Q2 2023 Tencent Holdings Limited Earnings Call
Wendy Huang: Limited 2023 Second Quarter Results Announcement Webinar. Wendy Huang from Tencent IRT.
Speaker 1: ...holdings limited 2023 signal for the results announced webinar. Wenmei Huang from Texas IRT.
Operator: At this time, all participants are in a listen-only mode. After the management's presentation, there will be a question and answer session. For participants who are dialing in by phone, if you wish to ask a question, please press 5 on your telephone to raise your hand.
Speaker 1: At this time, all participants are in a list of only most. After the management presentation, there will be a question and answer session for participants who are dialing by phone. If you wish to ask a question, please press five on your telephone to raise your hand.
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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 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 calculated in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents in the IR section of our website.
Speaker 1: If you are accessing from the Tenset meeting or meeting application, please click the raise hand button at the bottom left. And please be advised that today's webinar is being recorded.
Speaker 1: Before we start the presentation, we would like to remind you that it includes four of the digestive hospitals.
Speaker 1: which are underlined by a number of risks and uncertainties. And it may not be realized in the future for various reasons.
Speaker 1: Information about general market conditions is coming from a variety of sources outside of Tencent.
Speaker 1: This presentation also contains some unordited non-IFR financial measures that should be considered in addition to not as a substitute goal measures of the good financial performance propelled in accordance with IFRS.
Speaker 1: For a detailed discussion of risk factors in a non-abirus measures, please refer to our disclosure documents on the air section of our website.
Operator: Let me introduce the management team on the call tonight. Our Chairman and CEO, Paul Niemeyer, will kick off with a short overview. President Martin Lau and Chief Strategy Officer James Mitchell will provide a business review and update on our progress on some strategic growth drivers. Chief Financial Officer Joan Loh will conclude with a financial discussion before we open the floor for questions. Okay, thank you.
Speaker 1: Let me introduce the management team on the call tonight. Our chairman and CEO , Ponimah, will kick off with a short overview. President Martin Lau and Chief Strategy Officer, James Mitchell will provide a finished review and update on our progress on some strategic growth drivers.
Speaker 1: Chief Financial Officer John Lowell will conclude with financial discussion before we open up for questions.
Paul Niemeyer: Good evening. Thank you, everyone, for joining us. During the second quarter of 2023, we sustained a solid revenue growth rate, along with a gravitation toward higher-quality revenue streams with better margins. This transition, combined with the careful cost discipline developed in the previous years, resulting in profit growth exceeding revenue growth. We achieved notably rapid growth in advertising revenue, benefiting from deploying machine learning on our advertising platform and from video account monetization. Now, let me go through the headline financial numbers for the quarter.
Speaker 1: I will now copy to Pony.
Speaker 2: Okay, thank you Wendy.
Speaker 2: Good evening. Thank you everyone for joining us.
Speaker 2: During the second quarter of 2023, we sustained a solid revenue growth rate along with the gravitation to a higher 30 revenue streams with better margins.
Speaker 2: This transition, combined with the careful cost-participant developed it in the previous years, resulting in profit growth, exceeding revenue growth.
Speaker 2: We achieve the notably, where we close in advertising revenue, benefiting from deploying the syndrome on our advertising platform, and from video accounts monetization.
Paul Niemeyer: Total revenue was $149 billion RMB, up 11% year-on-year or down 1% quarter-on-quarter. Gross profit was 71 billion RMB, up 22% year-on-year and 4% quarter-on-quarter. Non-IFRS operating profit was 50 billion RMB, up 37% year-on-year and 4% quarter-on-quarter. Non-IFRS net profit achievable to equity holders was 38 billion RMB, 33% year-on-year and 15% quarter-on-quarter.
Speaker 2: Now let me go through the highlight financial numbers for the quarter.
Speaker 2: Total revenue was 149 billion R&B, half 11% year-end, or down 1% quarter-end quarter.
Speaker 2: Those 40 was 71 billion R&B, up 22% year and year, and 4% quarter and quarter.
Speaker 2: Non-IFIS operating profit was 50 billion R&B of 37% year-and-four percent quarter-inputed.
Speaker 2: Non-IFI SNAP-PROFY, achievable to active holders was 38 billion R&B up to the streets then year and year and 15% quarter and quarter.
Paul Niemeyer: Thank you for listening to our key services. All communications and social networks combined MAU of WeChat and WeChat growth year-on-year and quarter-on-quarter to $1.3 billion, with increased synergies among video accounts, media programs, and mobile. For games, we released two high-quality PC games in China. Our most important PC game has been released since 2015. In generative AI, we are internally testing our own proprietary foundation model in different use cases and are providing Tencent Cloud model as a service solutions to facilitate efficient deployment of open source foundation models in multiple industry verticals. I will now hand over to Martin and Janice for business review. Thank you, Pauli. And good evening and good morning to everybody.
Speaker 3: That.
Speaker 2: Turning to our teesovicy?s.
Speaker 2: For communication and social networks, combined MAU of reaching a reach at close year and year and quarter and quarter to 1.3 billion, with increased synergies among video accounts, meeting programs and moments. For games, we reduced to high quality PC games in China. Our most important PC game launches since 2015. In generative AI, we are internally testing our own proprietary foundation model in different use cases.
Speaker 2: and are providing tens and cloud model as a service solutions to facilitate efficient deployment of open source foundation models in multiple industry verticals.
Speaker 2: I will now hand over to Martin and James for Business Review.
Martin Lau: For the second quarter of 2023, our total revenue was up 11% year-over-year. That represented 50% of our total revenue, within which the social networks subsegment was 20%, the domestic games subsegment was 21%, and international games was 9%. Online advertising was 17% of total revenue, and fintech and business services were 32%. For value-added services, the segment revenue was 74 billion RMB, up 4% year-on-year. Social networks revenue was up 2% year-on-year to 30 billion RMB, driven by increased revenue from minigames and music subscriptions, which is partially offset by lower revenue from music and games-related live streaming services. Long-form video subscription revenue decreased 2% year-on-year.
Speaker 2: Thank you, Pooley.
Speaker 2: and good evening and good morning to everybody. For the second quarter of 2023, our total revenue was up 11% beyond year. That's represented 50% of our total revenue within which social networks sub-sacmen was 20%. Domestic games sub-sacmen was 21%.
Speaker 2: and international games was 9%. Online advertising was 17% of total revenue, and FinTech and Business Services was 32%.
Speaker 2: Well, Value Editor Services, the segment revenue was 74 billion RMB, up 4% year-on-year. Social networks revenue was up 2% year-on-year to 30 billion RMB, driven by increased revenue from many games and music subscriptions.
Speaker 2: which is partially offset by lower revenue for music and games related life streaming services.
Martin Lau: Video subscriptions declined 5% year-on-year but increased 2% quarter-on-quarter to $115 million, benefiting from our original animated series and drama series. We're consistently upgrading our content production capabilities. For example, we're now applying Unreal Engine for producing animated content such as our series, The Land of Warriors, in order to streamline the workflow and enhance production capacity and efficiency.
Speaker 2: Long-form video subscription revenue decreased 2% year-on-year. Video subscriptions declined 5% year-on-year, but increased 2% quarter to 115 million. Benefitting from my original animated series and drama series.
Speaker 2: We're consistently upgrading our content production capabilities.
Speaker 2: For example, we're now applying Unreal Engine for producing animated content such as our series, The Land of Warriors, in order to streamline the workflow and enhance product clean capacity and efficiency.
Martin Lau: Music subscription revenue increased 37% year-on-year, as both Apple and subscriptions grew at double-digit rates year-on-year. TME has enriched its subscription offerings in terms of membership privileges and content. And in June, our music subscription count achieved a record high of 100 million.
Speaker 2: Newtix subscription revenue increased 37% year-on-year, as both Apple and subscription screw at double digit rates year-on-year.
Speaker 2: TME has enriched its subscription offerings in terms of membership privileges and content and in June , our music subscriptions count achieved a record high of 100 million.
Martin Lau: Domestic games revenue was stable year-on-year at 32 billion RMB, partly due to less commercial content scheduling for our biggest games after a very robust first quarter. However, revenue from our relatively new and growing competitive esports games, Arena Breakout and Fight of the Golden Spatula, increased. International games revenue increased 19% year-on-year, or 12% in constant currency terms, to $13 billion RMB, benefiting from the robust performance of Dalaran, Nikkei, and Triple Match 3D. Moving on to communications and social networks, Weixin's total user time spent increased healthily in the second quarter, benefiting from greater engagement across video accounts, mini programs, and Moments.
Speaker 2: Domestic Games Revenue was stable year and year at 32 billion RMB, partly due to less commercial content scheduling for our biggest games after a very robust first quarter. Revenue from our relatively new and growing competitive eSports games, arena breakout and fight-up-to-golden spatula increased.
Speaker 2: International Games Revenue increased to 19% year and year or 12% in constant currency terms to 13 billion R&B, benefiting from the robust performance of the Allerant, NICK, and Triple Match 3D. Moving on to communications and social networks.
Speaker 2: WASHING Total User Time Spend increased healthily in the second quarter, benefiting from greater engagement across video accounts, mini programs and moments.
Martin Lau: We view accounts expanded its user base and deepened user engagement. Total time spent almost doubled year-on-year in the second quarter, driven by double-digit growth in DAU and much faster growth in terms of per-user time spent. Meanwhile, we achieved strong growth in user interactions such as likes and comments. We are strengthening our content ecosystem by facilitating a thriving creator community, as daily active creators and daily video uploads sustained robust year-on-year growth in the second quarter.
Speaker 2: We do accounts, expand its user base, and deepen user engagement.
Speaker 2: Total time spent almost doubled year in year in the second quarter, driven by double digit growth in DAU, and much faster growth in terms of per user time spent.
Speaker 4: Meanwhile, we achieved strong growth.
Speaker 4: In use interactions such as likes and comments.
Speaker 4: We are strengthening our content ecosystem by facilitating a thriving creative community as daily active creators and daily video uploads sustained robust year-on-year growth in the second quarter.
Martin Lau: We're providing tools that help creators scale their video accounts presence while also contributing to our ad revenue growth. Building on deeper user engagement and a stronger content ecosystem, we're making significant progress in expanding monetization opportunities within video accounts. For advertising, we're in the early stages of establishing a significant revenue stream with high incremental margin. We believe there's still very substantial revenue potential to be realized going forward. Livestreaming e-commerce, which is still at an early stage of development, achieved 150% year-on-year GMB growth in the second quarter, providing an opportunity for us to create a new high-margin commission-based revenue stream.
Speaker 4: We're providing tools which help creators scale their video accounts' presence while also contributing to our ad revenue growth.
Speaker 4: Build on deeper use and engagement and a stronger content ecosystem when making significant progress in expanding monetization opportunities within video accounts.
Speaker 4: For advertising, we're in the early stages of establishing a significant revenue stream with high incremental margins.
Speaker 4: believe there's still very substantial revenue potential to be realized going forward.
Speaker 4: Light streaming e-commerce, which is still at early stage of development, achieved 150% year-end year GMB growth in the second quarter.
Speaker 4: Providing an opportunity for us to create a new high margin commission based revenue stream.
Martin Lau: During the quarter, we improved our consumer shopping experience and boosted repeat sales for merchants by sourcing more branded products, introducing shipping return insurance, and upgrading customer service functionalities. Turning to mini-programs, we're now serving more than 1.1 billion users on a monthly basis, and their engagement grew significantly as time spent per DAU increased double-digit year-on-year in the second quarter. Four million developers participate in our mini-program ecosystem, offering a breadth of mini-programs, ranging from public services and productivity tools to AI-powered photo editors.
Speaker 4: During the quarter, we upgraded our consumer shopping experience and boosted repeat sales for merchants by sourcing more branded products, introducing shipping return insurance, and upgrading customer service functionalities.
Speaker 4: Four million developers participate in our mini-programme-free system, offering a breadth of mini-programs, ranging from public services and productivity tools to AI-powered, powered photo editors.
Martin Lau: Today I would like to walk you through our recent success in minigames as a vertical use case example. Many games engage over 400 million MAU and 300,000 game developers build a point that minigame program framework. Both leading game companies and smaller studios actively develop and operate mini-games, including casual games, card games, and many other types of games.
Speaker 4: Today I would like to walk you through a recent success in mini games as a vertical USK's example.
Speaker 4: Mini games engage over 400 million MAUU and 300,000 game developers.
Speaker 4: Build a point that mini program framework.
Speaker 4: Both leading game companies and smaller studios actively develop and operate mini games.
Martin Lau: In the second quarter, more than 100 mini games each achieved quarterly gross receipts of over 10 million RMB. The strong growth of mini-games demonstrates our compelling value proposition for developers. Firstly, for developers with innovative game concepts, we help them to reduce entry barriers and launch costs. They can build user bases through social sharing, pre-existing logging, and instant play infrastructure offered by the Weixin ecosystem.
Speaker 4: including casual games, card games, and many other types of games. In the second quarter, more than 100 mini games each achieved quarterly gross receipts of over 10 million RMB.
Speaker 4: The strong growth of mini games demonstrates our compelling value proposition for developers. Firstly, for developers with innovative game concepts, we help them to reduce entry barriers and launch costs. They can build user-based through social sharing, pre-existing logging, and instant play infrastructure, all of them.
Martin Lau: Secondly, for developers with successful app games, we'll enable them to extend their reach to a new audience of non-app users by porting to minigames. Thirdly, developers can benefit from advancements in minigames infrastructure, leveraging our know-how and game technology. For example, our infrastructure can now support sophisticated genres such as shooters with fast loading and smooth gameplay.
Speaker 4: by porting to mini games. Thirdly, developers can benefit from advancement in mini games infrastructure, leveraging our know-how and game technology. For example, our infrastructure can now support sophisticated runners such as shooters with fast loading from smooth gameplay.
Martin Lau: Mini-games also provide Tencent with significant strategic value. First, through mini-games, we host the largest casual game community in China with hundreds of millions of monthly active users, substantially exceeding the MAU of the largest app-based casual games in the market. Second, minigames allow us to expand our audience base and cultivate new gamers. Over 50% of minigame MAUs do not play Tencent app games, and half of minigame MAUs are female. Finally,
Speaker 4: Media games also provide 10 cents with significant strategic value. First, through Media Games, we host the largest casual game community in China with hundreds of millions of MAU.
Speaker 4: Substantially exceeding the MAU of the largest app-based casual games in the market. Second, Media Games allow us to expand our audience base and cultivate new gamers.
Speaker 4: Over 50% of mini-game MAU do not play 10th-end app games and half of mini-games MAU are female. Finally, mini-games provide us with game distribution and ad revenues characterized by high margins and platform economics as opposed to hit driven dynamics.
Martin Lau: Minigames provide us with game distribution and ad revenues characterized by high margins and platform economics as opposed to hit-driven dynamics. From a reporting perspective, we report net platform fees to Tencent instead of gross user spend as revenue, and we allocate these fees to the social network subsegment instead of the games subsegment.
James Gordon Mitchell: Therefore, growth in third-party minigames does not benefit our game segment revenue but flows through to our vast segment in the form of high-margin revenues. Furthermore, developers can also buy advertising and contribute to our advertising revenue. With that, I will now hand over to James to talk about the other business updates. Thank you very much, Martin.
James Gordon Mitchell: For domestic games, our mobile and PC game MAU and DAU, each increased year-on-year in the second quarter. After releasing highly commercial content in the first quarter, we reduced such releases in the second quarter. Based on trends quarter-to-date, this reduction was a temporary phenomenon, and we believe our domestic game revenue should resume year-on-year growth in the third quarter. Taking a longer view, three of our new game launches in the past two years, Light of the Golden Spatula, Arena Breakout, and Wild Rift, have been steadily building their user bases and each ranked among the top 10 mobile games from all developers in China by total time spent in the second quarter.
James Gordon Mitchell: While different new games from different developers show up in the top download and top grossing charts from month to month, we're more focused on cultivating evergreen successes for which the trend in total time spent is a better leading indicator of longevity as well as long-term revenue generation. For example, Fight of the Golden Spatula achieved a new milestone of 15 million daily active users in June and ranked fourth by total time spent across all mobile games in China during the quarter.
James Gordon Mitchell: Arena Breakout also achieved record DAU in the second quarter and ranked eighth across all mobile games by time spent. As a high production value extraction shooter on mobile, we believe Arena Breakout is the first of its kind globally, and we will launch the game in international markets from July. Meanwhile, a number of our existing long-life titles demonstrated their ongoing vitality.
James Gordon Mitchell: Naruto Mobile, which we launched in 2016, achieved all-time highs in gross receipts and average DAUs in the second quarter, driven by engaging gameplay, additional stories, and attractive new characters with distinctive combat techniques. Despite multiple competitive launches over the years, Naruto Mobile is the clear China leader in the fighting genre. Dungeon and Fighter released a 15th anniversary content update in June, featuring a more contemporary anime-type art style and improved combat visual
James Gordon Mitchell: As a result, DNF's average DAU increased by a double-digit percentage year-on-year in June. While the second quarter was a quiet period for new mobile game launches for us, we have recently launched two big PC games in China, which will begin contributing to revenue in the third quarter. Valorant, a top tactical shooter in international markets, was our most successful PC game release ever in China, measured by the number of active users on launch day.
James Gordon Mitchell: Among all games released since 2019, Valorant is the most viewed game on the leading live streaming platform. Lost Ark is currently the most played MMO action role-playing game on Steam with a thrilling combat system, a captivating storyline, and vast game world exploration.
James Gordon Mitchell: Since we launched Lost Ark in China in July, the game has become the most popular MMO game on live streaming platforms in China. Turning to international games, we saw ongoing growth from PC games, signs that the post-pandemic dip in activity is moving behind us in mobile games, and positive contributions from certain recently released games. Valorant continued its strong performance with DAU and gross receipts increasing year-on-year, fueled by the introduction of the popular new agent Gecko, appealing items including weapon skins, as well as a new game mode, Premiere, that offers a professional tournament experience.
James Gordon Mitchell: After a lengthy post-pandemic consolidation period, PUBG Mobile returned to year-on-year growth in DAU and gross receipts in June, driven by an upgraded Royale Pass system, a new dinosaur-themed game mode, and successful brand collaborations with Bearbrick and Ducati. Since its launch in November last year, Nikkei has increased user engagement through popular content updates, including new premium characters, added storylines with fully voiced scenes, and successful thematic events.
James Gordon Mitchell: Online advertising revenue grew 34% year-on-year to 25 billion renminbi. While our growth rate certainly benefited from comparison against a pandemic-depressed period a year ago, we believe we outpaced the overall industry, which we attribute to enhancements to the machine learning systems powering our ad platform, as well as robust in-mind for video account ads. Advertising spending with us grew at a double-digit year-on-year rate from every major advertiser category except transportation. On Weixin, video accounts' ad revenue exceeded 3 billion renminbi in the second quarter.
James Gordon Mitchell: More broadly, the deployment of commerce tools, such as discovery of live-streaming commerce and digital shops within video accounts, contributed to the vibrancy of Weixin's overall commerce ecosystem, attracting merchants and brands to allocate increased ad budgets across multiple Weixin properties.
James Gordon Mitchell: Consequently, during the quarter, ad revenue increased year-on-year not only for video accounts but also for moments, mini-programs, and efficient accounts. For content platforms, our music ad revenue grew notably year-on-year, driven by the ad-supported music service, as well as brand sponsorship of offline music events, including TME's Wavemaker event. Our mobile ad network revenue increased significantly year-on-year, benefiting from partnerships with apps with high commercial value inventory. We upgraded our mobile ad network's infrastructure, enhancing efficiency and matching advertisers' demand with traffic supply, and delivering higher ROIs for advertisers.
James Gordon Mitchell: Looking at fintech and business services, segment revenue was 49 billion renminbi, up 15% year-on-year. Starting with fintech services for commercial payments, daily active users and transactions per user both increased year-on-year, and online and offline payment volumes grew year-on-year at similar rates, as consumption spending generally picked up. Our wealth management business experienced healthy growth in the second quarter as we enhanced our investor education and services, and users and AUM increased year-on-year. On the regulatory front, we have completed self-inspection and corresponding rectification for Tempe and upgraded the compliance capability of our payment business.
Speaker 4: Looking at FIMFAC and Business Services, segment revenue was 49 bid and RAM in B, up 15% year on year. Starting with FIMFAC services for commercial payments, data active users and transaction per user, both increased year on year, and online and offline payment volumes grew year on year at similar rates, as consumption spending generally picked up. Our wealth management business experienced healthy growth in the second quarter as we enhanced our investor education and services, and users and AUM increased year on year. On the regulatory front, we have completed self-inspection and corresponding rectification for TAMPFAC, and upgraded the compliance capability of our payment business.
James Gordon Mitchell: We look forward to progressing our business and providing innovative services under the substantive regulatory framework. For business services, year-on-year revenue growth returned to a low double-digit rate in the quarter, driven by fees collected on video accounts like streaming commerce transactions, plus modest growth of cloud services. Cloud services revenue benefited from increased spending by industries such as finance and automotive. Business service gross margin increased notably year-on-year due to cost optimization as well as new fee-based revenues.
Speaker 4: We look forward to progressing our business and providing innovative services under the supportive regulatory framework. For business services, your own year revenue growth returned to a low double digit rate in the quarter, driven by fees collected on video accounts like streaming commerce transactions, plus modest growth of cloud services.
James Gordon Mitchell: And in cloud services, we launched model as a service solutions, leveraging our proprietary vector database and high-performance computing clusters, we're enabling enterprises in multiple industries, including tourism and public services, to develop customized large models at higher efficiency and lower cost. And I'll now pass to John.
Joan Loh: Thank you, James. Hello, everyone. For the second quarter of 2023, total revenue was 149.2 billion RMB, the 11th quarter of the year. Gross profit was 70.8 billion RMB, up 22% year-on-year. Net other losses were $0.2 billion RMB, mainly due to compliance-related costs, largely offset by net gains from ZIM disposals and disposal-serving investing companies.
Joan Loh: Operating profit was RMB40.3 billion, up 34% year-on-year. Net finance costs were 3.4 billion RMB, up 82% year-on-year. This increase was due to Forex losses this quarter, which were gained in the same period last year, along with higher interest rates.
Joan Loh: Share of profit of Associates and JV was 1.2 billion RMB compared to share of loss of 4.5 billion RMB in the second quarter of 2022, and Nonaya Varsity. Share of profit was $3.9 billion RMB, improving from share loss of $1 billion RMB last year. This was due to better profitability among certain domestic associates driven by their revenue growth and improved cost efficiency. Income tax expense increased by 144% year-on-year to $11.1 billion renminbi due to pre-tax profit growth, increased withholding tax provision, and a 2-month offer to protect adjustments related to equity strategies.
Joan Loh: I have our FNAP profit attributed to equity holders for 26.2% year-on-year, a 41% year-on-year. Value set EPS was 2.695 RMB, up 41% year-on-year. Now I'll share our non-IRS financial figures.
Speaker 4: Valueted EPS was 2.695 RMB up 41% year on year. Now I'll share our non-IoVRS financial figures. Operating profit was 50.1 billion RMB up 37% year on year. Their profit attribute of the equity holders was 37.5 billion RMB up 33% year on year. Valueted EPS was 3.875 RMB up 34% year on year.
Joan Loh: Operating profit was RM50.1 billion, up 37% year-on-year. Net profit attribute among the equity holders was 37.5 billion RMB, up 33% year-on-year. Allotted EPS was 3.875 RMB, up 34% year-on-year. Moving on to growth projects.
Joan Loh: Overall gross margin was 47.5%, up 4.3 percentage points year-on-year. By segment, gross margin for VAS was 54%, up 3.4 percentage points year-on-year, driven by high-margin game-related revenue, including those from mini-games; increased music subscription margin due to subscriber growth and Apple expansion; and cost-efficiency improvements across our digital content services.
Speaker 4: By segment, gross margin for VAS was 54% up 3.4 percentage points year on year, driven by high margin game related revenue, including those from mini games. Increased subscription margin due to subscriber growth and Apple expansion and cost efficiency improvements across our digital content services. Gross margin for online advertising was 48.9% up 8.3 percentage points year on year due to increased mix of high margin video accounts at their revenue and improved cost efficiencies. Gross margin for FinTech and business services was 38.4% up.
Joan Loh: Gross margin for online advertising was 48.9%, up 8.3%-ish point year-on-year due to an increased mix of high-margin video accounts at their revenue and improved cost efficiency. Gross margin for FinTech and business services was 38.4%, a 5.1 percentage point year-on-year refracting crowd services cost optimization and high-margin revenue from video accounts and live streaming e-commerce transactions. On operating expenses, selling and marketing expenses were 8.3 billion RMB, a 5% year-on-year and representing 5.6% of revenues.
Speaker 4: Operating expenses. Selling and marketing expenses were 8.3 billion RMB, a 5% year-on-year and representing 5.6% of revenues.
Joan Loh: R&D expenses were 16 billion renminbi, up 7% year-on-year. G&A expenses excluding R&D were 9.4 billion RMB, down 16% year-on-year, mainly due to a reduced staff force, including share-based compensation expenses. At quarter end, we had approximately 105,000 employees, down 6% year-on-year or 2% quarter-on-quarter.
Speaker 4: R&D expenses were 16 billion RMB up 7% year on year.
Speaker 4: G&A expenses excluding R&D were 9.4 billion RMB, now 16% year-on-year, mainly due to reduced staff force, including share-based compensation expenses.
Speaker 4: At quarter end, we have approximately 105,000 employees done 6% year-on-year or 2% quarter-on-quarter.
Joan Loh: Let's look at our operating and debt margin ratios. For the second quarter of 2023, non-IFRS operating margin was 33.6%, up 6.2 percentage points year-on-year. Non-IFRS net margin was 25.9%, a 4.3%ish point year-on-year. To conclude, I will highlight some key cash flow and balance sheet metrics.
Speaker 4: Let's look at our operating and net margin ratios. For the second quarter of 2023, non-IFRS operating margin was 33.6%, up 6.2 percentage points year on year. Non-IFRS net margin was 25.9%.
Joan Loh: Total capex was 4 billion renminbi, up 31% year on year. Within total capex, operating capex was 3 billion renminbi, up 43% year on year, driven by increasing investment in GPUs and servers. Operating capex grows by 6% year-on-year to 1 billion RMB. Free cash flow for the quarter was 29.9 billion RMB, up 34% year-on-year due to increased operating cash flow and decreased payment for CapEx. The cash position was 17.7 billion RMB, down 44% quarter-on-quarter. The sequential change was mainly due to dividend payment and share repurchases during the quarter.
Speaker 4: Total CAPEX was 4 billion RMB, up 31% year on year. Within total CAPEX, operating CAPEX was 3 billion RMB, up 43% year on year, driven by increasing investment in GPUs and servers.
Speaker 4: Non-operating CapEx froze by 6% year-on-year to 1 billion RMB. Free CapEx for the quarter was 29.9 billion RMB, up 34% year-on-year due to increased operating CapEx flow and decrease payment CapEx.
Speaker 4: The cash position was 17.7% down 44% quarter on quarter. The sequential change was mainly due to dividend payments and share reposhes during the quarter. Thank you.
Operator: Thank you, Joan. We shall now open the floor for questions. If you are dialing in by phone, please press 5 to raise a question. Then press 6 to unmute yourself. If you are accessing this from the Tencent Meeting or Root Meeting application, please click the Raise Hand button at the bottom left.
Operator: We will take one main question and up to one follow-up question each time. Now, let's take the first question from Ronald Keung from Goldman Sachs.
Speaker 5: Now let's take the first question from Rona Kong from Goldman Sachs. Thank you, Sandy. Thank you, Pony, Martin, James and Wendy. And congratulations on the strong results. I want to ask about firstly on advertising that this has come through very strong at 34% with video accounts that you just mentioned, which is over 3 billion RMB. So we're back to the two-year kind of positive growth.
Ronald Keung: Thank you. Thank you, Sandy.
Operator: Thank you. Thank you, Poni, Martin, James, and Wendy.
Ronald Keung: And congratulations on the strong results. I want to ask about, firstly, advertising, that this has come through very strongly at 34%, with video accounts that you just mentioned, which is over 3 billion RMB. So we're back to the two-year kind of positive CAGR growth. So how does management assess the second half outlook with a few different drivers for your video accounts monetization? You also mentioned the algo upgrades with the machine learning at the back, and live streaming. So these are the positives. How do we see this when coupled with the macro?
Speaker 5: So how does management assess the second half outlook with a few different drivers with your video accounts monetization? You also mentioned about the algo upgrades with the machine learning at the back, live streaming. So these are the positives. Wow, how do we see with this couple with the macro? How should we think about the second half outlook?
James Gordon Mitchell: How do we think about the second half outlook for advertising growth after this very strong second quarter? Yeah, thank you for the question, Ronald. So, you know, the second quarter was strong. We had an unusually easy base month of advertising in April because that was really the sharp point of the lockdowns last year. And then we saw, you know, still fast, but not as fast growth in, you know, May, June, and that continues in July.
Speaker 4: We had an unusually easy base month for advertising in April because that was really the sharp point of the lockdowns last year. And then we saw it is still fast but not as fast growth in May, June and that continues in July .
James Gordon Mitchell: We continue to see all ad categories except automotive up double digits year on year, as we have seen in recent weeks. I think that, you know, looking forward through the rest of the year, obviously advertising does depend to some extent on domestic consumption trends. But it's important to bear in mind that, first of all, domestic consumption trends weren't that good during the second quarter, and yet we grew 34% year on year.
Speaker 4: We continue to see all our categories except automotive up double digits zero on year as we in recent weeks.
Speaker 4: countries accept automotive up double digits year on year as we in recent weeks.
James Gordon Mitchell: Secondly, we have our own sort of endogenous drivers, particularly around the ad tech enhancements, as well as the monetization of video accounts. And then, thirdly, in the event that domestic consumption were to be substantially weaker later in the year, the natural response from advertisers would be to pull back first from the lower ROI inventories that they've been purchasing. And we believe that the ad tech platform enhancements we've put in place, leveraging large neural network models, have substantially improved the ROI of advertising on our platform. And therefore, you know, if there were to be weakness, we'd probably see it later than other people.
Speaker 4: I think that looking forward through the rest of the year, obviously advertising does depend to some extent on domestic consumption trends but it's important to bear in mind that first of all domestic consumption trends weren't that good during the second quarter and yet it'll be 34% year on year.
Speaker 4: And then thirdly, in the event that domestic consumption were to be substantially weaker later in the year, the natural response from advertisers would be to pull back first from the lower ROI inventories that they've been purchasing. And we believe that the ad tech platform enhancements were put in place.
Speaker 4: leveraging large neural network models have substantially improved the ROI of advertising on our platform and therefore if there were to be weakness we'd probably see it later than other people.
James Gordon Mitchell: So, you know, overall, certainly very cognizant of the macro risks, but, you know, there's been macro risks all year, and, you know, optimistic that we'll continue outgrowing the industry through the rest of the year. Thank you, James. And me following up on that, on generative AI, which is a top theme, besides the business side, want to hear more about our, Do you mind, any things that we're thinking about for the chat box or anything within our Tencent ecosystem and kind of linking onto that advertising question, do we see any forms of monetization from generative AI usage scenarios. Thank you.
Speaker 5: So, overall certainly very cognizant of the macro risks, but there's been macro risks all year and optimistic that we'll continue outgrowing the industry through the rest of the year. Thank you, James. Me following up on that on generative AI, which is a top of theme.
Speaker 5: Besides the business side, I want to hear more about our two consumers. Anything that we're thinking on chatbots or anything within our 10 cent ecosystem and kind of linking onto that advertising question. We see any forms of monetization from generative AI usage scenarios. Thank you.
Martin Lau: Yeah, so in terms of general AI, I think, and more broadly, the foundation model, we like to say we look at the opportunity and the technology much more broadly than just sort of a chatbot, you know, and, and You know, a question and answer type. Of course, that is a product form factor which can be added to our large DAU products like tuition and QQ over time. But I think just to look at it more broadly, AI is really, the more we look at it, the more excited we are for it as a growth multiplier across our many businesses.
Speaker 2: Yeah, so in terms of the...
Speaker 2: Generally, I think and more broadly, the foundation model, I
Speaker 2: I would like to say we look at the opportunity and the technology much more broadly than just a chatbot and...
Speaker 6: Thank you.
Speaker 2: a question and answer type of experience. Of course, that is a product form factor which can be added to our large DAU products like Tuition and QQ over time. But I think just to look at it more broadly, AI is is
Speaker 2: The more we look at it, the more excited we are for it as a growth multiplier across our many businesses. It would serve to enhance efficiency and quality of our user-to-user services. And at the same time, I guess, facilitate.
Martin Lau: It would serve to enhance the efficiency and quality of our user-to-user services and, at the same time, facilitate the improvement in terms of our ad targeting, data targeting, and also the cost-efficient production of a lot of our content.
Speaker 2: the improvement in terms of our ad targeting, data targeting, and also cost
Martin Lau: So there are really multiple ways through which we can benefit from the continued development of generative AI. And in terms of... Just the development, I would say there are multiple initiatives that are going on at the company. The first one, obviously, is building our own proprietary foundation model, and that is actually progressing very well. The training is actually on track and making very good progress. We have started internal testing in our different businesses, including games, ads, cloud, and fintech, for them to start testing the model and start working on the integration. In terms of the performance of the model so far, I think, based on our own testing, it's among the top leading foundation models produced in China.
Speaker 2: production of a lot of our content. So there are really multiple ways through which we can benefit from the continued development of generative AI. And in terms of...
Speaker 2: Just the development, I would say there are multi initiatives that's going on at the company. The first one obviously is building our own proprietary foundation model and that is actually progressing very well. The training is actually on track and making very good progress. We have started internal testing.
Speaker 2: in our different businesses, including games, ads, clouds, FinTech, for them to start testing the model and start working on the integration. In terms of the performance of the model so far, I think, you know, based on our own testing, it's among the top leading foundation models in produced in China.
Martin Lau: And we're very relentlessly working on the upgrade and the iteration to prepare it for launch at some point in the latter part of this year. In terms of additional efforts, we are also on the cloud side providing a mass solution for enterprises, right, so basically providing a marketplace so that different enterprise clients can choose different types of large open source models for them to customize for their own use with their own data.
Speaker 2: And we're very relentlessly working on the upgrade and the iteration to prepare it for launch at some point of time in matter product this year. And in terms of additional efforts, we are also on the cloud side providing
Speaker 2: a mass solution for enterprises. So basically providing a marketplace so that different enterprise clients can choose different types of open source large models for them to customize for their own use with their own data. And we have a whole set of technology.
Martin Lau: We have a whole set of technology infrastructure as well as tools to help them to make the choice as well as to do the training and do the deployment, and we believe this is going to be a pretty high-value added and high-margin product for enterprise clients. At the same time, our different products have already been deploying different types of AIGC tools in order to enhance their efficiency or improve their product competitiveness.
Speaker 2: infrastructure as well as tools to help them to make the choice as well as to do the training and do the deployment. I believe this is going to be a pretty high-value and time-aging product for the enterprise clients.
Speaker 2: And the things our different products have already been deploying different types of AIGC tools in order to enhance their efficiency or improve their product competitiveness. For example, TensorFlow meeting has already been deploying model.
Martin Lau: For example, Tencent Meeting has already been deploying a model that's developed by one of our investing companies to provide a summary of the meeting notes, and it's actually providing a pretty good user experience and productivity gains for the customer. So, I think, you know, we are actually embracing Genentech AI on multiple fronts, and they are all making very good progress, and in the mid to long run, we believe this is actually a very positive driver for our business. It was wonderful. Thank you, Martin.
Speaker 2: that developed by one of our industry companies to provide summary of the meeting notes and it's actually providing pretty good use experience and to put activity gain for the customers.
Speaker 2: So I think we are actually embracing a giant AI on multiple fronts, and they are all making very good progress. And over the mid to long run, we believe this is actually a very positive driver for our business.
Operator: Thank you, Ronald. The next question will be from Kenneth Fong from Credit Suisse.
Speaker 5: One of them. Thank you Martin and James. Thank you. We're not. Next question will be kind of Alex Douglas.
Kenneth Fong: Hi, good evening. Thanks, Mitchell, for taking my... and congratulations for another solid set of results. My first question is on games. I understand that the lack of key title launches has been the reason behind the rather flattish domestic game revenue. But the new games aside, given that our legacy games monetization level is still very low, so how should we think about the longevity of existing titles and potentially growth going forward? And down to the VASGP margin, second quarter. So how should we think about margin sustainability going forward? And I have a follow-up. Thank you.
Speaker 2: Hi, good evening. Thanks, management, for taking my questions and congrats for another solid set of results. My first question is on games. Understand that the lack of key title launches has to be the reason behind the rather flat-table domestic game revenue. But the new games aside, given that our lack to see games monetization level is still very low.
James Gordon Mitchell: Hi Kenneth, so on your second question, the improvement in the value-added services business gross margin is structural, and it flows from a number of positive mixed shifts. One mixed shift is the very rapid increase in minigame activity, and as Martin discussed, minigames we book on a net revenue basis rather than a gross revenue basis, so the flow through from minigame reported revenue to gross profit is substantially higher than for the traditional game business.
Speaker 2: So how should we think about the longevity of existing titles and potentially growth going forward? And down to the VASGP margin. Second quarter was flat on a quarter of a quarter basis, which a historical is normally down a few percentage point. So how should we think about margins of senior ability going forward?
James Gordon Mitchell: Another factor that's affected us more recently is the reduction in live streaming entertainment revenue at our subsidiaries Tencent Music and Huya, and as you're probably aware, that revenue is unusually low-margin, so those are two examples of structural shifts away from lower-margin revenue streams toward higher-margin revenue streams, which we view as ongoing, and therefore, we believe the higher levels of value-added service gross margin are sustainable. On the game question, then we believe that the primary driver of the flat domestic game revenue in the second quarter was not a lack of new titles; we did launch some PC game titles; we didn't launch many mobile game titles, but even if we had, our revenue deferral cycle means they would contribute more later in the year than during the second quarter. The primary factor was our decision to temporarily release less commercially impactful content.
Speaker 4: and I have followed up. Thank you. Hi, Kenneth. So on your second question, the improvement in value at itself's business gross margin is structural and it flows from a number of positive mixed shifts. One mixed shift is the rate rapid increase in mini-game.
Speaker 7: activity and as Martin discussed mini games, we built on a net revenue basis rather than a gross revenue basis. So the flow through from mini game reported revenue to gross profit is substantially higher than for the traditional game business. Another factor that's affected us more recently is the reduction in live streaming and
Speaker 7: revenue streams toward higher margin revenue streams, which we view as ongoing and therefore we believe the higher levels of value act service growth margin are sustainable. On the game question, we believe that the primary driver of the flat domestic game revenue in the second quarter was not.
Speaker 7: our federal side for the use of the contribute more later in the year than during the second quarter. The primary factor was our decision to temporality release less commercially impactful content. In the first quarter we released the large quantity of commercially impactful content that results in
James Gordon Mitchell: During the first quarter we released a large quantity of commercially impactful content that resulted in our game grossing receipts increasing quite notably, substantially more than our game domestic revenue and then in the second quarter we took a sort of a pause period and in the third quarter we've resumed releasing this commercially impactful content. In terms of the longevity of our evergreen game, then we cited some data points around both bigger and smaller games as well as around some of the newer games that we hope to cultivate into evergreen status including Fight with the Golden Spatula, including Arena Breakout, including Wild Rift and you know I think in general if you compare our competitive esports type, evergreen titles with, you know, more content driven titles, then there's a gigantic difference in terms of retention.
Speaker 7: our game grossing receipts, increasing quite notably, substantially more than our game domestic revenue. And then in the second quarter, we took a sort of pause period and in the third quarter, we've resumed releasing this commercially impactful content. In terms of the longevity of our evergreen game, then we cited some data points around both bigger and smaller games.
Speaker 7: including wild rift. And I think in general, if you compare our competitive eSports type,
James Gordon Mitchell: And, you know, for many of our competitive esports titles, they're actually periods and Fight of the Golden Spatula has been doing this in recent months, when net churn is negative, meaning that new content, in this case, set nine, has caused more returning users or more lapsed users to return to the game, then we actually churned out of the game, which is something you don't really see in content driven games.
Speaker 7: Evergreen titles with more concentric of entitles, then there's a gigantic difference in terms of retention. And for many of our competitive eSports titles, there are actually periods and fight if the golden spatula has been doing this in recent months where net churn is negative, meaning third.
Speaker 7: new content in this case set 9 has caused more returning users or more lapsed users to return to the game than we actually turned out of the game which is something you don't really see in content driven games. So we have many years of experience of operating Epic green games, some of our earlier Epic green games, like League of Legends, and Honor of Kings.
James Gordon Mitchell: So, you know, we have many years of experience operating evergreen games; some of our earlier evergreen games, like League of Legends and Honor of Kings, are still very healthy today in terms of users and monetization. You know, one aspect of operating those games for decades rather than years or quarters is, you know, alternating between heavier commercialization quarters versus lighter commercialization quarters. But, you know, the benefit is that those games are popular and enduring for, you know, decades. And, you know, that's what we now also hope to achieve with the newer, would-be evergreen games, such as Fight for the Golden Spatula, Arena Breakout, and Wild Rift. Thank you.
Speaker 7: still very healthy today in terms of users and monetization. One aspect of operating those games for decades rather than years or quarters is alternating between heavier commercialization quarters versus lighter commercialization quarters. But the benefit is those games are popular.
Speaker 7: and enduring for in a decade. And that's what we now also hope to achieve with the newer, would be evergreen games such as Fight for the Golden Spatch or Arena Breakout of Bad Rift. Thank you.
Operator: The other point I would like to make is I think the game revenue actually does not really capture fully the development in our game franchise because it doesn't really cover the very fast growth in our presence within the casual game segment through the development of a mini-games platform, right? Mini-games platform is now by far the largest me a casual game platform in China and vis-a-vis any other casual game title or platform within China.
Speaker 2: If the other point I would like to make is, I think the game revenue actually does not really capture.
Speaker 2: fully the development in our game franchise because it doesn't really cover the very fast growth.
Speaker 2: in our presence within the casual game segment through the development of a mini games platform. Right, you know, a mini games platform is now by far the largest.
Speaker 8: me at a casual game.
Speaker 8: platform in China and these are the any of the casual game title or platform within China. I think you know it has multiple times in terms of user-based and multiple times in terms of gross receipts.
Operator: It has succeeded multiple times in terms of user base and multiple times in terms of gross receipts, but the financial benefit actually does not show up in game revenue. It actually shows up as only commission instead of the full gross receipts, showing up in the VAS revenue rather than in the games revenue. So, a very important development and growth of our casual games segment was actually not covered in the game revenue.
Speaker 8: But the financial benefit actually does not show up in the game revenue. It actually one shows up as only commission instead of the full gross receipt. And it's actually
Speaker 8: showing up in the VAS revenue rather than in the games revenue. So a very important development and growth of our casual games segment was actually not covered in the game revenue.
Speaker 2: Call it. My second question is on the advertising side. We noticed that we have a lot of initiatives, including internally, we upgrade our S system that lift our eye overall, and lead us to upper form peers. And externally, we also notice some cross-platform cooperation, like in 1618 with a key e-commerce platform.
Speaker 2: and some mini-game apps with another short-form video performance. So with Neo-term macro is still uncertain, how much more of this kind of an operational initiative for opportunities that we can capture to drive growth that will lead us to continue to perform PS going forward? Thank you.
Speaker 7: So I think there's a number of, you know, both longer term and more immediate opportunities, you know, in the immediate but also ongoing opportunities. Then if you look at video accounts, AdLoad is, you know, a tiny fraction of what appears or already operating at. And so, you know, going forward, we will progressively enhance our AdLoad and that translates mechanically into more revenue.
Speaker 7: Beyond that, we have new advertising inventory such as the search inventory within Weixin. And overall, we believe that there's an ample runway for growth. And yes, the overall economy is uncertain, but it has been uncertain for the past couple of years. It was uncertain the first half of this year, and we've been able to grow through that. And we believe we'll keep growing going forward as we enhance the return on investment to advertisers and therefore enhance what advertisers are willing to spend with us.
Operator: Overall, we believe that there is an ample runway for growth. And yes, the overall economy is uncertain, but it has been uncertain for the past couple of years. It was uncertain the first half of this year, and we've been able to grow through that. And we believe we'll keep growing going forward as we enhance the return on investment to advertisers and, therefore, enhance what advertisers are willing to spend with us. That's very clear. Thank you, Martin and James. Congratulations again.
Speaker 4: That's very clear. Thank you Martin and James for your Congress again. Thank you.
Alicia Yap: We will take the next question from Alicia Yap from Citi. Hi, good evening, management. Can you hear me?
Operator: Okay. Okay. All right.
Speaker 1: Hi, good evening management. Can you hear me? Okay. Yeah. Okay. All right. Thanks for taking my questions. My first question is on the 10th and cloud motor as a service solution. So that management view the solution to be initially adopted by larger enterprise within the industry that
Operator: Thanks for taking my questions. My first question is on the Tencent cloud model as a service solution. So does management view this solution to be initially adopted by larger enterprises within the industry that process large volumes of data? So besides tourism and public service that you mentioned, what other industry vertical do you plan to penetrate? Do you expect the medium size and smaller size enterprises could also benefit from and deploy the service?
Speaker 1: process large volume of data. So besides tourism, then public service that you mentioned, what other industry vertical do you plan to penetrate? Do you expect the medium size and the smaller size enterprise could also benefit and deploy the service? And lastly, if this model as a service solution is a high recurring revenues and a higher margin than the existing.
Operator: And lastly, is this model as a service solution generating high recurring revenues and a higher margin than the existing business service offering that you have? Second question, I wanted to follow up on the advertising. So if management can elaborate a little bit on the exact integration of machine learning on your ad platform that benefits ad revenue. It does look like it is just the very beginning, and we might see more positive impact from this AI on ad revenue growth in the coming future. So any color you could share, we would appreciate it. Thank you. Yeah, it's interesting.
Speaker 1: Second question, I wanted to follow up on the advertising. So if management can elaborate a little bit on what exactly the interpretations of the machine learning on your ad platform that balance bridge or the ad revenue. It does look like it is just a very beginning and we might see more positive impact.
Speaker 8: from this AI on the ad revenue growth in the coming future. Any color you appreciate, we appreciate it. Thank you. Yeah, in terms of the AI and model as a service solution, we, besides, you know, we think a lot of industries were actually benefit from it. And you know, initially it would definitely provide a few companies and in terms of the verticals in addition to tourism and public service.
Martin Lau: In terms of the AI and model-as-a-service solution, we besides think a lot of industries would actually benefit from it, right? You know, initially, it would definitely be larger companies. And in terms of the verticals, in addition to tourism and public services, we believe verticals such as financial institutions, retail enterprises, especially the large ones, and industrial companies, and even some midsize internet companies, right?
Martin Lau: You know, I think these are the companies that have data and user engagement. And I think, you know, they would be able to train their models and really assist in their interaction with their customers. I think over time, as the industry becomes more mature, obviously, medium-sized and smaller-sized enterprises will probably benefit, but I don't think they will be benefiting from using, training their own models, right, but then they will probably be benefiting from using, you know, the already trained models directly, so, you know, through API.
Speaker 8: and even some mid-size internet companies, right? Now, I think these are the companies which has data and user engagement and I think they would be able to train their models and really assist in their interaction with their customers. I think over time as...
Speaker 8: the industry become more mature, obviously the medium-sized and smaller-sized enterprises will probably benefit, but I don't think they will be benefiting from using, training their own model, right, but then they will probably be benefiting from using the already trained models.
Martin Lau: So I think, you know, that's sort of the way the industry will probably evolve over time. In terms of the business model, I think, obviously, the revenue model is still evolving, but I would say theoretically, what you talk about, about the higher margin and higher recurring revenue, is going to be true because we are adding more value to the customers, and once the customers start using these services, right, it will be built into their interaction with their customers, which will be much more sticky than if it's in their backend systems, so I think, All right.
Speaker 8: directly through API. So I think that's sort of the way the industry will probably evolve over time. In terms of the business model, I think obviously the revenue model is still evolving, but I would say theoretically what you talk about about the high margin and high recurring.
Martin Lau: And in terms of the app platform, I would say, I think James talked about quite a bit of that, right, you know, that if you look at the key changes or key things that we have done with respect to machine learning on our platform. I think, you know, the traditional challenge for us is that we have many different platforms. We have many different types of inventories.
Speaker 8: And in terms of the App Platform, I would say, I think James talked about quite a bit of that. If you look at the key changes or key things that we have done with respect to machine learning on App Platform, I think the traditional challenge for us is that we have many different platforms. We have many different types of inventories. We have a very large coverage of user base and with a lot of data. And all these things make it actually very complicated for us to target customers based on,
Martin Lau: We have a very large coverage of user base and a lot of data right now, and all these things make it actually very complicated for us to target customers based on just RU-based or CPU-based targeting systems, which was actually what we have been deploying. And a key change is that we have deployed a lot of GPUs, so moving from CPUs to GPUs, and we have built a very large neural network to basically accept all these different complexities and be able to come up with the optimal solution.
Speaker 8: just ROO-based or CPU-based targeting system, which was actually what we have been deploying. Key change is that we have deployed a lot of GPUs, so moving from CPUs to GPUs, and we have built a very large neural network to...
Speaker 8: basically accept all these different complexities and be able to come up with the optimal solution. And as a result, our targeting becomes much more effective at much higher speed and more effective atcar needs.
Martin Lau: And as a result, our targeting becomes much more effective at much higher speed and more accurate in terms of targeting. And as a result, it actually provides a very strong boost to our targeting ability and also the ROI that we can deliver through our app systems. And as James talked about, this is sort of the early stage of this deployment and continuous improvement of our technology. And I think this trend will continue.
Speaker 8: accurate in terms of targeting. And as a result, right now, it actually provides a very strong boost to our targeting ability and also the ROI that we can deliver through our app systems. And as James talk about, this is sort of new early stage of this deployment and continuous improvement.
Operator: Thank you, Alicia. The next question will be from Robin Zhu from Tencent.
Robin Zhu: Thank you. Thanks, management.
Speaker 9: We also have seated throughout of this conference.range poverty indoors.
Operator: Hi. A couple of questions, please. One specifically on games. Could you talk about the kind of upcoming launch slate? What in particular excites you on the new games front given, you know, everyone's desire to have some kind of visibility on that front? And could you talk about the progress of AAA game development? You know, I know, I know, the company kind of pivoted, what, two or three years ago now, and I just wanted to get an update on how you think that's doing.
Speaker 10: Could you talk about the upcoming launch slate? What in particular excites you on the new games front, given everyone's desire to have visibility on that front? Could you talk about the progress of AAA game development? I know the company pivoted two or three years ago now. I just wanted to get an update on how you think that's doing. And then, I guess a housekeeping point on minigames, it's clear that management is very excited about it. Why not disclose some financials around it and what that's doing? There used to be a line on smartphone games that you stopped disclosing at the end of last year, so thoughts on bringing that back.
Operator: And then, I guess a housekeeping point on minigames. It's clear that management's very excited about it; why not disclose some financials around it and what that's doing? There used to be a line on smartphone games that you stopped disclosing at the end of last year. So, you know, thoughts on bringing that back. Second question on e-commerce, again, another kind of important growth driver. I'm wondering if management can share some thoughts on the size of total e-commerce across WeChat, you know, how much that's growing and how much that is live streaming at the moment, and whether management have, you know, plans or targets in terms of getting to peer levels of scale on the e-commerce front. Thank you.
Speaker 10: Second question on e-commerce. Again, another kind of important growth driver. Wondering if management can share some thoughts on the size of total e-commerce across WeChat. You know, how much that's growing and how much that is live streaming at the moment and whether management have plans or targets in terms of getting to pure levels of scale on the e-commerce front. Thank you.
James Gordon Mitchell: Hi Robin. So, you know, on the games front, we have a number of titles, both domestically and internationally, that we're looking forward to releasing in the coming months. In no particular order and with no implied favoritism, on the domestic side, we have the High Ability Heroes game, we have an Honor of Kings tie-in, and we have a Need for Speed game. On the international front, just in the last two weeks, I think, Riot demonstrated their new fighting game at a fighting tournament in Las Vegas, which received an excellent reception. Grinding Gear Games has shown off Path of Exile 2, which has garnered a very positive reception.
Speaker 7: Hi Robin, so on the games we have a number of titles, both domestic and international that we're looking forward to releasing in the coming months.
Speaker 7: in no particular order and with no implied favoritism on the domestic side. We have the High Ability Heroes game, we have an Honor of Kings tie-in, we have a Need for Speed game. On the International France, just in the last two weeks, I think, Riot demonstrated their new fighting game at the...
Speaker 7: the fighting tournament in Las Vegas which received an excellent reception. Brining Gear Games has shown off Path of Exile 2 that has garnered a very positive reception. And then we have a number of games being made in China and distributed globally that are also important and interesting. In terms of the
James Gordon Mitchell: And then we have a number of games being made in China and distributed globally that are also important and interesting. In terms of the minigame disclosures, we review what we should disclose on an ongoing basis and will bear your counsel in mind. In terms of e-commerce, I would say before the launch of video accounts and live streaming e-commerce, right, you know, we already have a lot of commerce activities that are happening on our mini programs.
Speaker 7: minigame disclosures, then we review what we should disclose on an ongoing basis and will bear your counsel in mind. Thank you.
Speaker 8: In terms of e-commerce, I would say before the launch of video accounts and live streaming e-commerce, we already have a lot of commerce activities that's happening on our mini programs. That's in the trillions of annualized GMB.
James Gordon Mitchell: That's in the trillions of annualized GMB range, and I think out of that, a meaningful portion is actually related to fiscal products and e-commerce. So, you know, I think, you know, if you look at fiscal product e-commerce GMB, it's exceeding a trillion RMB in terms of annualized GMB, and if you look at live streaming, you know that That's a new source of revenue and a new series of e-commerce activities. And so far, the size of it is in the tens of billions of RMB annualized trend rate. So that's why we feel that it is actually sort of at a very early stage of development.
Speaker 8: And I think out of that, a meaningful portion is actually related to fiscal products, e-commerce. So I think if you look at fiscal...
Speaker 8: product e-commerce GMB, it's exceeding trillion RMB in terms of annualized GMB. And if you look at live streaming, right, that's...
Speaker 8: That's a new source of revenue and a new series of e-commerce activities and so far, the size of it is in the tens of billions RMB annualized trend rate. So that's why we feel that it's actually at a very early stage of development.
Martin Lau: But the fundamental difference here is that these are e-commerce revenues that we can charge you. And at the same time, it actually helps a lot of merchants to acquire new customers. If you look at the mini programs and e-commerce activities, the merchants are essentially using their own channels to serve existing customers and try to drive repeat purchases from existing customers, whereas in the live-streaming e-commerce activities, they're actually leveraging this platform to market their products and services to a new set of customers, right?
Speaker 8: But the fundamental difference here is that these are e-commerce revenues that we can charge at tick rate and at the same time it actually helps a lot of the merchants to acquire new customers. If you look at the mini programs, e-commerce activities, the merchants are essentially...
Speaker 8: using their own channels to serve existing customers and try to drive repeat purchases from existing customers. Whereas in the live streaming e-commerce activities, they are actually leveraging this platform to market their products and services to a new set of customers. And so it actually...
Martin Lau: And so it actually represents different dynamics, and at the same time, we felt it complements the mini-program e-commerce activities as well over time. So I would say the live-streaming e-commerce activity is a very nice addition to the overall e-commerce activities within the overall ecosystem, and it would actually be much more revenue-generating for us as well, because it generates commercial revenue. It also generates more advertising within video accounts because all these merchants will be spending ad dollars in order to drive new customers into their live-streaming e-commerce sessions.
Speaker 8: represent different dynamics and at the same time, it complements the mini-program e-commerce activities as well over time. So I would say the live streaming e-commerce activity is a very nice addition to the overall e-commerce activities within the overall ecosystem.
Speaker 8: it also generates more advertising within video accounts because all these merchants will be spending ad dollars in order to drive new customers into their live streaming e-commerce sessions.
Operator: Thank you. We're going to take the next question from William Packer from the BMC. William, you're live, it's awesome.
Speaker 9: Thank you. We will take the next question from William Packer from the BNC.
Speaker 11: Hi management, many many thanks for taking my questions.
William Henry Packer: Hi Management, many, many thanks for taking my questions. Firstly, there have been quite a few moving parts in regulation since the last earnings call, including a significant fine but also positive commentary on the platform economy from various state institutions. Firstly, like last quarter, could you update on recent domestic gaming short form video and fintech regulatory developments in recent months? And then, as a follow-up, the Cyberspace Administration of China has proposed new rules to protect miners online. Would you update us on any potential impact of those new rules on your business, excluding video games which you've already provided? Do you have an estimate?
Martin Lau: on revenue exposure to those aged 18 and below. Thank you. Okay.
Speaker 11: Firstly, there have been quite a few moving parts in regulation since the last earnings call, including a significant fine but also positive commentary on the platform economy from various state institutions.
Speaker 11: Firstly, like last quarter, could you update on recent domestic gaming short form video and fintech regulatory developments in recent months?
Speaker 11: And then as a follow up, the Cyberspace Administration of China have proposed new rules to protect minds online.
Speaker 8: Could you update us on any potential impact of those new rules on your business? Excluding video games which you've already provided, do you have an estimate on the revenue exposure to those aged 18 and below? Thank you. Okay. I think we have been talking about industry regulation and last...
Martin Lau: I think we have been talking about industry regulation, and last time, in previous times, we have said it has been trending toward normalization. And I would say this time around, in addition to trending toward normalization, there's actually sort of, you know, a bit of a more supportive stance. And this is actually from a number of different new developments.
Speaker 8: in addition to be turning to a normalization and there's actually a bit of a more supportive stance.
Martin Lau: Firstly, as you can see, the top leadership has recently repeatedly reiterated the prominent role of the private sector and also the platform economy and reiterated its intention to foster platform companies' healthy and sustainable development. Number one, in terms of the different, vertical ministries, right, you know, I think, you know, there are a number of different illustrations around fintech. The financial regulators in early July basically stated they had concluded the disciplinary action on the fintech sector.
Speaker 8: And this is actually from a number of different new developments. Firstly, as you can see, the top leadership has recently repeatedly reiterated the prominent role of the private sector and also platform economy. And
Speaker 8: has reiterated its intention to foster platform companies' healthy and sustainable development.
number one. In terms of the different vertical ministries, right, you know, I think, you know, there are a number of different illustrations around FinTech. The financial regulators in early July has basically stated they have concluded the disciplinary.
Martin Lau: And going forward, they're going to be focused on normalized regulation and also supporting and encouraging platform economies to continue the effort in financial inclusion. In terms of the investment category, the NDRC, on July 12th, issued a statement recognizing internet platforms' investments in startups, and these startups have contributed to technological innovation. And Tencent was specifically mentioned in relation to two investments.
and also supporting and encouraging platform economies to continue their effort in financial inclusion.
In terms of the investment category, the NDRC on July 12th issued a statement recognizing Internet platforms investment in startups.
and these startups have contributed to technology innovation and Tencent was specifically mentioned in relation to two investments. In terms of games, we see a continued normalized issuance of Panhau.
Martin Lau: In terms of games, we see continued normalized issuance. So I think across all these different segments that we have a significant business in, we have seen the regulatory environment trending towards normalization as well as a more supportive, All for Austin. Now, in terms of the CAC consultation paper on miners' protection, I think our view is that, number one, we actually fully support and embrace the policy because this is something that we have already been doing across many of our different products.
So, I think across all these different segments that we have significant business in, we have seen the regulatory environment trending towards normalization as well as more supportive business.
overall stance. Now in terms of the CAC consultation paper on miners protection, I think our view is that number one we actually fully support and embrace the policy because this is something that we have already been doing.
Martin Lau: For example, in games, we have already implemented mandatory protection measures, and the measures are actually much more stringent than what the consultation proposed. And within video accounts, the time spent to limit in T&H mode for us is 40 minutes per day, which is at the low end of the consultation. Time span of 40 to 120 minutes per day. So overall, we expect no material impact to our business because minimal revenue is actually generated from miners, and we will continue to be very committed to child protection and full compliance of relevant regulations and work very constructively with the regulatory authorities on this consultation and the subsequent implementation. Many thanks for the color.
across many of our different products. For example, in games we have already implemented...
mandatory protection measures and the measures are actually much more stringent than what the consultation proposed and within video accounts, the time spent limit in teenage mode for us is 40 minutes per day which is at the low end of the consultation time span of 40 to 120 minutes per day.
So overall, we expect no material impact to our business because minimal revenue is actually generated for miners.
And we will continue to be very committed to minor protection and full compliance of relevant regulations and work very constructively with the regulatory authorities on this consultation and the subsequent implementation.
Charlene Liu: Well, we will take the next question from Charlene Liu from HSBC. Thank you. Thank you, Wendy.
Many thanks for the call. Thank you.
Thank you. Thank you, Wendy. The first question I have is on profit growth. So obviously we've seen GPM and bottom line both came out ahead of consensus estimates. The high margin video account monetization obviously played a role in the results. I wanted to ask how should we think about
Charlene Liu: The first question I have is on profit growth. So obviously, we've seen GPM and the bottom line both come out ahead of consensus estimates. The high margin video account monetization obviously played a role in the results. I wanted to ask how we should think about profit growth trends for the second half of this year or even for 2024, particularly in the context of further monetization of video accounts and potential recovery of domestic revenue growth. Can these factors sustain stronger growth in profit against the top line? I have a follow-up later. Thank you.
profit growth trend for the second half of this year or even for 2024, particularly in the context of further monetization of video accounts and potential recovery of domestic gains growth. Can these factors sustain kind of stronger growth in profit against top line? I have a follow-up later. Thank you.
James Gordon Mitchell: Hi, thank you for that question. So, we believe that we are benefiting from three factors at the margins. One is the mixed shift to higher margin revenue, and you singled out video accounts. I'd also say that the deployment of ad tech generally allows us to begin to sell inventory that was previously unsold. And so that's a very high incremental margin business for us. It also results in more competitive bidding for inventory that we were previously selling, which again, higher prices translate into higher margins.
Hi, thank you for that question. So we believe that we are benefiting from three factors on margins. One is the mixed shift to higher margin revenue and you singled out video accounts. I'd also say that the deployment of ad tech generally allows us to...
James Gordon Mitchell: So, ad tech in general boosts our margins. In mini games, as we've discussed quite extensively, a very substantial sort of GMV revenue stream, but we're only booking a minority percentage of that into reported revenue. And then the flow through on the reported revenue is much higher margin than for our mainstream game business. The e-commerce fees are also disproportionately high margin because they're leveraging on the very substantial fixed investments into the mini program and video account infrastructure. So, that's one bucket.
that we were previously selling, which is again, higher price translates into higher margins. So ad tech in general boosts our margins. In a mini games, as we've discussed quite extensively, a very substantial sort of GMV revenue stream, but we're only booking a minority percentage of that into reported revenue.
and then the flow through on reported revenue is much higher margin than for our mainstream game business. The e-commerce fees are also disproportionately high margin because they're leveraging on the very substantial fixed investments into the mini program and video account infrastructure. So that's one bucket. The second bucket is the...
Charlene Liu: A second bucket is that we have scaled back certain lower-margin revenue streams, including some of the resale businesses within the cloud, including the live streaming entertainment that I referred to earlier at Tencent Music and Huya. And then, thirdly, we just have a different culture now of being very focused on cost discipline and efficiency. And that culture is here to stay. So, for those three reasons, we believe we'll continue to grow profits faster than revenue beyond the second half of this year and into the future.
We have scaled back certain lower margin revenue streams, including some of the resale businesses within cloud, including the live streaming entertainment that I referred to earlier at Tencent Music and Huya. And then thirdly, we just have a different culture now of being very focused on...
on cost discipline and efficiency and that culture is here to stay. So I think for those three reasons, we believe we'll continue to grow profits faster than revenue beyond the second half of this year and into the future. Thank you, that's really clear. Can I also get a sense on how many games are contributing to
James Gordon Mitchell: Thank you, that's really clear. Can I also get a sense of how much minigames are contributing to social network revenue and how much minigames apps are contributing to ad revenue, and how should we think about synergies versus competition between minigames against our online game business, please? Thank you.
social network revenue and how much is mini games at contributing to ad revenue and how should we think about synergies versus competition of mini games against our online game business please. Thank you.
Joan Loh: Well, why don't I talk about synergies versus competition, and perhaps John will give you some thoughts on the first part of your question. On the dynamics, in general, you know, we see three broad categories of games in China today. There are, you know, competitive e-Sports type games that are relatively evergreen in nature. And, you know, we have a very strong position in that market with all of the top games, and now with Wild Rift, Arena Breakout, and Fight for the Golden Spatula, we believe we're nurturing three more of those games. And, you know, they are evergreen in nature, and, you know, they'll be generating cash flow for us for, you know, decades rather than years to come.
Why don't I talk about the synergies versus competition and perhaps John will give you some thoughts on the first part of your question. On the dynamic, in general, we see three broad categories of games in China today. There are competitive esports type games that handle properly a relatively evergreen in nature.
And we have a very strong position in that market with all of the top games. And now with Wild Rift Arena Breakout and Fight for the Golden Spatula, we believe we're nurturing three more of those games.
James Gordon Mitchell: Then, you know, secondly, there are the more story or content-driven games, which historically has been a weaker area for us. There have been a number of, you know, very good launches by our competitors in the last few months, including, well, anyway, and we think that that signals, to some extent, a renaissance in that category, and we would like to participate over time in that renaissance So, we have some big narrative-driven, content-rich games in development, and, you know, time will tell how successful they are, but for us, it's sort of greenfield and, you know, largely upside.
in the last few months, including, well, anyway. And we think that that signals to some extent a Renaissance in that category, and we would like to participate over time in that Renaissance. So we have some big narrative driven content rich games in development, and time will tell how successful they are, but for us it's sort of greenfield and largely upside. And then thirdly, there are casual games. And if you look at the Western world, then every year or two, there's the new app-based casual game, an Among Us or Fall Guys that kind of generates great attention, especially among younger users.
James Gordon Mitchell: And then, thirdly, there are casual games and, you know, if you look at the Western world, then every year or two, there's a new app-based casual game, like Fall Guys, among us that kind of generates great attention, especially among younger users, and then, you know, typically reaches a certain point and then, you know, declines past that point. But the really big development in the past five years, which we've been following extremely closely, has been the emergence of platforms, in particular the Roblox platform.
James Gordon Mitchell: And, you know, while individual app-based games come and go in the casual category, on platforms, then, you know, the individual experiences also come and go, but the platforms appear to inexorably grow in terms of both users and revenue. So, we believe that the right way to address the casual game opportunity is primarily, not entirely, but primarily through the platform model. You know, we have a platform that is over five times bigger than any single app-based casual game in terms of users and also in terms of revenue.
James Gordon Mitchell: And, you know, it's growing at an extremely rapid rate year on year as new casual game experiences appear on that platform. In terms of cannibalization, then there are three sort of broad buckets of users of roughly similar size. One bucket is those who have historically played app and client-based games, and continue to do so, do not play the mini-games. A second bucket is those who have not previously played Tencent games at all and are only now playing Tencent mini-games. And then there are those who do both.
A second bucket is those who had not previously played Tencent games at all and are only now playing Tencent mini games. And then a third bucket is those who do both. We don't see any evidence of cannibalization because even for those who do both, they're generally playing different kinds of games, different day parts for the mini games versus what they're doing for the app-based or client-based games. So in our view, the mini game platform is largely incremental rather than cannibalistic to our app-based games. It gets us into this big emerging casual game opportunity and it gets us into it in a way that we think is the best way to get into it.
Joan Loh: And, you know, we don't see any evidence of cannibalization because even for those who do both, they're generally playing different kinds of games, you know, different day parts for the mini-games versus what they're doing for the app-based or client-based games. So in our view, the mini-game platform is, you know, largely incremental rather than cannibalistic to our app-based games. It gets us into, you know, this big emerging casual game opportunity, and it gets us into it in a way that we think is the best way to get into it, which is as a Roblox-like platform rather than as a standalone app with a standalone game experience that flourishes for a period of time, and then it gives way to the next hit. Yeah, in terms of the mini-games contributions, social networks, it's at single digit percentage, and also with, you know, online advertising.
Operator: Thank you. This is a really good caller. Thanks, James. Thanks, John.
Natalie Wu: Thank you. We will take the next question from Betsy Wu from Hightower International. Hi, thank you for taking my question. I have two here.
Natalie Wu: The first one is related to the game. Just curious, given that these days, the domestic game license approval process has been moving towards normalization. Do you feel competition heats up, and market share got more dispersed lately? And secondly, we know that with the domestic Chinese macro trending week, so just curious if we take a close look at your business lines, which will be the most vulnerable, and which will be the most resilient? And what kind of measures did you take or plan to take to deal with macro headwinds? Any color would be helpful. Thank you.
and market share got like more dispersed lately. And secondly with the, we know that with the domestic China's macro trending week, so just curious if we take a close look at your business lines, which will be the most vulnerable and which will be the most resilient.
James Gordon Mitchell: Why don't I start on both of those, and Martin can add to that. So on the competitive environment for games, you know, I'll repeat some of the answers to the last question, which is that we see these three broad categories, you know, one being the more competitive eSports games where, you know, we already have a very strong presence; we're doubling down on that with the success of the three new eSports games we
Why don't I start on both of those and last and may supplements. So on the competitive environment for games, I'll repeat some of the answer to the last question which is we see these three broad categories. One being the more competitive esports games where we already have a very strong presence, we're doubling down on that with the success of the three new esports games we've talked about. A second being the more content or narrative driven games where in a competition has intensified.
James Gordon Mitchell: A second being the more content or narrative-driven games where, you know, competition has intensified. A number of companies have brought some good games to market recently. That doesn't come at our expense because, historically, we generate very little revenue in that category, you know; rather, it's a category that we're looking forward to entering more actively in the years to come. And then thirdly, with the casual games, where there are a number of industry peers who are sort of seeking to be among us and, you know, we're seeking to be a Roblox, and, you know, that's Both businesses are good businesses, but, you know, we're certainly very happy with the business choice we've made of adopting the platform approach. So that's on the, you know, game competition aspect.
A number of companies have brought some good games to market recently, but that doesn't come at our expense because historically we generate very little revenue in that category. Rather, it's a category that we're looking forward to entering more actively in the years to come. And then thirdly with the casual games where there's a number of...
James Gordon Mitchell: In terms of the sensitivity to macro environments, then, you know, if we just touch briefly on each of them, advertising, FinTech, and games. Starting with games, while it was clearly not the best quarter for our domestic game revenue, I think that was completely unrelated to macro. In fact, in an environment where macro is challenged, consumers are shifting to lower ticket price experiences, and consumers are shifting from goods to services, which in theory, is pretty good for the game industry.
In terms of the sensitivity to the macro environment, then if we just touch briefly on each of advertising, FinTech and games, starting with games, while it was clearly not in the best quarter for our domestic game revenue, I think that was completely unrelated to macro. In fact, in an environment where macro is challenged, consumers are shifting to lower ticket price experiences, consumers are shifting from goods to services, in theory is pretty good for the game industry. And as a parallel, I'd point you to the movie theater industry in China, the movie ticketing, where as you may know, movie ticketing has been extremely strong in the last two to three months as people look for affordable entertainment driven experiences rather than highly priced luxuries and so forth. So I think the game business.
James Gordon Mitchell: And as a parallel, I'd point you to the movie theater industry in China, the movie ticketing industry, where, as you may know, movie ticketing has been extremely strong in the last two to three months, as people look for affordable entertainment-driven experiences rather than highly priced luxuries and so forth. So I think the game business, both in China and globally, historically, has not been economically cyclical, and we don't believe it will become economically cyclical now in China.
both in China and globally historically has not been economically cyclical and we don't believe it will become economically cyclical now in China. In terms of the advertising business, that could be economically cyclical, it should be economically cyclical. However, it's not sensitive so much to net exports or property prices. It's more directly sensitive to consumption spending and so far, consumption spending has been recovering, albeit at a very gradual measured pace. Again, we believe that whatever happens going forward to the macro environment and if net exports and real estate and so forth eventually impact consumer, that we will outperform because we're in the early stages of monetising video accounts.
James Gordon Mitchell: In terms of the advertising business, that could be economically cyclical; it should be economically cyclical. However, it's not sensitive so much to net exports or property prices; it's more directly sensitive to consumption spending, and so far, consumption spending has been recovering, albeit at a very gradual and measured pace.
James Gordon Mitchell: Again, we believe that whatever happens going forward with the macro environment, and if net exports and real estate and so forth eventually impact consumers, we will outperform because we're in the early stages of monetizing video accounts, because we're in the early stages of deploying ad tech, and because we deliver very high ROIs, which mean advertisers should stay with us for longer. And then on the fintech business, and particularly commercial payments within fintech, that do reflect economic activity, particularly consumer activity, somewhat in real time. And so I think that that is the business where macro variables play the most into our revenue fluctuation. Thank you.
where a macro variable plays the most into our revenue fluctuations.
James Gordon Mitchell: We do have a number of different services in tech beyond the immediate commercial payments. We talked about how, in this supportive regulatory environment, we look forward to extending and launching new such services. But commercial payment is probably the area where, for better or worse, we're most directly exposed to macroeconomic fluctuations on a month-to-month basis. Thank you for the issuance of new buy-in houses because the game industry is really driven by innovation. Without innovation, the market won't grow.
Martin Lau: And I think the fact that we have seen a growth in the overall market is because of the fact that we are seeing new innovations in new games. So when the overall market is spending, I think we benefit; we'll be bringing new titles to the market. And at the same time, I think if you look at the mini games platform, it actually benefits from the fact that there is more and more innovation within the market. Now, in terms of your second question on the consumption side, I think James has given a very good analysis of our own business. I just want to talk about some general thoughts.
Now, in terms of your second question on the consumption side, I think James had given a very good analysis of our own business. I just want to talk about some overall thoughts. What we have seen is consumption is recovering from the COVID period. It may not be as fast as the market expects or wishes, but we also see that the focus of the top leaders, government leaders on economic development and on supporting growth is actually very clear. And at the same time, the government is rolling out a series of policies and measures to drive economic growth.
Martin Lau: What we have seen is consumption recovering from the COVID period. It may not be as fast as the market expects or wishes, but we also see that the focus of the top... [inaudible] And at the same time, we also believe that there's a lot of resilience and entrepreneurship within the Chinese economy. So it would take time for different measures to be rolled out, to be implemented, and to take effect.
Martin Lau: But if you look at our own business, right, you know, we are in this waiting mode for the recovery to come in at a faster rate. We are already delivering a strong and solid set of revenue growth and even faster profit growth under the current environment. And that's due to the fact that we have very high quality revenue streams, and we have very strong discipline that has been developed during the difficult times. So we feel very good about our overall positioning.
in at a faster rate. We are already delivering a strong and solid set of revenue growth and even faster profit growth under the current environment and that's due to the fact that we have very high quality revenue.
streams and we have very strong discipline that has been developed during the difficult times. So we feel actually very good about our overall positioning.
Operator: That's very helpful. Thank you. Thank you. In the interest of time, we will take the last question from Thomas Chong.
That's very helpful. Thank you. Thank you. If you have time, we will take the last question from Thomas Chong.
Thomas Chong: Hi, good evening. Thank management for taking my questions. I have a question relating to the fintech side. Can management comment on how we should think about the tech wage trend, given it is still relatively low? And on the other hand, for other fintech segments such as online credit, wealth management, and insurance, are there any priorities for these new businesses going forward? Thank you.
Hi, good evening. Thanks management for taking my questions. I have a question relating to the FinTech side. Can management comment about how we should think about the tech rate trend given it is still relatively low? And on the other hand, for other FinTechs, can management
segments such as online credit, wealth management and insurance. Is there any priorities for these new business going forward? Thank you. In terms of tick rate, I think this would...
Martin Lau: Well, in terms of the tick rate, I think this will stay largely stable. But having said that, I think, you know, there are a number of different value-added services that we can actually offer to merchants. And you know, in those value-added services, we can actually sort of, you know, charge additional fees for the additional value that we offer to them. In terms of financial products, I think, given the conclusion of the disciplinary action of the regulators and the regulators clearly stating that they would be supporting healthy growth in the FinTech industry. We believe there will be more opportunities going forward.
And in terms of the financial products, I think given the conclusion of the disciplinary action of the regulators and the regulators clearly stating that they will be supporting healthy growth of fintech industry, we believe there will be more opportunities going forward. Thank you. Thank you all for joining our results webinar. We are now ending the 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.tensin.com. The replay of this webinar will also be available soon. Thank you and see you next quarter.
Operator: Thank you all for joining our results webinar. We are now ending the call.
Operator: 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.