designs alongside with some principles which we design our FinTech products. Number one, it's actually sort of you know in true confines of the regulatory authority's regulation. Number two, this is something which our users want.

the user to us like to pay for the item on an instalment basis. And this is a product which we're pilot testing right now. And we're not in a hurry to load it out on the broad basis. And this is a product which is designed.

Unknown Executive: And this is a product which is designed alongside some principles on which we design our FinTech products. Number one, it's actually in true compliance with the regulatory authority's regulations. And number two, this is something that our users want. So it is designed with a very key focus on generating user value because users when they want to buy an item, and it's a clear consumption need, and if they have the credit worthiness, then we are in a good position to give them an installment loan.

alongside with some principles, which we design our FinTech products. Number one, it's actually a few compliance of the regulatory authorities' regulation. Number two, this is something which our users want.

Martin Lau: It is designed with a very key focus on generating user value because, you know, the users when they want to buy an item and it is a clear consumption need, and if they have the creditworthiness right, you know, then we are in a good position to give them an installment loan. In some cases, the merchants actually want to see that happen as well. In terms of risk management, we are actually very focused on risk management in this product, and that is why we are pilot testing it. Once you understand all the credit performance first before we roll it out on a gradual basis. Over time, we would want to work with licensed financial institutions in terms of expanding this product.

So it is designed with the very key focus on generating user value, because it uses when they want to buy an item. And it's a clear consumption need. And if they have the credit worth in this right, you know, then we are in good positions to keep them in installments. And in some...

Unknown Executive: And in some cases, the merchants actually want to see that happen as well. And then, in terms of risk management, we're actually very focused on risk management in this product, and that's why we are pilot testing it.

cases, the merchants actually want to see that happen as well. And then in terms of risk management, we are actually very focused on risk management in this product. And that's why we are pilot testing it and wants to understand all the credit.

Unknown Executive: And once you understand all the credit, performance first before we roll it out on a graduate basis. And over time, we would want to work with licensed financial institutions in terms of expanding those products. So overall, I think this is consistent with our gradual expansion of our range of financial value-added services to our users as well as to merchants that are using our payment platform. But at the same time, we have a very strong focus on the factors that I talked about as well as self-restraint in terms of the overall scale of growth because we feel this is actually the ultimate risk control mechanism.

performance first before we wrote it out upon a graduate basis. And over time, we would want to work with licensed financial institutions in terms of expanding this product. So overall, I think this is consistent with our graduate expansion of our range of financial management.

Martin Lau: Overall, I think this is consistent with our gradual expansion of our range of financial value-added services to our users as well as to merchants that are using our payment platform. At the same time, we have very strong focus on the factors that I talked about, as well as self-restraint in terms of the overall scale growth, because we felt this is actually the ultimate risk control mechanism. If we grow this product on a gradual basis, while at the same time we accumulate a lot of experience and know-how, then the risk management will be done at a high quality way. This is how we want to manage our financial products going forward.

Unknown Executive: If we grow this product on a graduate basis while at the same time we accumulate a lot of experience and know-how, then the risk management will be done in a high quality way. And that's how we want to manage our financial products going forward.

scale growth because without this is actually the ultimate risk control mechanism. If we grow this product on a graduate basis, well at the same time we accumulate a lot of experience and to know how then the risk management will be done at the high quality rate and this is how we want to

Wendy Huang: Thank you, Alex. We will take the next question from Ronald Keung from Goldman Sachs.

Unknown Executive: Thank you, Alex. We will take the next question from Ronald Keung of Goldman Sachs.

manage our financial products going forward.

Thank you, Alex. We will take the next question from, and I'll run a call from Goomemosex.

Ronald Keung: Thank you. Hi, thank you, Pony, Martin, James, John, and Wendy. I guess the first question maybe on the macro and the advertising side. How is our view on the consumption outlook from here, now that we've passed the two quarters of reopening thus far? If we look at the ad revenue and Video Accounts kind of contribution adding, should we think of a kind of two-year CAGR growth rate? Should we see further improvement in the rest of 2023 as e-commerce and other parts of the business ramp up? A second question is just want to hear how we think about the foundation model AI landscape.

Ronald Keung: Thank you, Poni, Martin, James, John, and Wendy. First question, maybe on the macro and the advertising side. How is our view on the consumption outlook from here now that we've passed the two quarters of reopening thus far? If we look at the ad revenue and video account contribution, should we think of a two-year CAGR growth rate? Should we see further improvement in the rest of 2023 as e-commerce and other parts of the business ramp up?

Thank you, Poni, Martin, James, John , and Wendy. I guess our first question maybe on the macro and the advertising side that, how is our view on the consumption outlook from here, now that we've passed the two quarters of reopening thus far. If we look at the ad revenue and video account contribution adding

Ronald Keung: And then a second question; I just want to hear how we think about the foundation model AI landscape. If you could share some of where Tencent sees itself to be and to see kind of where will this foundation model mostly be of commercial value to our business, knowing the different regulations, many kinds of different players trying to come in, and the availability of infrastructure and chips, how do we see this business driving our future multiple drivers and the cloud growth into the second half of next year? Thank you.

Ronald Keung: If you could share some of where Tencent sees to be and to see kind of where we will kind of see this foundation model mostly be of commercial value to our business, knowing the different regulations, many kind of different players trying to come in, and the availability of infrastructure and chips, how do we see this business driving our future multiple growth drivers and the cloud growth into H2 and next year? Thank you.

If you could share some of where 10 cents C's to B and to C kind of where we'll kind of we see this foundation model mostly be off commercial value to our business knowing the different regulations. Many kind of different players trying to come in and the availability of infrastructure and chip.

James Mitchell: Ronald Keung, on the advertising question, you know, we believe China is experiencing a broad-based consumption upturn. You know, the upturn is not uniform across every category, but it's more pronounced for everyday low ticket price items, more patchy for high ticket price items. Now in terms of how that translates into our advertising revenue, we're experiencing strength basically across the board. Fast moving consumer goods, e-commerce, finance, online services, healthcare, and travel are all behaving robustly. On the weaker side, you know, there are no categories that are notably weak at this point in time. You know, there are categories such as automobiles or electronic products, where the end demand is erratic.

James Mitchell: Ronald, on the advertising question, you know, we believe China is experiencing a broad-based consumption upturn. You know, the upturn is not uniform across every category, but it's more pronounced for everyday low ticket price items, more patchy for high ticket price items. Now in terms of how that translates into our advertising revenue, we're experiencing strength basically across the board. Fast moving consumer goods, e-commerce, finance, online services, healthcare, and travel are all behaving robustly. On the weaker side, you know, there are no categories that are notably weak at this point in time. You know, there are categories such as automobiles or electronic products, where the end demand is erratic.

James Gordon Mitchell: So, Ronald, on the advertising question, we believe China is experiencing a broad-based consumption upturn. The upturn is not uniform across every category, but it's more pronounced for everyday low-ticket price items and more patchy for high-ticket price items. Now, in terms of how that translates into our advertising revenue, we're experiencing strength basically across the board, so fast-moving consumer goods, e-commerce, finance, online services, healthcare travel, all behaving robustly. On the weaker side, you know, there are no categories that are notably weak at this point in time.

experiencing a broad-based consumption upturn. The upturn is not uniform across every category, but it's more pronounced for everyday low ticket price items, more patchy for high ticket price items.

Now, in terms of how that translates into our advertising revenue, we're experiencing strength basically across the board. So fast-moving consumer goods, e-commerce, finance, online services, healthcare travel, all behaving robustly. On the weaker side, there are no categories that are notably weak at this point.

James Gordon Mitchell: And, you know, there are categories such as automobiles or electronic products where the end demand is erratic, but what we can see is that, you know, companies in those categories are still very keen to drive sales, and, you know, one of the ways they do that is by advertising on our platform. On your question about the two-year CAGR, I believe that in the first quarter, the two-year CAGR for our advertising revenue was minus 2%, so while we don't give guidance, I think the answer to your question logically should be in the affirmative. As a reminder, in the course of 2021, we began that year with, you know, our biggest advertiser category was education-related spending, which dropped very sharply during the course of the year.

James Mitchell: What we can see is that, you know, companies in those categories are still very keen to drive sales. One of the ways they do that is by advertising on our platform. On your question about the two-year CAGR, I believe that in Q1, the two-year CAGR for our advertising revenue was -2%. While we don't give guidance, I think the answer to your question logically should be in the affirmative. As a reminder, in the course of 2021, we began that year with, you know, our biggest advertiser category was education-related spending, which, you know, dropped very sharply during the course of the year. We also lost several important advertising formats, such as the full-screen ads in our ad network, during the course of the year.

James Gordon Mitchell: We also lost several important advertising formats, such as full-screen ads in our ad network during the course of the year, so the two-year comparison does become notably easier for the industry and for us as we move forward over the coming months. So I hope that's helpful on the advertising side. On the AI and foundation model side, I think you actually asked a lot of questions, and it's actually very difficult to answer one by one, but I'll try to pick on some of the key items.

James Mitchell: The two-year comparison does get notably easier for the industry, and for us, as we move forward over the coming months. I hope that's helpful on the advertising side.

Martin Lau: On the AI and foundation model side, I think you actually asked a lot of questions, and it's actually very difficult to answer one by one, but I'll try to touch on some of the key items. In terms of going forward, we do believe that number one. There's gonna be many models in the market going forward. For the large companies, I think you know each one of us will you know have a foundation model, and you know the model will be supporting our own use cases as well as offered you know to the market, both on a B2C basis as well as on a B2B basis.

Answer one by one, but I'll try to pick on some of the key items. So so in terms of

James Gordon Mitchell: So in terms of going forward, we do believe that number one, there will be many models in the market going forward for the large companies. I think each one of us will have a foundation model, and the model will support our own use cases as well as offer it to the market both on a 2C basis as well as on a 2B basis. And at the same time, there will be many startups which will be, you know, creating their own models. Some of them may be general foundation models.

Going forward, we too believe that number one,

There's going to be many models in the market going forward for the large companies. I think each one of us will have a foundation model. And the model will be supporting our own use cases as well as offered to the market, both on a 2C basis as well as on a 2B basis.

Martin Lau: At the same time, there will be many startups which will be, you know, creating their own models. Some of them may be general foundation models, some of them may be more industry and vertical models, and they will be coming with new applications. I think overall, it's gonna be a very vibrant industry from a model availability perspective. In terms of applications, I think there will be a lot of different applications. You know, overall, the user-to-machine interactions, in particular search and information generation and, you know, those type of applications would actually be more disruptive. At the same time, there will be more of a rush of applications appearing in those use cases.

And at the same time, there will be many startups, which will be creating their own models. Some of them may be general foundation models. Some of them may be more industry and vertical models. And they will be coming with new applications.

James Gordon Mitchell: Some of them may be more industry and vertical models, and they will be coming with new applications. I think, overall, it's going to be a very vibrant industry from a model availability perspective. And then in terms of applications, I think there will be a lot of different applications, overall. The user-to-machine interactions, in particular, search and information generation, and those types of things, applications would actually be more disruptive, and at the same time, there will be more of a rush of applications appearing in those use cases.

I think overall it's gonna be a vibrant industry from a model of availability perspective. And then in terms of applications, I think.

There will be a lot of different applications. The overall, the user to machine interactions in particular search and information generation and those type of applications would actually...

be more disruptive. And at the same time, there will be more of a rush of applications appearing in those use cases. So general search, vertical search, in terms of content aggregation, a lot of these kinds of...

Martin Lau: You know, general search, vertical search, in terms of content aggregation, a lot of these kind of applications will see new disruptors coming to play. In terms of the user-to-user interaction type of services like social network and short video network and games, long video content, you know, there will be you know, a lot of usages that help to increase the quality of content, the efficiency at which the content are created, as well as lowering the cost of content creation. That would be net beneficiary to these applications. Now, in terms of you asked about regulation, and we felt the government's general stance is like, you know, it's supportive of regulation, but the industry has to be regulated.

James Gordon Mitchell: So general search, vertical search, in terms of content aggregation, a lot of these kinds of applications would see new disruptors coming into play. In terms of the user-to-user interaction type of services, like social networks and the short video network, and... Games, long-lead content, you know, there will be. A lot of usages that helped to increase the quality of content, the efficiency at which the content is created, as well as the cost of content creation.

applications, we see new disruptors coming into play. In terms of the user to user interaction type of services like social network and short video networks and

games, long-leading content. There will be a lot of usage that helps to increase the quality of content, the efficiency at which the content are created, as well as lowering the cost of content creation.

James Gordon Mitchell: And that would be a net beneficiary to these applications. Now, in terms of, you asked about regulation, and we felt the government's general stance is like, you know, it's supportive of regulation, but the industry has to be regulated. And I think this is not something that's specific to China, even around the world. And if you look at the US, there's a lot of public discussion about having regulation, and even the founder of OpenAI has been testifying and asking for regulation in the industry.

And that would be net beneficiate to these applications. Now, in terms of, you asked about regulation, and without the government's generous taxes, like, you know, it's supportive of regulation, but the industry has to be regulated. And I think this is not something that's specific to China, even around the world, and he looked at the US.

Martin Lau: I think this is not something that's specific to China, even around the world. If you looked at the US, there's a lot of public discussion about having regulation. Even the founder of OpenAI has been testifying and asking for regulation in the industry. I think that is something which is necessary, but we felt under the right regulation and regulatory framework, then the government stance is supportive of innovation, and the industry will actually have room for healthy growth. Availability of chips. At this point in time, chips are largely available and there are some workarounds of GPUs that can be sold in China. I think, you know, everybody is actually trying to get supplies.

there's a lot of public discussion about having regulation and even the founder of OpenAI has been testifying and asking for regulation in the industry. So I think that is something which is necessary.

but we felt under the right regulation and regulatory framework that the government stands is supportive of innovation and the industry will actually have a room for healthy growth and that availability of chips at this point of time chips are largely available and

James Gordon Mitchell: So I think that is something that is necessary, but we felt under the right regulation and regulatory framework, then the government stands for innovation, and the industry will actually have room for healthy growth. And that availability of chips, at this point in time, chips are largely available, and there are some workarounds for GPUs that can be sold in China. And I think, you know, everybody is actually trying to get supplies.

Martin Lau: There may be short-term shortages here and there, and everybody is actually clamoring for allocation. Over time, these chips will be available and, you know, all the players who want to build foundation models will be able to get the chips to build the models.

James Gordon Mitchell: There may be short-term shortages here and there, and everybody is actually clamoring for allocation, but over time, these ships will be available, and all the players who want to build foundation models will be able to get the chips to build a model.

will be available and all the players who want to build Foundation Models will be able to get the chips to build the models.

James Mitchell: Thank you. This is super useful. Thank you, Martin and James.

Ronald Keung: Thank you. This is super useful. Thank you, Martin and James.

Unknown Executive: Thank you. This is super useful. Thank you, Marta.

Wendy Huang: Thank you. We will take the next question from Kenneth Fong from Credit Suisse.

Thank you to the super useful. Thank you, Martin and James.

Unknown Executive: Thank you. We will take the next question from Kenneth Fong from Credit Suisse.

Thank you. We'll take the next question from Kenneth Form, from Credit Suisse.

Kenneth Fong: Hi. Good evening, management. Thank you for taking my questions, and congrats on the strong results. I have two questions. The first one is regarding the gap between revenue and earnings growth. Notice that in our quarter, our earnings have outpaced top line growth meaningfully on the back of our Video Accounts monetization, operating leverage, as well as cost optimization. How should we think about this gap over the next two quarters, considering all these moving parts and drivers? My second question is related to the tax. Our effective tax rate is quite high this quarter, driven by one-off deferred tax of overseas subsidiaries. But we didn't seem to find the adjustment in the non-GAAP net profit. How should we think about this one-off impact in our adjusted net profit, if any? Thank you.

Kenneth Fong: Thank you for your questions and congratulations on the strong results. I have two questions. The first one is regarding the gap between revenue and earnings growth. Notice that in a quarter, our earnings have outpaced revenue growth.

Hi, good evening management. Thank you for taking my questions and congrats on the strong results. I have two questions. The first one is regarding the gap between revenue and earning growth. Notice that in our quarter, our earnings have outpaced top line growth meaningfully on the back of our video account monetization.

Unknown Executive: Ryan Grove meaningfully, on the back of video account monetization, operating leverage, as well as cost optimization. How should we think about this gap over the next two quarters, considering all these moving parts and drivers? and my second question is related to taxes. The effective tax rate is quite high this quarter driven by one of the third taxes of an overseas subsidiaries, but we didn't seem to find the adjustment in the non-gap net profit. So how should we think about this one-off impact on our adjusted net profit, if any? Thank you. Yeah, thank you, Kenneth.

operating leverage as well as cost optimization. How should we think about this gap over an extra quarter or this moving parts and drivers?

And my second question is related to the tax. Effective tax rate is quite high, this quarter driven by one of the third tax of a overseas subsidiaries. But we didn't seem to find the adjustment in the non-hept net profit. So how should we think about this and one of the impact in our adjusted net profit?

James Mitchell: Yeah. Thank you, Kenneth. As you observed, the gap between revenue growth and non-IFRS net income growth was unusually wide this quarter on a year-on-year basis. You know, on the other hand, if you look at the two-year CAGR, then you know, the revenue growth and the operating profit, non-IFRS operating profit growth was basically identical on a two-year CAGR. You know, what's the right message to take for looking forward? It's somewhere in between, meaning that the breadth of the gap this quarter between revenue and non-IFRS profit growth was abnormally large because of the low base for non-IFRS profit in the same quarter a year ago. You know, we do expect that gap to narrow as the base effect normalizes.

Unknown Executive: Yeah, thank you, Kenneth. As you observe, the gap between revenue growth and non-IFRS net income growth was unusually wide this quarter on a year-on-year basis. You know, on the other hand, if you look at the two-year Kega, then, you know, the revenue growth and the operating profit, non-AFRS operating profit growth, were basically identical on a two-year Kega. So, you know, what's the right thing to do?

It's quarter on a year-on-year basis. On the other hand, if you look at the two-year K-GER, then the revenue growth and the operating process, non-AFRS operating profit growth was basically identical on a two-year K-GER. So what's the right?

Unknown Executive: The message to take for looking forward, it's somewhere in between, meaning that the breadth of the gap this quarter between revenue and non-FRS profit growth was abnormally large because of the low base for non-FRS profit in the same quarter a year ago, and we do expect that gap to narrow as the base effect normalizes. On the other hand, we believe we are a structurally more cost-conscious and more efficient company going forward than we were in the past, which should be helpful for margins.

message to take for looking forward, it's somewhere in between, meaning that the breadth of the gap this quarter between revenue and non-AFRS profit growth was abnormally large because of the low base non-AFRS profit in the same quarter a year ago. And we do expect that gap to narrow as the base effect normalized.

James Mitchell: On the other hand, we believe we are a structurally more cost-conscious, more efficient company going forward than we were in the past, which should be helpful for margins. Many of our newer revenue streams, such as Video Accounts, such as monetization of the e-commerce live streaming, such as the Mini Program and mini-game revenue, is coming in at, you know, relatively high gross margins, which is a positive margin mix shift for us versus in previous years, we've been generally subject to negative margin mix shifts. Overall, I think that, you know, we can aspire to potentially grow profits in line with or faster than revenue.

Unknown Executive: And many of our newer revenue streams, such as video accounts, such as monetization of the e-commerce live streaming, such as the mini-program and mini-game revenue, are coming in at relatively high gross margins, which is a positive margin mix shift for us versus in previous years, and we've been generally subject to negative margin mix shifts. So, you know, overall, I think that we can aspire to potentially grow profits in line with or faster than revenue, but the delta between profit growth and revenue growth was unusually wide in the first quarter because of the base effect and some of the other factors that we mentioned.

live streaming such as the mini program and mini game revenue is coming in at relatively high gross margins Which is a positive margin mixed shift for us versus in previous years We've been generally subject to negative margin mixed shifts

So overall, I think that we can aspire to potentially grow profits in line with or faster than revenue. But the delta between profit growth and revenue growth was unusually wide in the first quarter because of the base effect and some of the other factors that we mentioned. Yeah the um…

James Mitchell: The delta between profit growth and revenue growth was unusually wide in Q1 because of the base effect and some of the other factors that we mentioned.

Martin Lau: Yeah, the deferred tax adjustment is not non-IFRS adjustment. We usually look at the effective tax rate on a yearly basis rather than on a quarterly basis, as there are bits and pieces of true-up happening from time to time, including, say, for instance, you know, this time there might be, you know, some withholding tax in order as we want to remit more money out of the country, as well as, you know, adjustment on some of the deferred tax in here. But to give you an overall view of the effective tax rate, we expect that on a non-IFRS basis, in the course of 2023, it will be in the range of 18% to 20%.

John Lo: Yeah, the deferred tax adjustment is not non-IFRS adjustment. We usually look at the effective tax rate on a yearly basis rather than on a quarterly basis, as there are bits and pieces of true-up happening from time to time, including, say, for instance, you know, this time there might be, you know, some withholding tax in order as we want to remit more money out of the country, as well as, you know, adjustment on some of the deferred tax in here. But to give you an overall view of the effective tax rate, we expect that on a non-IFRS basis, in the course of 2023, it will be in the range of 18% to 20%.

Unknown Executive: Yeah, the deferred tax adjustment is not a non-IVAS-as-adjustment. We usually look at the effective tax rate on a yearly basis rather than on a quarterly basis, as there are bits and pieces of true-up happening from time to time, including, say, for instance, this time there might be, you know, some withholding tax in order, as we want to remit more money out of the country, as well as on some of the deferred tax here. But to give you an overview of the effective tax rate, we expect that, on a non-IFRS basis, in the course of 2023, it will be in the range of 18 to 20%.

The first tax adjustment is not non-Iver as adjustment. We usually look at the effective tax rate on a yearly basis rather than on a quarterly basis as there are bits and pieces of true app happening from time to time, including, say, for instance, this time there might be some withholding tax in order as we want to remit more money of the country as well as adjustment on some of the

Kenneth Fong: Thank you, James and John. Very clear.

Wendy Huang: Thank you, Ken. Next question will be from Ashley Pau from-

Unknown Executive: If you can, the next question will be from Ashmi Paul from All right, thank you, Wendy, and also Matt.

Ashley Pau: Hi. Thank you, Wendy, and also managers for the opportunity to ask questions. Also congrats on the solid results. I do have a follow-up question on generative AI. I think in the previous question, you very helpfully explained the use cases and also monetization strategy. Just to follow up, in March, the media reported that we may have already started developing the Hunyuan 8. Can you just share more updates on the potential product launch? The first follow-up will be in relation to the training data of Hunyuan. Does that encapsulate open internet data? What's the impact on interoperability and also digital walled gardens? Thank you.

[Analyst]: Hi. Thank you, Wendy, and also managers for the opportunity to ask questions. Also congrats on the solid results. I do have a follow-up question on generative AI. I think in the previous question, you very helpfully explained the use cases and also monetization strategy. Just to follow up, in March, the media reported that we may have already started developing the Hunyuan 8. Can you just share more updates on the potential product launch? The first follow-up will be in relation to the training data of Hunyuan. Does that encapsulate open internet data? What's the impact on interoperability and also digital walled gardens? Thank you.

Question will be from Esme Paul from. Thank you, Wendy, and also my answer to the opportunity to ask questions and also congrats on the solar results. So I do have a follow-up question on GERD-SAP AI. So I think in the previous question, you're very helpful.

Unknown Executive: for the opportunity to ask questions, and also congrats on the solar results. So I do have a follow-up question on generative AI, so I've

Unknown Executive: I think in the previous question, you very helpfully explained the use cases and also the monetization strategy. So just to follow up, in March, the media reported that we may have already started developing the 108.

Unknown Executive: I'm happy to hear more updates on the potential product launch, and the first form will be in relation to the training data of Hanyuan.

Unknown Executive: Does that encapsulate open internet data, and also what's the impact on the internet?

The free short folder will be in relation to the training data of Ponyuan. The stat and capillary open into the data and also with the impact on interoperability and also digital world gardens.

Unknown Executive: So what's the impact on interoperability and also digital walled gardens? Thank you.

Martin Lau: Okay, in terms of our foundation model building exercise, Hunyuan and, you know, the I think the headline is that we're making good progress. If you look into the different components, right? The model building is actually progressing well. I think you mentioned about data, and data collection is basically across the entire internet, and you know, with specific addition of the data in China. In terms of data in China, it's on high quality public data, as well as high quality public data within our content ecosystem. As you know, we have actually a lot of contents that are in-house and that is a quite unique addition to the overall data.

Thank you. Okay.

Unknown Executive: Okay. So in terms of our foundation model building exercise, when you end and the, I think the headline is that we're making good progress. And if you look into the different components, right, so the model building is actually progressing well. I think you mentioned data and data collection is basically across the entire internet. And, you know, with specific addition of data in China, and in terms of data in China, it's on high-quality public data, as well as high-quality public data within our content ecosystem.

So in terms of our foundation model building exercise, when you end and the...

I think that the headline is that we're making good progress. And if you look into the different components, right? So the model building is actually progressing well. I think you mentioned about data and data collection is basically across the entire internet. And with this.

specific addition of the data in China and in terms of data in China, it's on high quality public data as well as high quality public data within our content ecosystem as you know, we have actually a lot of

Unknown Executive: As you know, we have actually a lot of content that is in-house, and that is a quite unique addition to the overall data. In terms of training, we are scaling up our training organization and the entire production line for training. In terms of infrastructure, it's a core strength for us, given our cloud business. And we have also recently, as Poni mentioned, announced our high-performance computing cluster based on NVIDIA H800 GPUs. And so that would actually give us additional efficiency in terms of training.

contents that are in-holt and that is quite unique addition to the overall data. In terms of the training, we are scaling up our training organization and the entire production line of training. And in terms of infrastructure, it's a core strength for us, given our cloud business.

Martin Lau: In terms of the training, we are scaling up our training organization and the entire production line of training. In terms of infrastructure, it's a core strength for us given our cloud business. We have also recently, as Pony mentioned, announced our high-performance computing cluster based on NVIDIA H800 GPUs. That would actually give us an additional efficiency in terms of the training. I think one key strength for us is obviously the use cases, right? You know, we have different products. Teams are already you know planning some interesting offerings alongside with their products.

And we have also recently, as Pony mentioned, announced our high performance computing cluster based on MVDH800GPUs. And so that would actually give us an additional efficiency in terms of the training. And I think one key strength for us is obviously the use cases right now we have different products.

Unknown Executive: And I think one key strength for us is obviously the use cases, right? You know, we have different products, teams already planning some interesting offerings alongside with their products. So overall, I think, you know, it's actually making good progress, and we continue to believe that AI is a growth multiplier for the industry, and in particular for Tencent, because, as we mentioned last time, our core user-to-user services is not subject to disruption, but it can benefit greatly from being enhanced by foundation models, because it can actually help these services to generate content, appealing content, on large scale at the low cost, and all these are helpful to improve the quality of the service, improve monetization, and also lower the cost.

Teams are already planning some interesting offerings alongside with their products.

Martin Lau: Overall, I think, you know, it's actually making good progress, and we continue to believe that AI is a growth multiplier for the industry and in particular for Tencent, because as we mentioned last time, our core user-to-user services is not subject to disruption, but it can benefit greatly from being enhanced by foundation models, because it can actually help these services to generate content, appealing content on large scale at a low cost. All these are helpful to improve the quality of the service, improve monetization, and also lower the costs. Foundation models also facilitates our introduction of user to machine services.

So, overall, it's actually making good progress, and we continue to believe that AI is a growth multiply for the industry and in particular for 10 cents, because as we mentioned last time, our core user to user services.

is not subject to disruption, but can benefit greatly from being enhanced by foundation models, because it can actually help these services to generate content, appealing content on large scale at the low cost. And all these are helpful to improve.

Unknown Executive: And then foundation models also facilitate our introduction of user-to-machine services. For example, it provides a new angle for us to provide search, both within WeChat and on our browsers, as well as if you look forward a bit longer, you know, there could be interesting digital assistance that could be launched in our services. And of course, the cloud is actually very important as well because we felt that the foundation model, over time, can actually provide very compelling services on the cloud for our enterprise clients and also enable our path in SaaS to be more competitive.

the quality of the service, improve monetization, and also lower the cost. And then, Foundation Models also facilitates our introduction of user machine services. For example, it provides a new angle for us to provide to our search, both within Waysian and on our browsers.

Martin Lau: For example, it provides a new angle for us to provide to our search, both within Weixin and on our browsers, as well as, if you look forward, a bit longer, right, you know, there could be interesting digital assistants that could be launched in our services. Of course, cloud is actually very important as well, you know, because we felt that the foundation model over time can actually provide very compelling services on the cloud for our enterprise clients, and also enable our PaaS and SaaS to be more competitive.

as well as if you look forward a bit longer, right, you know, there could be interesting digital assistance that could be launched in our services. And of course, cloud is actually very important as well, you know, because without the function of the patient model over time, can actually provide very compelling services on the cloud for our enterprise clients and also

Ronald Keung: All right, sure. Thanks. That's helpful.

[Analyst]: All right, sure. Thanks. That's helpful.

enable our pass and sass to be more competitive. All right, Chef, thanks. That's helpful. Thank you. You're asking when comes from the impactors of the EMT?

Martin Lau: Thank you.

James Mitchell: Thank you, Ashley. Next question comes from Charlene Peiker from BNP.

Wendy Huang: Thank you, Ashley. Next question comes from William Packer from BNP.

Unknown Executive: All right, sure. Thanks. That's helpful. Thank you. U.S. Navy. This question comes from William Packer.

William Henry Packer: comes from William Packer's father, B.M.

Charlene Peiker: Hi, management. Many thanks for taking my questions. Firstly, last quarter you provided a helpful update on developments around the domestic regulatory backdrop. Specifically, could you update us on recent news flow around domestic gaming, short form video, and Fintech? As a follow-up, domestic gaming momentum improved markedly in the quarter. With comps easing over the course of the year and new content coming to the market, could we expect growth to accelerate and potentially to return to double digits for that business line? Thank you.

William Packer: Hi, management. Many thanks for taking my questions. Firstly, last quarter you provided a helpful update on developments around the domestic regulatory backdrop. Specifically, could you update us on recent news flow around domestic gaming, short form video, and Fintech? As a follow-up, domestic gaming momentum improved markedly in the quarter. With comps easing over the course of the year and new content coming to the market, could we expect growth to accelerate and potentially to return to double digits for that business line? Thank you.

Unknown Executive: Hi manager, many thanks for taking my questions. Firstly, last quarter you provided a helpful update on developments in the domestic regulatory context. Specifically, could you update us on recent news flow around domestic gaming, short form video, and fintech? And as a follow-up, domestic gaming momentum improved markedly in the quarter, with comps easing over the course of the year and new content coming to the market. Could we expect growth to accelerate and potentially return to double digits for that business line?

And our high management money fence is taking my questions. Firstly, last call to you provided a helpful update on develops around the domestic regulatory backdrop. Specifically, can you update us on recent news flow around domestic gaming, short form video and FinTech?

And as a follow up, the domestic gaming momentum improved markedly in the quarter with comps easing over the course of the year and new content coming to the market. Could we expect growth to accelerate and potentially return to double digits for that business line? Thank you.

follow up domestic gaming momentum improved markedly in the quarter with comps easing over the course of the year and new content coming to the market. Could we expect growth to accelerate and potentially to return to double digits for that business line? Thank you. .

Martin Lau: Okay. In terms of the regulatory environment, I think on the overall basis, regulatory environment continues to trend towards normalized regulation. The government is actually very focused on economic development as well as supporting a healthy development of the digital economy and industry. The latest news bite is on 28 April. President Xi chaired a meeting of the Politburo and he called for promoting regulated healthy development of platform companies and encouraging innovation of leading platform companies. I think this is very significant continuation of the expression of support for the overall industry. In terms of the different industries that you talk about, right?

Unknown Executive: In terms of the regulatory environment, I think, on the overall basis, the regulatory environment continues to trend towards normalized regulation, and the government is actually very focused on economic development, as well as supporting healthy development of the digital economy and industry. The latest news fight is that on April 28, President Xi chaired a meeting of the Politburo, and he called for promoting regulated healthy development of platform companies and encouraging innovation of leading platform companies. I think this is a very significant continuation of the expression of support for the overall industry. And in terms of the different industries that you talk about, right?

In terms of the regulatory environment, I think, on the overall basis, regulatory environment continues to trend toward normalized regulation, and the government's actually very focused on economic development, as well as supporting healthy development of the digital economy and industry.

Some knew that the latest news bite is on April 28th, President Xi tried a meeting on the polyburel, and he called for a promoting regulated, healthy development of platform companies and encouraging innovation of leading.

Unknown Executive: In terms of domestic gaming, I would say it continues a state status of normalized regulation, and game licenses have been approved on a regular basis. And that's part of the reason why we're seeing pretty good traction in the overall gaming industry in China. In terms of short form video, I think, you know, there has not been much update, and, you know, it's not a focus of regulatory action so far.

Martin Lau: In terms of domestic gaming, I would say it continues a steady state of normalized regulation, and game licenses have been approved on a regular basis, and that's part of the reason why we're seeing pretty good traction on the overall gaming industry in China. In terms of short form video, I think, you know, there has not been much update and, you know, it's not a focus of a regulatory action so far. In terms of Fintech, I would say the industry is starting to move into the process of normalization of regulation. If you look at the entire history, right?

In terms of domestic gaming, I would say it continues a state status of normalized regulation and game licenses have been approved on a regular basis. And that's part of the reason why we're seeing a pretty good traction on the overall gaming industry in China. In terms of short video, I think there has not been much updated.

Unknown Executive: In terms of FinTech, I would say the industry is starting to move into the process of normalization of regulation. And if you look at the entire history, right, you know, in the year of 2021, the PBOC started requiring self-review of fintech services by platform companies for the entire industry. And it also conducted a routine inspection of Tempe, which was widely reported.

Martin Lau: You know, in the year 2021, the PBOC started requiring self-review of Fintech services by platform companies for the entire industry, and it also conducted a routine inspection on Tenpay, which was widely reported. Through that process, we have been fully cooperative, and we have proactively adjust our operations accordingly, according to the requirement of PBOC. I think the inspection now is approaching conclusion. The inspection results are in the process of being finalized. When such results are concluded and released, then we believe we would then see the regulators will be focused on normalized regulation, and they will also devote more resources in supporting the development and innovation in the overall industry.

And if you look at the entire history, right, in the year of 2021, the PPOC started requiring self-review of Fintech services by platform companies for the entire industry. And it also conducted a routine inspection on Tempe, which is widely reported.

Unknown Executive: Through that process, we have been fully cooperative, and we have proactively adjusted our operations accordingly, according to the requirements of BBOC. So I think the inspection is now approaching, and Conclusion. The inspection results are in the process of being finalized.

according to the requirement of the BLC. So I think the inspection now is approaching and conclusion. The inspection results are in the process of being finalized. When such results are concluded and released.

James Gordon Mitchell: When such results are concluded and released, then we believe we will then see the regulators focused on normalized regulation, and they will also devote more resources to supporting the development and innovation in the overall industry. So that's the regulatory update, both on a macro basis and with respect to the different industries. And, well, on games, I recognize your question was primarily about the domestic Chinese game business. But if you take a step back, then, you know, our global game revenue grew at a low double-digit rate year on year in the quarter, which was gratifying.

Then with the leaf, we would then see the regulators will be focused on normalized regulation and they will also devote more resources in supporting the development and innovation in the overall industry. So that's the regulatory update both on the macro basis and with respect to the different industries.

Martin Lau: That's the regulatory update, both on a macro basis and with respect to the different industries.

James Mitchell: When on games, I recognize your question was primarily around the domestic China game business, but if you take a step back then, you know, our global game revenue grew at a low double digit rate year on year in the quarter, which was gratifying. We believe that the industry globally has now worked through, you know, some transitional challenges, including a sort of post-COVID hangover in the West, including the lack of new game licenses in China. You know, as a result, the industry can revert closer to its historic high single digit growth rate, CAGR. You know, whether we outperform or underperform the overall industry will be largely a function of the quality of the content we can bring to bear.

James Mitchell: When on games, I recognize your question was primarily around the domestic China game business, but if you take a step back then, you know, our global game revenue grew at a low double digit rate year-on-year in the quarter, which was gratifying. We believe that the industry globally has now worked through, you know, some transitional challenges, including a sort of post-COVID hangover in the West, including the lack of new game licenses in China. You know, as a result, the industry can revert closer to its historic high single digit growth rate, CAGR. You know, whether we outperform or underperform the overall industry will be largely a function of the quality of the content we can bring to bear.

James Gordon Mitchell: And we believe that the industry globally has now worked through, you know, some transitional challenges, including a sort of post-COVID hangar in the West, including the lack of new game licenses in China. And, you know, as a result, the industry can revert closer to its historic high single-digit growth rate, Tager. And, you know, whether we outperform or underperform the overall industry will be largely a function of the quality of the content we can bring to bear.

We believe that the industry globally has now worked through some transitional challenges, including the post-COVID hangover in the west, including the lack of new game licenses in China. As a result, the industry can revert closer to its historic high single-digit growth rate.

James Mitchell: Generally speaking, over time, we have been able to outgrow, you know, this global game industry growth rate of high single digits through a combination of operating some of the biggest, best, most evergreen games that I talked about earlier, as well as housing some of the most successful and creative studios in the game industry, as well as operating high-growth game platforms such as our emerging mini-game platform. You know, for all those reasons, you know, we think that there's everything to play for and that the industry is back on a growth track globally. You know, we should work towards growing with or faster than the industry globally. Thank you.

James Gordon Mitchell: But generally speaking, over time, we have been able to outgrow, you know, this global game industry growth rate of high single digits through a combination of operating some of the biggest, best, most evergreen games that I talked about earlier, as well as housing some of the most successful and creative studios in the game industry, as well as operating high-growth game platforms, such as our emerging mini-game platforms. So, you know, for all those reasons, we think that there's everything to play for and that the industry is back on a growth track globally, and we should work towards growing with or faster than the industry globally. Thank you.

So, you know, for all those reasons, you know, we think that there's everything to play for and that the industry is back on a growth track globally. And, you know, we should work towards growing with or faster than the industry globally. Thank you. Thank you. We're going to take the next question from Shalinglil from HSBC. Thank you. Thank you for taking my question. I would like to ask about overseas M&A, clearly with seemed really strong numbers in the international game, setman, Q1. I'd like to get an update from the management on M&A strategy for this setman and, you know, your view on competitive landscape.

William Packer: Thank you.

Wendy Huang: Thank you. We will take the next question from Charlene Liu from HSBC.

Unknown Executive: Thank you. We're going to take the next question from Shelling Liu from HSBC.

Charlene Liu: Thank you. Thank you for taking my question. I would like to ask about overseas M&A. Clearly, we've seen really strong numbers in the international game segment in Q1. I would like to get an update from the management on M&A strategy for this segment and, you know, your view on competitive landscape, especially after some of the M&A activities from our competitors. How should we think about growth for the rest of the year? I have one follow-up on advertising. Thank you.

Charlene Liu: Thank you. Thank you for taking my question.

Unknown Executive: I would like to ask about overseas M&A. Clearly, we've seen really strong numbers in the international game segment in Q1. I'd like to get an update from management on the M&A strategy for this segment and, you know, your view on the competitive landscape, especially after some of the M&A activities from our competitors, and what we should think about growth for the rest of the year. I have one follow-up on advertising. Thank you.

especially after some of the M&A activities from our competitors. And what should we think about growth at the rest of the year? I've wanted to follow up on advertising. Thank you. Thank you for the question, Shiley. The competitive landscape for...

after some of the M&A activities from our competitors. And how should we think about growth at the rest of the year? I've one follow up on advertising. Thank you. So thank you for the question, Charlene. The competitive landscape for acquisitions of...

James Mitchell: Thank you for the question, Charlene. The competitive landscape for acquisitions of game companies outside China has been fairly stable for the past few years. You know, while there are a number of companies that are acquisitive in this space, often their objectives do not overlap with our objectives. Meaning they may be companies with a big console installed base, and they're trying to, you know, acquire game studios to supercharge that console installed base. Or there may be companies which, you know, valued on near-term earnings, and they're trying to, you know, bolt on additional earnings. Versus in our case, we're not married to any single hardware device.

Unknown Executive: So thank you for the question, Charlene. The competitive landscape for acquisitions of game companies outside China has been fairly stable for the past few years. And while there are a number of companies that are acquisitive in this space, often their objectives do not overlap with our objectives, meaning they may be companies with a big console installed base and they're trying to acquire game studios to supercharge that console installed base, or there may be companies which are valued on near-term earnings, and they're trying to bolt on additional earnings, versus in our case, we're not married to any single hardware device, and so we've been acquisitive with mobile game studios, acquisitive with PC game studios, periodically active with console game studios as well.

Game companies outside China has been fairly stable for the past few years. And while there are a number of companies that are acquisitive in the space, often their objectives do not overlap with our objectives, meaning they may be companies with a big console installed base and they're trying to acquire game studios, to hire cheap players.

Supercharge that console installed base or there may be companies which are valued on near-term earnings and they're trying to be in a bolt-on additional earnings. Versus in our case, we're not married to any single hardware device.

James Mitchell: You know, we've been acquisitive with mobile game studios, acquisitive with PC game studios, periodically active with, you know, console game studios as well. In addition, we're very willing to, you know, look forward 3 or 5 or 7 years when we do these investments and acquisitions. It's often the case that, you know, we're looking at a company that has released a successful niche game the previous year. You know, we know for a certainty that that company's revenue will be declining for the next couple of years because it will be digesting the success of the first game.

Unknown Executive: And in addition, we're very willing to look forward three or five or seven years when we do these investments and acquisitions. And so it's often the case that we're looking at a company that has released a successful niche game the previous year, and we know for a certainty that that company's revenue will be declining for the next couple of years, because it will be digesting the success of the first game, and in many cases, we know the company will be loss-making for a period of time, because we're scaling up the team to work on a much bigger sequel, but we don't get to have the bigger revenue from the bigger sequel.

James Mitchell: In many cases, we know the company will be loss-making for a period of time, because we're scaling up the team to work on a much bigger sequel, but we don't yet have, you know, the bigger revenue from the bigger sequel. You know, that fits us. It doesn't fit everyone. You know, therefore, you know, there are certain studios that naturally come to us and certain studios that naturally go elsewhere, which is fine. I wouldn't say that we've seen, you know, a dramatic change in the game industry acquisitive landscape so far.

years because it will be digesting the success of the first game and in many cases we know the company will be lost making for a period of time because we're scaling up the team to work on a much bigger sequel but we don't get to have the bigger revenue from the bigger sequel and you know that fits us it doesn't fit everyone.

Unknown Executive: And that fits us; it doesn't fit everyone, and therefore, there are certain [inaudible] depending on whether certain big deals, one particular very big deal, go through or not, then, you know, we could see more change in the future, and, you know, we'll need to be active and reactive around that.

and therefore there are certain studios that naturally come to us in certain studios that naturally go elsewhere, which is fine. So I wouldn't say that we've seen a dramatic change in the game industry, a positive landscape so far. Now of course.

James Mitchell: Now, of course, you know, depending on whether certain big deals, one particular very big deal goes through or not, then, you know, we could see more change in the future and, you know, we'll need to be active and reactive around that.

depending on whether certain big deals, one particular very big deal goes through or not, then we could see more change in the future and we'll need to be active and reactive around that.

Charlene Liu: That's good. That's good to know. My second question on advertising, earlier, you know, management, you mentioned that Weixin contributed over half of the total ad revenue. Can the management elaborate on revenue contribution by app products? For example, in the previous quarter, in Q1, across Moments, Video Accounts, you know, ad network, et cetera. Going forward, how should we think about revenue mix across these products and GPM trend? Thank you.

Unknown Executive: That's good. It's good to know.

That's good, that's good to know. And my second question on advertising earlier, you know, management he mentioned that WACING contributed over half of the total ad revenue. Can the management elaborate on revenue contribution by app products?

Unknown Executive: And my second question on advertising. Earlier, you know, the management team mentioned that Weixin contributed over half of the total ad revenue. Can the management elaborate on revenue contribution by ad products, for example, in the previous quarter, in the first quarter, across moments, video accounts, you know, at network, etc. And going forward, how should we think about revenue mix across these products and GPM trends?

Unknown Executive: Thank you.

For example, in the previous quarter, in the first quarter, across Millman's video accounts, ad network, et cetera. And going forward, how should we think about revenue mix across these products and GPM trend? Thank you.

James Mitchell: Well, in terms of the revenue composition, we won't be super specific, but you know, Weixin, as we said, is the majority within that. Moments is historically the largest contributor. The Mini Programs and Official Accounts are substantially smaller and roughly similar to each other. Video Accounts have sort of leapfrogged over Mini Programs and Official Accounts because there's a lot of inventory in Video Accounts, and there's some very high revenue per thousand impressions in Video Accounts. You know, outside Weixin, the biggest set of properties is the mobile ad network, which has had quite a pronounced bounce back in the last six to nine months. You know, beyond that, there's a drop-off to, you know, the long-form video, you know, music, news, and some smaller properties around QQ and Qzone. That's the composition.

Unknown Executive: Well, in terms of the revenue position, we won't be super specific, but, you know, Weixin, as we said, is the majority within that. Moments is historically the largest contributor. You know, mini programs and official accounts are substantially smaller and roughly similar to each other, and video accounts have sort of leapfrogged over mini programs and official accounts because there's a lot of inventory in video accounts, and there's a very high revenue per thousand impressions in video accounts.

Well, in terms of the revenue composition, we won't be super specific but Weixin as we said is the majority within that moment is historically the largest contributor. Many programs and official accounts are substantially smaller and roughly similar to each other and video accounts have leapfrogged over.

Unknown Executive: You know, outside Weixin, then the biggest set of properties is the mobile ad network, which has had quite a pronounced bounce back in the last six to nine months. And then, you know, beyond that, there's a drop off to, you know, the long form video, you know, music, news, and some smaller properties around QQ and QZone. So that's the composition. In terms of the margin profile, then basically all of the owned and operated properties, with the exception of long form video, have a high gross margin versus long form video, and the ad network is inherently much lower gross margin.

mini-programs and efficient accounts because there's a lot of infantry and video accounts and there's a very high revenue per thousand impressions in video accounts. Outside Wayshin, then the biggest set of properties is the mobile ad network, which has had quite a pronounced bounce back in the last six to nine months.

And then beyond that, there's a drop off to the long form video, music, news, and some smaller properties around QQ and QZone. So that's the composition. In terms of the margin profile, then...

James Mitchell: In terms of the margin profile, basically all of the owned and operated properties, with the exception of long-form video, are high gross margin, versus long-form video and the ad network, are inherently much lower gross margin.

Basically, all of the owns and operated properties with the exception of long form video, a high gross margin versus long form video and the ad network are inherently much lower gross margin. Thank you. Thank you.

Charlene Liu: Understood. Thank you.

Wendy Huang: Thank you, Charlene. Next we will take a question from John Choi from Daiwa.

Unknown Executive: Thank you. Thank you, Charlene. Next.

John Choi: Okay. Thank you for taking my question. I have a question on, you know, on follow-up on the gaming side. I think if you look at domestic games, you know, this quarter we've seen a very strong game revenue due to existing, you know, I think James mentioned Evergreen. As we go into the Q2, H2, we do have a much more gaming new game launches for domestic markets. So I mean, can you kind of elaborate the growth trends in terms of the revenue or growth as we head into the H2? Should we be seeing a accelerating growth, you know, as from, on back of that? And then just a quick, you know, some housekeeping question.

Unknown Executive: Okay, um, thank you for taking my question. Um, I have a question on, you know,

Okay, thank you for taking my question. I have a question on, you know, going follow up on the game side. I think if you look at domestic game, you know, this quarter we've seen a very strong game ready due to existing, you know, I think James mentioned everything, but as we go into the second quarter, second half, we do have been much more gaming, new game launches for the next market. So, I mean, can you kind of elaborate the growth trends in terms of the revenue or growth thing as we head into the second half, should we be seeing a accelerating growth, you know, from back of that. And then just a quick, you know, some housekeeping question. This quarter, I think we noticed a very strong operating cash flow, more than 60 billion, but also the invested outflow cash flow was 65 billion. So any color there, thank you.

Unknown Executive: Some housekeeping questions. This quarter, I think we noticed a very strong operating cash flow, more than $60 billion, but also an investing outflow cash flow of $65 billion.

John Choi: This quarter, I think we noticed very strong operating cash flow of more than CNY 60 billion, but also the investing outflow cash flow was CNY 65 billion. Any color there? Thank you.

John Choi: This quarter, I think we noticed very strong operating cash flow of more than RMB 60 billion, but also the investing outflow cash flow was RMB 65 billion. Any color there? Thank you.

Unknown Executive: So any color you like there. Thank you.

James Mitchell: On games, I'm not necessarily going to answer your question because we don't provide guidance as to whether revenue lines are accelerating or decelerating beyond observing. First, the strength in Q1 was partly due to what I referred to as Evergreen games. We also saw very good growth from a number of games released in the last 1 to 2 years. It's often the pattern with us that when in the quarter we release a game, it generates relatively little monetization. Of course, that monetization doesn't translate into our P&L because of our deferral policy. Then over subsequent quarters, if it's a good game, we see the monetization improving. We see the revenue, the deferral starting to flow through into reported revenue.

Unknown Executive: So on games, I'm not necessarily going to answer your question, because we don't provide guidance as to whether revenue lines are accelerating or decelerating beyond watching, but firstly, you know, the strength in the first quarter was partly due to what I refer to as evergreen games, but we also saw very good growth from a number of games released in the last one to two years. And it's often the pattern with us that when we release a game in a quarter, it generates relatively little monetization. And, of course, that monetization doesn't translate into our P&L because of our deferral policy.

So on games, I'm not necessarily going to answer your question because we don't provide guidance as to whether revenue lines are accelerating or de-start aerating beyond it's serving. But firstly, the strength in the first quarter was partly due to what I referred to as evergreen games. But we also saw a very good growth from

a number of games released in the last once to years. And it's often the pattern with us, the quarter we release a game it generates relatively little monetization and of course that monetization, substance translation to our PNL because of our deferral policy. But then over subsequent quarters, if it's a good game, we see the monetization improving.

Unknown Executive: But then, over subsequent quarters, if it's a good game, we see the monetization improving, we see the revenue, and the deferral starting to flow through into reported revenue. And if it's a really good game, we see the daily active user count increasing. And so recently, a number of games have fit that profile, including Arena Breakout, which is the leading Distraction Shooter game in China, where we've seen, you know, good growth in BAU and in monetization as, you know, players become familiar with this new type of game that didn't exist before.

James Mitchell: If it's a really good game, we see the daily active user count increasing. Recently, a number of games have fit that profile, including the Arena Breakout, which is the leading extraction shooter game in China, where we've seen, you know, good growth in DAU and in monetization as, you know, players become familiar with this new type of game that didn't exist before. We've seen very good growth in terms of both users and monetization from the auto chess game, Golden Spatula, that has over 10 million daily active users, which is, you know, rare for a new game in China. You know, very rare for a game to build to that level over the course of two years, as opposed to it gets that level very quickly and then fade away.

extraction shooter game in China where we've seen good growth in DAU and in monetization as players become familiar with this new type of game that didn't exist before. We've seen very good growth in terms of both uses of monetization from the auto chess game Golden Spatula that has over 10 million daily active users which is rare for a new game in China and very rare for a game to build to that level over the course of two years as opposed to it gets to that level very quickly and then fade away. And also quite good trends in the first quarter for our League of Legends Wild Rift mobile game. Now obviously looking through the rest of this year we have a number of games that we intend to release domestically that we're excited about.

Unknown Executive: We've seen very good growth in terms of both uses of monetization from the auto chess game Golden Spatula, which has over 10 million daily active users, which is, you know, rare for a new game in China and, you know, very rare for a game to build to that level over the course of two years as opposed to it getting to that level very quickly and then fade away. And also quite good trends in the first quarter for our League of Legends Wild Rift mobile game.

James Mitchell: Quite good trends in Q1 for our League of Legends: Wild Rift mobile game. Now obviously, looking through the rest of this year, we have a number of big games that we intend to release domestically that we're excited about. Again, you know, with some of those games, they'll monetize well from day one, with others they'll, you know, monetize more gradually over time. Thank you.

Unknown Executive: Now, obviously, looking through the rest of this year, we have a number of big games that we intend to release domestically that we're excited about. But again, with some of those games, they'll monetize well from day one; with others, they'll monetize more gradually over time. Thank you.

but again, with some of those games, they'll monetize well from day one with others they'll monetize small gradually over time. Thank you. In respect of the net cash flow using investing activities of 65% then actually is a little bit tricky because you should increase some items, which is pretty normal in nature. See for instance, you know, oh, of that.

John Lo: In respect of the net cash flow from investing activities of RMB 65 billion, actually is a little bit tricky because it usually includes some items which is pretty normal in nature. Say, for instance, you know, out of that, RMB 65 billion, RMB 50 billion is related to net fixed term deposit placement. Other than that, you know, items just like CapEx, media content, and M&A, and each of those items are maybe around, you know, 4 to 4 point something billion RMB each.

Unknown Executive: In respect of the national cash flow using investing activities of 65 billion, it actually is a little bit tricky because it usually increases some items, which are pretty normal in nature. Say, for instance, you know, out of that 65 billion, 50 billion is related to net fixed term deposit placement. And other than that, you know, items just like cat boxes, media content, and M&A, and each of those items is maybe around, you know, 4.4 to 4. something billion RMB each.

65, then 50 billion is related to Netflix term deported placement. And other than that, you know, items just by cat packs, media content and M&A and each of those items are maybe around, you know, four point four to four point something billion, a remin big each. Thank you.

Unknown Executive: Biden, Renminbi, and Peach.

Wendy Huang: Yes. We will take the questions on Jerry Liu from UBS.

Unknown Executive: We will take questions on Jerry Liu from UBS.

Next we will take the question from Jerry Liu from UBS. Hey, thanks management. I wanted to go back to the advertising business and ask about e-commerce. So first, e-commerce as a category has been an area of strengths. So I just wanted to.

Jerry Liu: Hey, thanks management. Yeah. I wanted to go back to the advertising business and ask about e-commerce. First, you know, e-commerce as a category has been an area of strength. I just wanted to ask whether we think some of this is share gains Tencent's taking in the ad industry from other players. Second of all, how do we think about the development of e-commerce, especially within Video Accounts? I remember previously we talked about how this is something that could take some time to ramp up. I'm also seeing that in Q1 we started to generate more technology fees from e-commerce live streaming in Video Accounts.

Unknown Executive: Hey, thanks management. Yeah, I wanted to go back to the advertising business and ask about e-commerce. So first, you know, e-commerce as a category has been an area of strength. So I just wanted to ask whether we think some of this is share gains 10 cents taking in the ad industry from other players. And second of all, how do we think about the development of e-commerce, especially within video accounts? I remember previously that we talked about how this is something that could take some time to ramp up.

ask whether we think some of this is share gains, 10 cents taping in the industry from other players. And second of all, how do we think about the development of e-commerce, especially within video accounts? I remember previously we talked about how this is something that could take some time to ramp up, but I'm also...

Unknown Executive: But I'm also seeing that in the first quarter, we started to generate more technology fees from e-commerce live streaming on video accounts. So I'm wondering if we could see more monetization related to e-commerce here. Thank you.

seeing that in the first quarter we started to generate more technology fees from e-commerce live streaming in video accounts. So I'm wondering if we could see more ramp up of e-commerce related monetization here. Thank you. Yeah, so in terms of the big e-commerce companies advertising with Tencent, we're certainly experiencing shared gains.

Jerry Liu: I'm wondering if we could see more ramp up of e-commerce related monetization here. Thank you.

James Mitchell: Yeah. In terms of the big e-commerce companies advertising with Tencent, then, you know, we're certainly experiencing share gains. I think that those share gains arise for a number of reasons. One is, you know, changing perceptions about sort of ecosystem competition. Meaning in the past, there were some companies that chose not to advertise with us because they viewed us as a ecosystem rival. You know, they may have reassessed that perspective over time. Secondly, we're deploying much more sophisticated machine learning now to our advertising targeting, that is particularly beneficial for your big e-commerce companies with a gigantic range of SKUs. Because, you know, now we can ingest those SKUs and then display the right SKU to the right user within the e-commerce company's advertisements.

Unknown Executive: Yeah, so in terms of the big e-commerce companies advertising with Tencent, we're certainly experiencing share gains. I think that those share gains arise for a number of reasons. One is changing perceptions about ecosystem competition, meaning in the past, there were some companies that chose not to advertise with us because they viewed us as an ecosystem rival, and they may have reassessed that perspective over time. And then secondly, we're deploying much more sophisticated machine learning now in our advertising targeting, which is particularly beneficial for big e-commerce companies with a gigantic range of SKUs because now we can ingest those SKUs and then display the right SKU to the right user within the e-commerce companies' advertisements.

I think that those share gains arise for a number of reasons. One is changing perceptions about ecosystem competition, meaning in the past there were some companies that chose not to advertise with us because they viewed us as an ecosystem rival and and see that they may have reassessed in that perspective over time.

And then secondly, we're deploying much more sophisticated machine learning now to our advertising targeting that is particularly beneficial for big e-commerce companies with a gigantic range of SKUs because you know now we can ingest those SKUs and then display the right SKU.

James Mitchell: That's on the e-commerce companies advertising with us.

Unknown Executive: So that's on the e-commerce companies' advertising with us. So, in terms of e-commerce in relation to live streaming and video accounts. We felt there's actually a very big opportunity, and part of it is already proven by the other short video companies. When you have a short video, it can actually lead to live streaming, and live streaming can lead to e-commerce transactions. But in addition to that, we felt we could have some unique value-added components that we can provide to the merchants because we have a private domain. We also have mini-programs which can actually allow us to connect with the video accounts.

to the right user within the e-commerce companies advertisements. So that's on the e-commerce companies advertising with us. In terms of e-commerce in relation to live streaming and video accounts, we have a lot

John Lo: In terms of e-commerce in relation to live streaming and Video Accounts, we felt there's actually a very big opportunity

Martin Lau: In terms of e-commerce in relation to live streaming and Video Accounts, we felt there's actually a very big opportunity

Martin Lau: Part of it is already proven in the other short video companies. When you have short video, you can actually lead to live streaming, and live streaming can lead to e-commerce transactions. But in addition to that, right, you know, we felt that we can have some unique value-added component that we can provide to the merchants because we have a private domain. We also have Mini Programs which can actually allow us to connect with the Video Accounts. As you know, there's actually a very big transaction ecosystem that's already happening on Mini Programs. If we can actually start connecting that with the Video Accounts and live streaming, then, you know, it would actually make the overall e-commerce ecosystem much more vibrant.

Without that, there's actually a very big opportunity and part of it is already proven in the other short video companies. When you have short video, you can actually lead to live streaming and live streaming can lead to.

e-commerce transactions. But in addition to that, we felt that we can have some unique value added.

component that we can provide to the merchants because we have a private domain. We also have a mini program which can actually allow us to

Unknown Executive: And as you know, there's actually a very big transaction ecosystem that's already happening on many programs. And if we can actually start connecting that with video accounts and live streaming, then it would actually make the overall e-commerce ecosystem much more vibrant. And we also have payment, which is a very important enabler. So when we have all these additional components added to the video accounts and live streaming, we feel there's actually a very large headroom for us to grow in e-commerce.

connect with the video accounts. And as you know, there's actually a very big transaction ecosystem that's already happening on mini programs and if you can actually start connecting that with the video accounts and live streaming then it would actually make...

Martin Lau: We also have payment, which is a very important enabler. When we have all these additional components added to the Video Accounts and live streaming, we felt there's actually a very large headroom for us to grow in e-commerce. We wanna do it on a gradual basis so that we can build the infrastructure right. We can actually provide the best balance between user experience as well as the ROI for the merchants. At the same time, most importantly, we actually want to make sure that the transaction ecosystem is actually of high quality.

the overall e-commerce ecosystem much more vibrant. And we also have payments, which is a very important enable. So when we have all these additional components added to the video accounts and live streaming, without there's actually a very...

Unknown Executive: But we want to do it on a gradual basis so that we can build the infrastructure right, and we can actually provide the best balance between user experience as well as ROI for the merchants. And at the same time, most importantly, we want to make sure that the transaction ecosystem is actually high quality. So instead of having a lot of one-time buyers of low-quality products or certain products which are very high margins for the merchants, and they basically spend all the money on advertising instead of on product quality.

large headroom for us to grow in e-commerce, but we want to do it on a graduate basis so that we can be the infrastructure rights. We can actually provide the best balance between user experience as well as the ROI for the merchants. And at the same time, most importantly, we actually want to make sure that the transaction ecosystem is actually of high quality

Martin Lau: Instead of having a lot of one-time buyers of low-quality products or certain products which are, you know, very high margin for the merchants, and they basically sort of, you know, spend all the money on advertising instead of on the product quality, we actually wanna make sure that the ecosystem is built right so that it delivers the right value for the users as well as for the merchants, and the overall transaction ecosystem is healthy. That will take some time, but we felt, you know, if we do all these right, there's actually a very long runway for us to grow this part of the business.

Unknown Executive: We actually want to make sure that the ecosystem is built right so that it delivers the right value for the users as well as for the merchants and the overall transaction ecosystem is healthy, so that would take some time, but we felt that if we do all these right, there's actually a very long runway for us to grow this part of the business.

the right value for the users as well as for the merchants and the overall transaction ecosystem is healthy. So that would take some time, but we felt you know if we do all these right right there's actually a very long runway for us to grow this part of the business.

John Choi: Understood. Thank you.

Wendy Huang: Jerry Liu, we will take the last question from Robin Zhu from Bernstein.

Wendy Huang: Thank you Jerry, we will take the last question from Robin Zhu from Bernstein.

Unknown Executive: Gary, we will take the last question from Robin Drew from Burns.

Robin Zhu: I'm Robin Zhu from Bernstein.

Robin Zhu: Hi. Thank you. Thanks very much for taking the question. I guess two questions, if I may. One, just on your operating expenses. I mean, you're clearly showing impressive cost discipline and with operating expenses trending the way they have. Just curious to hear your thoughts on, you know, at what point does the company pivot more towards spending on growth, whether it's on new games, whether it's on AI, and kind of related services, or, you know, and/or what in your mind is the trigger to kind of go back on the front foot and spend more, if the consumption recovery to date hasn't done that already? A second question on gaming.

Unknown Executive: Hi, thank you. Thanks so much for taking the time to answer the question. I have two questions, if I may. One is just on your operating expenses. I mean, you're clearly showing impressive cost discipline and with operating expenses trending the way they have. I'm just curious to hear your thoughts on, you know, at what point does the company pivot more towards spending on growth, whether it's on new games, whether it's on AI and kind of related services, you know, and or what.

Hi, thank you. Thanks, Manaj, for taking the question. There's two questions if I may. One, just on your operating expenses, I mean, you're clearly showing impressive cost discipline and with operating expenses trending the way they have. Scurried to hear your thoughts on, what point does the company pivot more towards spending on growth, whether it's on new games, whether it's on AI and kind of related services, or, you know, under what?

Unknown Executive: What is the trigger to kind of go back on the front foot and spend more if the consumption recovery to date hasn't done that already? And a second question on gaming. James, you mentioned a while back that macro was having an impact on kind of willingness to pay and gaming ARPU as a result. Just curious to hear your thoughts on, you know, whether the recovery in Q1 is pent-up demand and, therefore, would there be questions about sustainability? And how the recovery has looked between kind of, you know, games, high ARPU games where whales dominate versus these large DAU games where everyone kind of buys skins, and ARPU is generally lower. Thank you.

In your mind is the trigger to kind of go back on the front first and spend more if the consumption recovery today hasn't done that already. And a second question on gaming, James, you mentioned the wall back, the macro was having an impact on kind of willingness to pay and gaming output as a result. Just curious to hear your thoughts on, whether the recovery in Q1 is pent up demand and therefore, would there be questions about sustainability?

Robin Zhu: James, you mentioned a while back that macro was having an impact on kind of willingness to pay and gaming ARPU as a result. Just curious to hear your thoughts on, you know, whether the recovery in Q1 is pent-up demand and therefore, you know, would there be questions about sustainability, and how the recovery looks between kind of, you know, games, high ARPU games where whales dominate versus these large DAU games where everyone kind of buys skins and ARPU is generally lower. Thank you.

and how the recovery looks between games, high-arpoo games, where it wails, dominates versus these large-tier UGames, where everyone kind of buys skins and our poo is generally lower. Thank you.

Martin Lau: Thank you. On the second question, we saw quite a broad-based recovery for our game business. You know, I think out of our top 15 games, 12 of them were up year-on-year. This wasn't a matter of, you know, one or two games bouncing while the others languished. You know, our overall portfolio uplifted. Whether that's due to pent-up demand or just underlying demand, time will tell. I explained earlier why I think it's underlying demand. On the operating expenses then, you know, there will be situations, whether it be a new game launch or, you know, buying and then depreciating GPUs for our large language model, where we need to invest and we will invest aggressively.

James Mitchell: Thank you. On the second question, we saw quite a broad-based recovery for our game business. You know, I think out of our top 15 games, 12 of them were up year-on-year. This wasn't a matter of, you know, one or two games bouncing while the others languished. You know, our overall portfolio uplifted. Whether that's due to pent-up demand or just underlying demand, time will tell. I explained earlier why I think it's underlying demand. On the operating expenses then, you know, there will be situations, whether it be a new game launch or, you know, buying and then depreciating GPUs for our large language model, where we need to invest and we will invest aggressively.

Unknown Executive: Thank you. So on the second question. We saw quite a broad-based recovery for our game business, and I think out of our top 15 games, 12 of them were up year-on-year. So this wasn't a matter of, you know, one or two games bouncing back while the others languished. You know, our overall portfolio has uplifted, and, you know, whether that's due to pent-up demand or just underlying demand, time will tell. But, you know, I explained earlier why I think it's underlying demand.

Thank you. So on the second question, we saw quite a broad-based recovery for our game business. I think out of our top 15 games, 12 of them were up year on year. So this wasn't a matter of one or two games bouncing while the others languished. Our overall portfolio uplifted and...

Now, whether that's due to pent up demand or just underlying demand time would tell, but I explained earlier why I think it's underlying demand. On the operating expenses, then there will be situations, whether it be a new game launch.

Unknown Executive: On operating expenses, then there will be situations, whether it be a new game launch or you know, buying and then depreciating GPUs for our large language model, where we need to invest, and we will invest aggressively. But you know, that said, I think that we will also keep operating expenses under quite tight control going forward. And, you know, one reason it's because

or buying and then depreciating GPUs for our language model, where we need to invest and we will invest aggressively. That said, I think that we will also keep operating expenses under quite tight control going forward. One reason is figures.

Martin Lau: you know, that said, I think that we will also keep operating expenses under quite tight control going forward. you know, one reason is because, you know, we've become structurally more efficient. Second reason is that generally we're mix shifting toward inherently higher margin activities, as with Video Accounts ads, while exiting some inherently low margin activities. you know, more broadly, you spoke about when do we need to, you know, pivot to investing for growth. you know, I think actually if you dig into our range of businesses, there's a number of emerging growth drivers, be it the Video Accounts advertising monetization, be it the e-commerce live streaming monetization, be it the Mini Program and mini games.

James Mitchell: you know, that said, I think that we will also keep operating expenses under quite tight control going forward. you know, one reason is because, you know, we've become structurally more efficient. Second reason is that generally we're mix shifting toward inherently higher margin activities, as with Video Accounts ads, while exiting some inherently low margin activities. you know, more broadly, you spoke about when do we need to, you know, pivot to investing for growth. you know, I think actually if you dig into our range of businesses, there's a number of emerging growth drivers, be it the Video Accounts advertising monetization, be it the e-commerce live streaming monetization, be it the Mini Program and mini games.

Unknown Executive: We've become structurally more efficient. The second reason is that, generally, we're mixed shifting toward inherently higher margin activities to bulk those up while exiting some inherently low margin activities. And, you know, more broadly, you spoke about when we need to, you know, pivot to investing for growth. And I think actually, if you dig into our range of businesses, there's a number of emerging growth drivers, be it video accounts, advertising monetization, e-commerce live streaming monetization, be it the mini-programs and mini-games.

where it becomes structurally more efficient. So that's the reason is that generally we're mixed shifting toward inherently higher margin activities as with above those dark wild exiting, some inherently low margin activities. And more broadly you spoke about, when do we need to pivot to investing for growth?

I think actually if you dig into our range of businesses, there's a number of emergent growth drivers, be it the video accounts advertising monetization, be it the e-commerce live streaming monetization, be it the mini program and mini games. And what's interesting is each of those are very sizable opportunities which are becoming meaningful.

Martin Lau: What's interesting is, you know, each of those are very sizable opportunities which, you know, are becoming meaningful and, you know, have very long runways to expand over time. You know, in none of those do we need to-

James Mitchell: What's interesting is, you know, each of those are very sizable opportunities which, you know, are becoming meaningful and, you know, have very long runways to expand over time. You know, in none of those do we need to-

Unknown Executive: And what's interesting is, you know, each of those is a very sizable opportunity which, you know, is becoming meaningful, and, you know, has very long runways to expand over time. But, you know, in none of those do we need to.

and have very long runways to expand over time. But in none of those do we need to spend a great deal of extra money to make them more popular. We aren't incurring...

James Mitchell: Spend a great deal of extra money to make them more popular. You know, we aren't incurring gigantic subsidies on, you know, providing community group buying food solutions. We aren't, you know, inducing users who would otherwise be on another short video service to, you know, install Video Accounts and spend time on Video Accounts instead. You know, we're just providing what we think are, you know, very attractive and somewhat differentiated experiences to users within, you know, our bigger app, particularly Weixin, and, you know, letting users, over time, you discover those, enjoy those, socialize those, and spend more time and ultimately more money on those.

Unknown Executive: Spend a great deal of extra money to make them more popular. We aren't incurring gigantic subsidies on providing community group buying food solutions. We aren't inducing users who would otherwise be on another short video service to install video accounts and spend time on video accounts instead. We're just providing what we think are very attractive and somewhat differentiated experiences to users within our big app, particularly Wei Shin, and, you know, letting users, over time, discover those, enjoy those, socialize with those, and spend more time and, ultimately, more money on those.

gigantic subsidies on providing community group buying food solutions. We aren't inducing users who would otherwise be on another short video service to install video accounts and spend time on video accounts instead. We're just providing what we think are

very attractive and somewhat differentiated experiences to users within a bigger, perhaps particularly way, Shin, and letting users over time, you discover those, enjoy those, socialize those, and spend more time and ultimately more money on those. So, I don't think that we're in a.

James Mitchell: You know, I don't think that we're in a sort of non-growth mode and, you know, at some point in the future, we need to flick a switch and dramatically increase sales and marketing or subsidies to go back to growth mode. I think we're in growth mode right now. It's just that the nature of our growth drivers is that they do not require heavy subsidies. They do not require heavy sales and marketing activity. Thank you.

Unknown Executive: So, you know, I don't think that we're in a sort of non-growth mode. And you know, at some point in the future, we need to flick a switch and dramatically increase sales and marketing or subsidies to go back to growth mode. I think we're in growth mode right now. It's just that the nature of our growth drivers is that they do not require heavy subsidies. They do not require heavy sales and marketing activity.

sort of non-growth mode and you know at some points in the future we need to flicker switch and dramatically increase sales and marketing or subsidies to go back to growth mode. I think we're in growth mode right now. It's just that the nature of our growth drivers is that they do not require heavy subsidies. They do not require

Robin Zhu: Thank you.

Unknown Executive: Thank you, Robin. We are now ending the webinar. Thank you all for joining our results call. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also be available soon. Thank you, and see you next time.

Wendy Huang: Thank you, Robin. We are now ending the webinar. Thank you all for joining our results call. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also be available soon. Thank you, and see you next quarter.

please visit the IR section of our company website at www.tinsen.com. The replay of this webinar will also be available soon. Thank you and see you next quarter.

Q1 2023 Tencent Holdings Limited Earnings Call

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