Q3 2023 Tencent Holdings Ltd Earnings Call

Speaker 1: quarter results announcement webinar. I'm Wendy Huang from Tencent IR team.

Speaker 1: At this time, all participants are in a listen-only mode. After the management's presentation, there will be a question and answer session.

Speaker 1: For participants who dial in by phone, if you wish to ask a question, please press 5 on your telephone to raise your hand. If you are accessing from the 10th Amendment Meeting or VOO 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 a presentation, we would like to remind you that it includes four look-in statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons.

Speaker 1: Information about general market conditions is coming from a variety of reasons outside of Tencent.

Speaker 1: This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance propelled in accordance with IFRS.

Speaker 1: For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website.

Speaker 1: Let me now introduce the management team on the webinar tonight.

Speaker 1: Our chairman and CEO , Paul Nima, will kick off with a short overview.

Speaker 1: President Martin Lau will discuss strategy review. Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lo will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony. Thank you, Wendy.

Speaker 2: During the third quarter of 2023, we achieved a solid and high-quality revenue growth, notable margin expansion, and structural operating leverage.

Speaker 2: Relatively, new services such as video accounts and mini-games contribute high margin revenue streams while we leave focuses away from less scalable activities.

Speaker 2: We are increasing investment in our AI models, providing new features to our products and enhancing our targeting capabilities for both content.

Speaker 2: We aspire to position our leading AI capability.

Speaker 2: not only as a growth multiplier for ourselves, but also as a value provider to our enterprise customers.

Speaker 2: Now let me go through the headline financials for the third quarter.

Speaker 2: Total revenue was 155 billion RMB, up 10% year-on-year, and 4% quarter-on-quarter.

Speaker 2: Gross profit was 77 billion RMB, up 23% year-on-year, and 8%, quote-unquote.

Speaker 2: non-IFRS operating profit was 56 billion RMB up 36% year-on-year and 11% quote-unquote.

Speaker 2: Non-IFRS net profit attributable to equity holders was 45 billion RMB up 39% year-on-year and 20% quarter-on-quarter.

Speaker 2: For communication and social networks, combined MAU of WeChat and WeChat grew both year-on-year and quarter-on-quarter to 1.3 billion. For games, we reinforced our leadership in competitive multiplayer games while investing to develop a future hit in content-driven and casual games.

Speaker 2: For cloud, we upgrade the size and capabilities of our proprietary foundation model, Tencent Huanyuan. We are making Huanyuan available on a limited basis to the public and to customers, and deploying Huanyuan in Tencent Meeting and Tencent Box. I will now hand over to Martin.

Speaker 2: Thank you, Pony, and good evening, everybody. In the past few years, the internet industry in China has gone through structural challenges leading to strategic changes. A major strategic change is a shift away from seeking to maximize revenue at all costs toward delivering high quality and sustainable growth.

Speaker 3: Today, I would like to share with you the progress we have made towards high-quality revenue streams and how this shift is translating into improved operating leverage and strategic position. To start with, let me walk you through the evolution of our WayVision platform and how it continues to improve its position by enhancing its value to users.

Speaker 3: The original Weixin experience was messaging, and the franchise is stronger than ever, as messaging remains the highest daily user frequency service in China.

Speaker 3: WeChat chats, DAU, and daily messages sent per user are consistently increasing, driven by the evergreen need for communications among friends, family members, and colleagues. Meanwhile, WeChat chat meets social networking needs through group functionalities and moments, and also enables new forms of connections, such as customer support service.

Speaker 3: Subsequently, we supplemented messaging with open platforms, which connect users with a range of external services.

Speaker 3: These include official accounts, which enable brands and content creators to reach their followers with text and image content.

Speaker 3: and mini-programs which allow users to transact with merchants and service providers offline and online.

Speaker 3: Each day, several hundred million unique user visits and interact with over a million unique mini programs.

Speaker 3: Mini programs facilitated over 1.5 trillion RMB of GMB in the third quarter. Merchants and service providers developing and managing their own mini programs provides growth and innovation for our ecosystem.

Speaker 3: Mini Games, which is a successful vertical use case for mini programs, has become the largest casual game community in China.

Speaker 3: We monetize in these open platforms primarily through payment tick rate and a very light advertising load.

Speaker 3: resulting in a wide gap between the value would deliver to participants versus the revenue

Speaker 3: More recently, Weixin launched Video Account, which is a major new addition to the Weixin ecosystem.

Speaker 3: Video accounts are growing usage fast, and that usage is incremental to our messaging and open platform time spent, uplifting Weixin's overall time spent.

Speaker 3: Video accounts also differ from chat and open platforms in that they enable us to participate in high margin monetization activities such as in-feed advertising and e-commerce technology.

Speaker 3: Going into Weixin's new services monetization a bit more, our newest services in Weixin are generating revenues at higher incremental margins than our company average.

Speaker 3: specifically for video accounts. Monetization generates high incremental margins because first, we're already incurring video accounts platform costs during the build phase prior to monetization. Second, once video accounts attain critical mass, our developers can start streamlining operating costs such as bandwidth, service, and content costs.

Speaker 3: Consequently, video accounts advertising revenue is high margin and offers a long runway for growth ahead, given increasing video views, low ad load compared to peers, and continued deployment of AI technology to enhance ad click-through rates.

Speaker 3: Video accounts, e-commerce technology service fees, which we book on a net basis, are also high margins in nature for similar reasons.

Speaker 3: Additionally, we're cultivating more high-quality revenue stream opportunities within Weixin. For example, minigames, which we discussed last quarter at quite a bit of length, contribute platform fees and advertising revenues to Tencent.

Speaker 3: From a reporting perspective, we'll also book platform fees on an app basis such that mini-games revenue carries higher margins than app-based games.

Speaker 3: And for WeChat search, the increasing volume of transactions within WeChat is driving rapid growth in our commercial query volume. And marketing search keywords on our own existing traffic generates high margin inherently.

Speaker 3: We believe we have moved into a high quality revenue growth model.

Speaker 3: Under this model, we can now deliver greater operating leverage than in the past.

Speaker 3: Prior to 2021, our growth and operating profit typically grew at similar or slower rates versus our revenue, while in 2021 and 2022, slowing revenue growth translated into even slower profit growth, or in some certain quarters, profit decline.

Speaker 3: However, entering 2023, solid revenue growth rates have translated into substantially faster growth and operating profit growth rates.

Speaker 3: There are three drivers in this significant change. Two sustainable ones colored in blue on the right, and one one-time driver colored in gray.

Speaker 3: The biggest driver of this change, which we view as structural in nature, is a positive revenue mix shift.

Speaker 3: i.e. the growth of new high-quality revenue streams and the scale-back of certain low-quality activities.

Speaker 3: This positive mixed shift is the primary reason for gross profit growth exceeding revenue growth.

Speaker 3: A second driver, which we view as less recurring, is that we optimize costs by exiting certain non-core business and cut back excessive spending on operations, subsidies, and marketing activities during the tough times.

Speaker 3: This driver helps explain why operating profit growth has succeeded gross profit growth, partly, and we view it as a lever for pooling at certain times, but not at all times. The third driver, which we

Speaker 3: is our heightened focus on cost discipline. We're seeking to continuously improve operational efficiency, thoughtfully allocate headcount, and effectively manage marketing expenses so as to maintain a focused organization and lean cost structure for the future.

Speaker 3: Lastly, I will also share with you how we think about our position in the games market.

Speaker 3: We maintain a strong and defensible franchise in competitive multiplayer games due to the ongoing popularity and performance of our flagship evergreen games such as Honor of Kings, League of Legends, and Peacekeeper Elite.

Speaker 3: but we also supplement our success by cultivating new competitive multiplayer games such as Fights of Golden Spatula, Arena Breakout, and Valorant, which have the potential of becoming evergreen titles in the future.

Speaker 3: Looking across the market, we've seen increased interest in casual games and renewed excitement around content-driven games. These trends have not negatively impacted our competitive multiplayer games in terms of audience and monetization.

Speaker 3: But on the other hand, we see these as new opportunities for us to capture, and we are investing to benefit from these trends. For content-driven games, we have a

Speaker 3: including Naruto Mobile, Lost Ark, and the K.

Speaker 3: But we aspire to create even bigger hits in the future.

Speaker 3: For casual games, we already operate the largest casual game platform in the model of minigames. We are also seeking to operate...

Speaker 3: blockbuster app-based casual games with user-generated content capability.

Speaker 3: Looking forward, we have a substantial pipeline of new games in development, including

Speaker 3: Games that expand our own game IPs, such as Honor of Kings World, Valorant Mobile, and Delta Force. Mobile games that utilize well-loved and licensed IPs, such as Monster Hunter Mobile, Assassin's Creed Mobile, and One Piece Mobile.

Speaker 3: and new games with new IPs in high-potential genres such as Dreamstars in casual games, Nightingale in survival open-world crafting, and Ash Echoes in RPG.

Speaker 3: We're taking more time than before in developing these games because we want to ensure the quality of these games and because our improved financial structure described in the previous slides offer us the ability to do so. Now with that, I will pass to James to talk about

Speaker 4: Thank you, Martin. For the third quarter of 2020, our federal revenue increased 10% year-on-year. BAS represented 49% of our revenue, within which the social network sub-segment was 19%, domestic gains 21%, and international gains 9%. Online advertising was 16% of our revenue, and FinTech and business services was 34%.

Speaker 4: The value-added services segment revenue was 76 billion renminbi, up 4% year-on-year. Social networks revenue was 30 billion renminbi, flat year-on-year, as revenue from music-related and game-related live-streaming services sharply decreased.

Speaker 4: while revenue from music subscriptions and minigames substantially increased. Profitability improved as we book entertainment live streaming revenue on a gross basis, treating revenue sharing as content cost, whereas we book minigame revenue on a net basis, netting the game developers' revenue share out of our revenue.

Speaker 4: Long-form video subscription revenue increased 2% year-on-year, benefiting from higher ARPU. Video subscriptions declined slightly year-on-year, though grew quarter-on-quarter to 117 million accounts.

Speaker 4: Our exclusive drama series, Lost You Forever, ranked first industry-wide by video views across all online platforms in China during the quarter.

Speaker 4: Music subscription revenue increased 42% year-on-year. Tencent Music optimized user operations, enriched membership privileges, and deepened collaborations with labels and artists.

Speaker 4: resulting in music subscriptions from 21% year-on-year to 103 million accounts, and ARPA increasing 17% year-on-year.

Speaker 4: Domestic games revenue grew 5% year-on-year to $33 billion in B. The increase was driven by new launches, Valorant and Lost Ark, as well as evergreen titles such as Honor of Kings and Dungeon and Fighter.

Speaker 4: International games revenue increased 14% year-on-year, or 7% in constant currency terms, to 13 billion renminbi. The recovery of PUBG Mobile and sustained contributions from Nikkei, Valorant, and Triple Match 3D drove the growth and offset a tough comparison from Tower of Fantasy's launch quarter in the third quarter of 2022.

Speaker 4: But communications and social networks, wasting video accounts, video views, increased over 50% year on year, thanks to a thriving creator community and growing user mindshare. Original content that is uploaded directly to video accounts, now contributes to the large majority of our video views, demonstrating the service's content creation and consumption flywheel. We're enhancing our recommendation algorithms and traffic support programs to more actively surface original content within the video account.

Speaker 4: Inside QQ, we're adding capabilities to QQ channels, which enable users with shared hobbies, activities, or memberships to operate interest-based communities using software tools such as VoiceChat and Event Manager.

Speaker 4: QQ now hosts over 700,000 active channels covering categories including colleges, games, knowledge-based content, and music.

Speaker 4: Moving to domestic games, the 19th Asian Games held in Hangzhou included esports as official medal events for the first time, reflecting interesting competitive games from the general public and endorsement from governments. We published four out of the seven games selected for the Asian Games, Arena of Valor, Peacekeeper Elite, League of Legends, and FC Online.

Speaker 4: During the quarter, we extended our leadership in competitive multiplayer games. Honor of Kings remained the first place mobile game across all genres in terms of DAU, time spent in gross receipts, while we've also grown Wild Rift's audience and monetization, such that Wild Rift now ranks among the top 10 mobile games by gross receipts too. Between our three big battle arena games, Honor of Kings, Wild Rift, and League of Legends, we serve different player needs and innovate in multiple directions within the battle arena genre.

Speaker 4: Similarly, for FPS games, where launching new titles would appeal to different player interests and capture new gameplay concepts, such as the PC tactical first-person game, Valorant, and the mobile hero first-person game, Hyper Legends. While it typically takes several years to grow individual FPS games into their potential audience and monetization, Valorant has already become one of the leading PC games in China in terms of users and of revenue.

Speaker 4: Martin spoke about our aspirations to size up in content-driven and casual games. For content-driven games, in August , we launched MapleStory The Legends of Maple, which ranked fourth across all mobile games by gross receipts in its first 30 days.

Speaker 4: For Casual Games, we opened our mobile party game, DreamStars, up for pre-registration in September , and the game has accumulated over 27 million pre-registrations so far. We're making a substantial investment around DreamStars' upcoming launch.

Speaker 4: Turning to international games, among our competitive multiplayer games, after a post-COVID consolidation period, PUBG Mobile returned to year-on-year and quarter-on-quarter increases in DAU and gross receipts, benefiting from appealing content and themed events such as a Dragon Ball collaboration.

Speaker 4: Call of Duty Mobile, which we released back in 2019, achieved record high monthly gross receipts in July , driven by new season content, including a top-tier operator and a new arena mode. Among our content-driven games, Nikkei maintained robust DAU and gross receipts via content updates, such as a collaboration with Square Enix's Nier Automata.

Speaker 4: For online advertising, our revenue increased 20% year-on-year to 26 billion renminbi with notable growth contributions from video accounts, mobile ad network, and WeChat search. Advertiser categories such as fast-moving consumer goods and local services increased spending while automobiles were weaker.

Speaker 4: Our advertising revenue year-on-year growth rate slowed versus the previous quarter because as e-commerce has become a much bigger contributor to our ad revenue in recent periods, our advertising revenue seasonality has changed. With the second and fourth quarters of each year seeing more positive seasonality, while the first and third quarters see weaker seasonality, reflecting the weighting of e-commerce promotional activities toward the second and fourth quarter of each year.

Speaker 4: In addition, we began monetizing video accounts via in-feed ads through the third quarter of last year.

Speaker 4: We have expanded our AI models with more parameters to increase their ad targeting and attribution accuracy, contributing to our ad revenue growth. We're also starting to provide generative AI tools to advertiser partners, which enables them to dynamically generate ad visuals based on text prompts and to optimize ad sizes for different inventories, which should help advertisers create more appealing advertisements with higher click-through rates, increasing their transactions and our revenue.

Speaker 4: Closed-loop advertisements, which link directly to a transaction or user action within the app where the advertisement appears, provide users and advertisers with a shorter impression to transaction funnel and enhance the effectiveness and measurability of advertising spend.

Speaker 4: Advertisers are increasingly linking their ads within Weixin to transactions or actions inside the advertiser's mini program, video account, official account, or Wecom landing page. And such closed-loop ad revenue increased over 30% year-on-year during the quarter, now accounting for more than half of Weixin's ad revenue.

Speaker 4: Video accounts ad revenue grew notably quarter-on-quarter, driven by increases in video views and time spent on a stable ad load percent.

Speaker 4: On the content side, our long-form video ad revenue increased moderately year-on-year, and our music ad revenue maintained robustly year-on-year growth.

Speaker 4: Looking at FinTech and business services, segment revenue was $52 billion RMMB, up 16% year-on-year.

Speaker 4: FinTech services revenue sustained a team zero on year growth rate, benefiting from increased commercial payment activity and wealth management aggregated customer assets.

Speaker 4: For commercial payments, daily active users and transaction per user both increased year-on-year. Enhanced merchant solutions boosted mini-program transactions in categories such as retail, travel and transportation, and dining services, and mini-program transactions have notably increased as a proportion of our overall commercial payment volume.

Speaker 4: For business services, revenue grew at a double-digit rate year-on-year in the third quarter, accelerating versus the second quarter, and the business services gross margin improved significantly year-on-year. Our cloud services revenue growth benefited from the restructuring undertaken in prior periods, as well as from higher spending by industries such as finance and automotive.

Speaker 4: Video accounts, e-commerce, transaction GMV increased quarter-on-quarter and the technology service fees we collect on these transactions contributed to the business services revenue and margin up.

Speaker 4: We've upgraded our proprietary foundation model, Tencent Honyuan. We've made Tencent Honyuan Bot initially available to a small or their expanding number of users via a mini program. Honyuan is also now powering meeting summarization in Tencent Meeting and content generation in Tencent Docs.

Speaker 4: And externally, we're enabling enterprise customers to utilize our large-language model via APIs or model-as-a-service solutions in our cloud for functions such as coding, data analysis, and customer service automation. And now I'll pass to John for the final.

Speaker 5: Thank you, James. Hello everyone. For the first quarter of 2023, total revenue was 154.6 billion renminbi, up 10% year-on-year. Gross profit was 76.5 billion renminbi, up 23% year-on-year. Operating profit was 48.5 billion renminbi, down 6% year-on-year.

Speaker 5: Finance costs were 2.8 billion RMB, a 43% year-on-year, due to reduced forex gains and to a lesser-than-higher-interest expense.

Speaker 5: Share profit of Associates and JVs was R$2.1 billion compared to share loss of R$3.7 billion for the third quarter of 2022.

Speaker 5: On a non-IFRS basis, share profit was 4.8 billion renminbi, improving from share profit of 2.4 billion renminbi last year.

Speaker 5: This was driven by better profitability of certain domestic associates, thanks to their revenue growth and improved cost efficiency, along with a successful game released by an overseas investor.

Speaker 5: Income tax expense increased by 55% year-on-year to 11 billion RMB, driven by pre-tax profit growth and increased withholding tax provision.

Speaker 5: IFRS NAP profit attributable to equity holders was 36.2 billion RMB, down 9% year-on-year. Diluted EPS was 3.752 RMB, down 9% year-on-year.

Speaker 5: Now I'll share our non-NIAVRS financial figures. Operating profit was 55.5 billion RMB, up 36% year-on-year. Net profit attributable to equity holders was 44.9 billion RMB, up 39% year-on-year. Diluted EPS was 4.657 RMB, up 41% year-on-year.

Speaker 5: Overall gross margin was 49.5%, a 5.3 percentage point year.

Speaker 5: By segment, gross margin for VAS was 55.5%, a 3.8 percentage point year-on-year. This was due to higher mix of high-margin games revenue, including mini-games, and lower mix of low-margin music and games-related live streaming revenue, along with our cost-control meshes.

Speaker 5: Gross margin for online advertising increased to 52.3 percent, up 6 percentage points year-on-year. This was mainly driven by high incremental profits generated from video accounts ad revenue, as well as our efficiency improvement.

Speaker 5: Gross margin for FinTech and business services was 40.9%, up 7.6 percentage points year-on-year. This was driven by margin improvement for in-crowd business restructuring, emerging high-margin revenue from video accounts, e-commerce, technology service fees, structural shift to what's...

Speaker 5: certain high margin products within FinTech services in our operational efficiency initiative.

Speaker 5: On operating expenses, selling and marketing expenses were 7.9 billion RMB up 11% year-on-year due to more spending on promotion and advertising, and the total represented 5.1% each.

Speaker 5: 5.1% of revenues. R&D expenses were 16.5 billion RMB, up 9% year-on-year, mainly because of higher staff course on research and development projects.

Speaker 5: GNA excluding R&D were 9.8 billion renminbi down 14% year-on-year, mainly due to lower staff force, including reduced surveillance payments.

Speaker 5: At quarter end, we had approximately 105,000 employees, down 3% year-on-year, or up 1% quarter-on-quarter.

Speaker 5: Let's look at our operating and net margin ratios. For the first quarter of 2023, non-IR virus operating margin was 35.9% up 6.7 percentage points year on year. Non-IR virus net margin was 29.6% up 5.8 percentage points year on year.

Speaker 5: To conclude, I will highlight some key cash flow and balance sheet metrics.

Speaker 5: Total cutbacks was 8 billion RMB, more than triple year-on-year.

Speaker 5: Within total capex, operating capex was 6.6 billion renminbi, up more than five times year on year, driven by increasing investment in GPUs and servers.

Speaker 5: Non-operating capex rose by 6% year-on-year to 1.4 billion RMB.

Speaker 5: Free cash flow was 51.1 billion RMB up 85% year-on-year, mainly driven by higher receipts from various businesses and timing difference in the settlement of certain accounts payable.

Speaker 5: Net cash position was $36.4 billion RMB, up 106% quarter-on-quarter, reflecting strong free cash flow generation, partially offset by cash outflow for share repurchases and strategic investment.

Speaker 1: Thank you, John . 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 from the Tencent meeting or group meeting application, please click the Raise Hand button at the bottom left. We will take one-man question and ask one follow-up question each.

Speaker 1: The first question comes from the tennis phone from the UBS.

Speaker 2: Thank you, good evening management. Thank you for taking my questions and congrats for another solid quarter of quality growth. I have two questions. The first is on minigames. Could management share with us more about the future strategy of minigames given Tencent a strong franchise? We will be just staying at a platform for distribution or we can actually use minigames to rejuvenate some of our existing titles which are late in their product cycles.

Speaker 6: Also, going forward, any shift in our strategy on the game launch between app-based versus mini-games in our games going forward?

Speaker 6: And I have a follow-up question on the AI strategy. We have successfully launched the Hunyuan AI model, and we stand up versus our peers with our use cases. Can management share with us how would the US chip spend impact our AI strategy, including product launch, monetization, and also area of focus? Thank you.

Speaker 4: Hi, Kenneth, thank you for your question. So I'll take the mini game question. Martin will handle the AI question. For the mini games.

Speaker 4: We view the minigame opportunity for Tencent primarily as a platform opportunity.

Speaker 4: And, you know, there are many thousands of game development studios that now focus on creating mini-games. You know, we're very happy to nurture that ecosystem and we don't want to squeeze or unduly pressure that ecosystem. You asked about whether we would seek to rejuvenate existing titles which are late in their product cycle by releasing mini-games. And, you know, the reality is that

Speaker 4: Our game strategy is not built on titles.

Speaker 4: that have a product cycle that age and that then require heavy rejuvenation.

Speaker 4: our game strategy is built around what we hope will become evergreen games.

Speaker 4: and it's built around making those evergreen games as popular and successful as they can be, and then adding further evergreen games that will also be popular and successful. So we don't hugely focus on taking smaller games that have a product cycle and then seeking to rejuvenate them through minigames or anything else.

Speaker 3: In terms of Hun Yuan and the overall AI strategy, I would say we

Speaker 3: have been pretty far along in terms of building up Hunyuan. And we feel that we are one of the leaders within China. And we are also continuously increasing the size of the model and preparing for the next generation of our Hunyuan model, which is going to be a mixture of experts, architecture, which we believe will further improve.

Speaker 3: the performance of our Hunyuan model. And by building up Hunyuan, we actually have...

Speaker 3: really build up our capability in general AI across the board, because when you're in the transformer-based model, it involves the handling of a large

Speaker 3: amount of data, large amount of training data, large size of computing cluster, and a very delicate fine-tuning process in terms of improving the AI performance. And by going through the process right now, we have also built up a lot of

Speaker 3: our AI capability, which is not transformer-based but can be applied in many of our other businesses.

Speaker 3: So if you look at Huanyuan itself, right now we see it.

Speaker 3: are very good at generating text and messages and

Speaker 3: And that actually is quite useful for a lot of

Speaker 3: A lot of SaaS applications improve the capability of the SaaS service. For example, in Tencent Meeting, we can actually leverage Huanyuan to provide a summary of meetings and help people to catch up on meetings if they have missed the first half of the meeting and so on and so forth. And in Tencent Docs, we can actually provide a whole set of tools for people to create documents in a much more efficient way.

Speaker 3: These services are already offered to outside customers. And we also have a whole set of productivity enhancement tools, such as the customer service.

Speaker 3: APIs, which are now being tested by a lot of customers.

Speaker 3: and enterprise customers who have the need to interact with their customers. In terms of co-generation, it's actually sort of providing very good.

Speaker 3: results and tools for our programmers as well as our outside customer programmers to improve on their coding efficiency. And it's also helping in terms of content creation for both of our advertising business, helping advertisers.

Speaker 3: To create more ads, more targeted ads, which can be used to improve the click through rates of the advertising. As well as in the game production process, especially related to the artwork.

Speaker 3: We are actually leveraging AI to actually help us to create these artworks in a more efficient and cost-effective way.

Speaker 3: So that's for Hunyuan, and the general AI capability is actually helping us quite a bit in terms of the targeting technology related to advertising and our content.

Speaker 3: a provisioning service, so in short video, by improving our AI capability, we can actually ramp up our video accounts at a faster clip. And in terms of the advertising business, by increasing the targeting capability, we are actually increasing our ad revenue. And by delivering better results to the

Speaker 3: to our customers. So they are generating, so our AI capabilities is generating tangible results at this point in time. And we actually look into the future. Huanyuan can actually provide a lot of tools for enterprise customers. It can further improve our advertising business efficiency by

Speaker 3: In the future, really merging the advertising stage and the selling stage, if we can actually provide very good customer service capability, then a lot of merchants can actually combine the advertising and sales process into one. And we also

Speaker 3: further in the future when there's actually a consumer-facing product that's more like a smart agent for people, right? That is further down the road, but it actually carries quite a bit of room for imagination. Now in terms of the chip situation, right now we actually have one of the largest inventory of

Speaker 3: of AI chips in China among all the players. And one of the key things that we had done was actually we were the first to put in order for H800, and that allowed us to have a pretty good inventory of H800 chips. So we have enough chips to continue our development of Hunyuan for at least a couple more generations.

Speaker 3: And so the ban does not really affect the development of Huanyuan and our AI capability in the near future. And going forward, we will have to figure out ways to...

Speaker 3: make the usage of our AI chips more efficient. We'll try to see whether we can.

Speaker 3: offload a lot of the inference capability to lower performance chips so that we can retain the majority of our high-performance AI chips for training purpose. And we also try to look for a domestic source for these training chips.

Speaker 1: Thank you. We will take the next question from Gary from Morgenstern.

Speaker 7: Hi, thank you management for the opportunity and congratulations for another solid quarter. My first question is also related to the games business. I think two years ago we also identified games as the key investment area for FutureGlobe. I think at that time we were expecting a kind of two to three years production cycle.

Speaker 7: We commented that because of the improvement in financial performance, we now have the luxury to take a longer time for the production cycle. So where are we right now at the production cycle and how should we look at these investments translating into games pipeline in different genres and also financial performance in the next couple of years?

Speaker 7: And then I have a follow up questions related to our capital management. I think last year we increased dividends. We have step up our share buyback. How should we look at the opportunities in our investment portfolio, similar to what we did on JD and May 20 distribution in the past two years? Thank you.

Speaker 4: Hi Gary, so on the game question then, in general, we have chosen to elongate our game production cycles, you know, sometimes by six months, sometimes by 18 months.

Speaker 4: There's a couple of reasons for that. One is that we can see empirically that there's bigger opportunities now for the best games, especially if the development studio is patient about investing the time, the resources to make the best games be all that they can be. Of course, we want to capitalize on that and release the best games.

Speaker 4: And then secondly, as you alluded to, with the high-quality revenue growth model in place, we feel we now have the luxury where

Speaker 4: and those will be the test cases of how effectively we're executing in that direction. But overall, we feel that we now have this luxury of playing the long game because the high-quality revenue growth model provides us with earnings growth.

Speaker 3: In terms of shareholder return and capital management, I would say a few points, right? Number one,

Speaker 3: So we do have the flexibility of using different tools to increase a shareholder return.

Speaker 3: And if you look at the tools that we have, right, you know, obviously you mentioned there's share buyback, there's a dividend, there is also a distribution of investee shares that we have executed before. And there's also divesting investments so that we generate cash, so that we can actually do more of share buyback and dividend. So,

Speaker 3: We will use these tools dynamically and also at different times in different combinations.

Speaker 3: to improve and return, improve the shareholder return and return capital to our shareholders.

Speaker 3: But I would say at this point in time, if you look at the market

Speaker 3: the valuation in the market for China in that stock is almost at historical lows, right? So I would say at this point, buyback will be a more favorable means for our shareholders than other means.

Speaker 8: Thank you. We're going to take the next question from William Packer from BMP. We're in your lines over.

Speaker 4: My question is around the sustainability of growth margin improvement across the key B.A.S. ads and fintech segments of your portfolio. Are the gains we've seen year to date sustainable into twenty twenty four and beyond and is there further upside from makeshift.

Speaker 4: And my follow-up question was around domestic gaming. Growth's been volatile in recent years, as you've digested.

Speaker 4: The impact of lockdowns replication, etc. We now seem to settled into a more normalized period. How should we think about the medium to long term growth algorithm.

Speaker 9: and to what extent are you reliant on new hit content within that segment. Thank you.

Speaker 4: I will. So on the margin question, we talked about how there's three drivers.

Speaker 4: of the uplift in margins in recent quarters.

Speaker 4: And, you know, two of them we view as sustainable and recurring in nature. You know, one of them, which is the headcount adjustments, restructuring and so forth, is more episodic in nature.

Speaker 4: And, you know, looking forward, in general, the revenue streams that are growing fastest in our business are the revenue streams with the highest margins.

Speaker 4: So we believe that the current level of gross margin is sustainable and we believe that there is room for margins to improve further.

Speaker 4: And if you look at the advertising segment, for example, you know, the gross margin has improved from 30 percent to around 50 percent.

Speaker 4: You know, our closest global comparable is running an advertising gross margin of 80%.

Speaker 4: So, that's on the margin side. With regards to the games, then we believe that the existing evergreen games provide a certain quantum of growth. And then on top of that, we have new games in the pipeline, and depending on when we release those and the success of those new games, those can provide additional growth on top.

Speaker 1: Thank you. Thank you, William. Next question comes from John Choi from Daiwa.

Speaker 10: Good evening. Thank you for taking my question. I have just a quick one question on the games, as you mentioned. I think you guys mentioned that domestic you're more comfortable with the more launches. But as we go into the international side, can you kind of elaborate what kind of investments that we have to do further as we continue to invest? I do understand that we have

Speaker 10: First, I think Call of Duty Mobile, you mentioned that after, despite being launched four years ago, we had a record, July , so I wanted to know, how do you elongate or revive some of the old titles while you balance the new launches? And just a quick follow-up.

Speaker 10: on your CAPEX and headcount plan. Can you kind of share us, you know, what I think this quarter we did see elevated CAPEX this time and also headcount did see a sequential improvement. So as you go into 2024, could management, you know, share some color on this area?

Speaker 4: Hi John , so on the international games, you know, we've already been running a very substantial investment in international game development through RP&L. If you take

Speaker 4: our studios such as Riot, Supercell, Miniclip, Fat Shark, Shark Mob, and on and on and on, then we're actually one of the biggest game developers in the world executing our China business. And of course,

Speaker 4: Our big China studios such as Timmy and Quantum have many thousands more developers who are creating games that are targeting an international as well as a domestic market. So we feel that we have the teams in place now to create big budget, high production value and ultimately successful games for the international market, and we'll be bringing those games to release.

Speaker 4: in the quarters to come. So that's on the game side.

Speaker 7: CapEx, John , please. Operating CapEx.

Speaker 5: represents about 3.5% of total revenue, 3 to 3.5 in 2023.

Speaker 5: And for 2024, I think it will be at a similar level. And if we are able to get more GPUs, we'll add on another 1% on top of that, 3% to 3.5%. For non-operating CAD pads every year on the construction side, we spent roughly $1 billion US in the past few years.

Speaker 5: That's excluding, you know, any land acquisition. If we add on land acquisition, it shouldn't be more than additional, you know, $1 billion on top of that construction cost.

Speaker 3: In terms of the headcounts, we believe most of the efficiency optimization has been done and we have the right size of a workforce for our existing business. We are hiring selectively to grow our new businesses, but also it's actually very important for us.

Speaker 3: to recognize that big teams are actually not very good for focus and efficiency execution of businesses. So in the past, I think we and maybe many other companies have actually sort of built teams up too quickly and built too large a team.

Speaker 3: And so, going forward, consistent with what we talked about in our new high-quality revenue growth model, one of the key things is actually cost discipline, and part of it is

Speaker 3: trying to keep our teams smaller but with better people so that

Speaker 3: we can actually help our team to focus on the real value-added things to work on, and that turns out to usually be a value creation exercise for our business and make ourselves, our business, strategically stronger.

Speaker 1: Thank you. We will take the next question from Alicia Steps-Francis.

Speaker 1: So yeah, thanks for taking my questions. Also, congrats on the solid

Speaker 11: Two questions, first is on the video account avatar.

Speaker 11: started to lapse out the low days. And although we're going to still have to close.

Speaker 11: e-commerce transactions to benefit and support that solid.

Speaker 11: for the retail account. Just wondering what could be the steady stage of the growth rate for the overall online ad revenue?

Speaker 11: And then a follow-up is on the Huanyuan model. I think management did mention potentially sometime down the road there will be a commercial product for a consumer. And so just wondering when we can see, for example, the AI system to be integrated into WeChat and QQ. And when that is ready, would that be potential also a commercial service charge, for example,

Speaker 4: On your first question about video account advertising revenue, we're not super focused on whether there's a low base or a higher base, because actually we have...

Speaker 4: You know, four discrete growth drivers we see supporting our advertising revenue growth, you know, not just this year, but for many years to come. You know, the first of them is traffic. So, you know, the number of video views today is substantially greater than 50% higher than it was when we began monetizing video accounts.

Speaker 4: just over a year ago. And so that's, you know, an immediate uplift and an ongoing uplift because we believe video accounts traffic will continue to grow.

Speaker 4: Second, there's the ad load. You know, today, the ad load we operate at on video accounts is less than 3%. The ad load that our domestic peers operate at is over 10%. And so we have room to very substantially multiply our ad load over the years to come versus where it is today.

Speaker 4: Thirdly, there's the ability to uplift our click-through rates using artificial intelligence.

Speaker 4: Today, a typical click-through rate might be around 1%. As you deploy large language models, then you can make more use of the thousands of discrete data points that we have potentially for targeting and bring them to bear and turn them into reality, and you can get pretty substantial uplifts in click-through rate and therefore in revenue, which is what the big U.S. social networks are now starting to see.

Speaker 4: Fourth, there's the closed-loop opportunity. If you look at our domestic peers in the short video space, they've been very focused and very effective at maximizing closed-loop transactions because those generate the most information, those enable the greatest future forward-targeting abilities. Given our many programs, given our WECOM landing pages, given video accounts

Speaker 4: and given the 10 cent payment infrastructure, we feel we're in an ideal position to further ramp up our own closed-loop capabilities. So with those four drivers in place, obviously the macro environment is out of our control, but we have four important drivers of growth within our control.

Speaker 3: Now in terms of the Huanyuan and in the future, you know, the potential of an AI assistant, I think, you know, it's fair to say it's still in a very, very early stage of concept design. So definitely not at the stage of product design yet, and definitely not at the stage of thinking about monetization yet.

Speaker 3: But of course, if you look at any of these generative AI technology at this point in time, inference cost is a real variable cost, which needs to be considered in the entire equation.

Speaker 12: And that, to some extent, adds to the challenge of the product design to you. So, you know, I would say at this point in time, it's actually a very early stage. There is a promise and imaginary room for opportunity for the future. But but it's too early to talk very concretely about it for now. OK, thank you.

Speaker 13: Thanks management for taking my questions. My question is about live streaming e-commerce.

Speaker 13: Given that the competitive environment is very intense, and we are seeing video accounts is gaining a very good traction.

Speaker 13: and join very fast growth. So I just want to get some color from a management perspective about our strategies and our goal in coming years. And in particular.

Speaker 13: how we should think about the internal advertising as well as the commission's growth trend or any market position that we want to achieve in coming years. Thank you.

Speaker 3: Well, in terms of live streaming e-commerce, I think the playbook is actually quite clear, right? Once you have.

Speaker 3: uh the short video franchise you actually start taking that into the live streaming and build a franchise there and then from live streaming if you can actually establish the tools and the connection and a supply chain of

Speaker 3: merchants, then you can start building up the live streaming e-commerce. So the playbook is actually well developed. What we're doing is actually we want to build it in a systematic way, step by step. And it does involve a process of many steps, including

Speaker 3: building a strong ops team so that we can ensure the quality of the products offered on our platform, building category teams to manage different categories, building tools.

Speaker 3: and infrastructure to facilitate merchants to do more businesses. We need to have integration of the entire ecosystem into our ad system. And also we need to build up a KOL ecosystem so that the merchants can leverage the KOL to facilitate the live streaming e-commerce.

Speaker 3: business, right? So I think this would actually, if played out step-by-step, right, it would basically...

Speaker 3: uh you mirror the the market share that we have on short video right when you have short video you

Speaker 3: uh the live streaming and then live streaming you actually sort of you know have

Speaker 3: the live streaming e-commerce GMV. And I think, you know, if we execute all of those steps well within the playbook, then it would give us a fair share. But over and beyond, we believe we have some pretty.

Speaker 3: unique capabilities or characteristics that we can bring to bear that may offer further upside that include, we have a very strong mini program ecosystem. And there are a lot of merchants and brands who are already doing a lot of businesses on mini programs. And if we can actually connect our live streaming e-commerce with the mini programs and that additional layer of

Speaker 3: integration and ability to do more business. We have social sharing within our ecosystem right now, and that would actually help merchants and products to be shared to many other friends and connections, and as a result can generate more sales.

Speaker 3: And we also have a pretty significant group of high income and affluent customer base who are probably not that used to shopping on short video platform at this point in time. And if we can bring them to the entire life.

Speaker 3: streaming and e-commerce ecosystem that could offer further.

Speaker 12: So that's the way we think about the live streaming e-commerce at this point in time.

Speaker 6: Okay, good evening, management team. Thank you for taking my question and congrats on a good quarter. I have two questions. Number one, regarding the gross driver of advertising business. Jens, you mentioned WeChat search as one of the driver. Can you share with us a little bit more metrics in terms of where the business is?

Speaker 6: For example, percentage of Weixin DAU who use Weixin search, et cetera, et cetera. And more importantly, I would like to understand how you think about the long-term monetization opportunity given search ads is a legacy as model with many years of operational history in China Internet.

Speaker 14: So that's the first one on WeChat search. Second question is on the mini game, we notice the super majority of the mid-core and hardcore game activities still mostly take place in apps.

Speaker 14: What does it take for those mid-core and harder core game activity to migrate into the minigame ecosystem? Is it currently constrained by technology or bandwidth or it's more of a user behavior issue?

Speaker 4: Why don't I take the minigame question? So there's a number of constraints. We believe the most important is.

Speaker 4: you know, the technical capabilities and the game development tools.

Speaker 4: for making minigames that are comparable to app-based games.

Speaker 4: And I say that, first of all, because if you look at similar concepts such as Roblox, then over time there's been a steady broadening in the range of games available on Roblox, in order to more graphically immersive, more and more multiplayer, more and more fast-paced.

Speaker 4: Twitch-based games. We're seeing now something similar in minigames, where the initial minigames were typically single-player. Then there were basic multiplayer card games. Now we're moving into multiplayer role-playing games. And then going into the future, we expect to see multiplayer first-person action games. So as the

Speaker 4: handsets become more sophisticated, as the minigame architecture becomes more powerful, as the developers become more expert in creating minigames, then there should be a long-term convergence.

Speaker 4: in terms of the capabilities and the experiences of mini-games versus app-based games, and as that happens, then there's no intrinsic reason why people who are currently playing app-based games wouldn't also start playing mini-games.

Speaker 3: In terms of recent search, right now, the penetration is actually quite high, right? So, starting from people basically searching for...

Speaker 3: uh contact and and content you know basically everybody does it on a very frequent basis every day right you know but then in in addition to that

Speaker 3: Everybody has actually searched something on the open web, as well as in the ecosystem. So the content search, everybody has done some of that. But what we need to do is actually need to have people use it more frequently. And the way through which we can actually make it...

Speaker 3: more frequently used is, of course, one, the search technology, right? You know, within Weisheng, we have been constantly building up the technology and I think, you know, the search technology

Speaker 3: has improved consistently. And after we have acquired Sogo, the technology of search has also taken a step up. The second is actually the search user experience, because Weixian is

Speaker 3: a tool which people communicate. So we actually need to have a user experience that allow people to find the content more quickly than normally if people open up a browser and try to do searches. And I think, you know, that we've made progress, but there's still more work to be done. And the third one is actually the ecosystem, right? You know, so we have a lot of content within Weixian, and that's through...

Speaker 3: official accounts, and there's also an increasingly large mini-program ecosystem that's sitting on Weixian, and now there's also video accounts. The ability for us to leverage

Speaker 3: the Weixin search and connect it to all the content within our ecosystem is actually something that we are building over time. And once we have done that, we can allow people to search on the open web. We'll also have unique content that's uniquely available on Weixin and the Weixin search.

Speaker 3: of value proposition and content will be even better.

Speaker 3: So, I think, you know, those are things that we have been doing in order to increase the frequency of usage by our users on search. And we have seen encouraging signs on that because the VV and, in general, VV on content

Speaker 3: have been increasing consistently over the past few years.

Speaker 3: Over time, we felt, you know, once we have built up that content search.

Speaker 3: traffic within Weixian on a consistent basis, then we can actually overlay demonetization, right? And right now, the ad load on our search is still very, very low.

Speaker 3: So, there's actually a lot of potential for us to increase it. But more important, I think, you know, the ability for us to build.

Speaker 3: transaction ecosystem within WeChat is actually very important for the future growth of WeChat and Search.

Speaker 3: mini-program transactions that we can generate. The more live-streaming e-commerce that we can generate over time, that would actually help us to increase the potential for Weixin search monetization. And we feel there's actually a very long runway in terms of growing this part of the business.

Speaker 1: Thank you. We will take the next question from Shelling Liu from HSBC.

Speaker 15: Thank you. Thank you, Wendy. I have two questions. First is on advertising, which obviously has been a really strong year for Tencent as the platform has been gaining market share. Considering e-commerce is becoming a bigger contributor, and obviously there are seasonality factors that comes with that contribution from Waste and Surge and Nix here,

Speaker 15: video accounts after it has delivered very robust growth this year.

Speaker 15: expect, I guess, growth to accelerate into the next quarter or 2024, just generally how you're thinking about.

Speaker 4: Hi Charlene, we've missed some of the questions. I think also it may have overlapped a little bit with Alicia's question earlier so I'll just...

Speaker 4: refer back to that in that we see four to three growth drivers for our advertising business, including traffic growth.

Speaker 4: increased ad load to converge with industry peers, deployment of AI to boost CTR.

Speaker 4: in closed-loop advertising. And so those are all on the positive side. And then macro could be a potential negative. But candidly, this year hasn't been a spectacular year from a macro perspective anyway. In terms of what that translates into for growth in the next quarter or next year, we don't give guidance. And the theme we've been talking about this evening is not

Speaker 4: You know high revenue growth model. It's high quality revenue growth model So, you know, we're less focused on, you know, maximizing the speed of our revenue growth in any given quarter We're more focused on now having a healthy sustainable revenue growth rate and we believe with sustainable revenue growth rate We can drive a faster earnings growth rate. So that's on the advertising question

Speaker 15: you. I guess separately on international games, I guess what factors should we be focusing on as we think about, again, the outlook? Obviously, we're reading a little bit more about layoffs in the industry. How should we think about contributing factors like user spending, as well as development pace and new launches and consolidation within the industry? How would these things play out, whether it will help or benefit Tencent? Thank you.

Speaker 4: But I don't think there's a very simple, single answer. It's a complex industry, and it went through a period of rapid headcount increase.

Speaker 4: over the last two to three years. Now it's going through a period of headcount consolidation. That's happened many times in the past and unfortunately it may happen again in the future and it's just incumbent on us to navigate that effectively. But again, we have the benefit in that because

Speaker 4: You know, we have a number of other businesses that are growing quickly. Therefore, we don't feel pressure to, you know, maximize our international or our domestic game revenue growth in any single quarter. You know, if you're looking at Microsoft, then, you know, Microsoft doesn't feel it has to release a new Halo game, you know, on December 31st rather than January the 1st, because, you know, people keep using Windows and Office and Azure and all of the other Microsoft products that also generate profit growth.

Speaker 4: And I think we're now in that position where, with the improving margins of our advertising business, with the improving margins of our fintech business, with the turnaround in our business services and new contributions,

Speaker 4: from e-commerce and so forth, then we have a multi-pronged growth model and so as and when International Games has a big new product and accelerates, that's great. But in the meantime, International Games is not the primary determinant of whether we grow our earnings or not in a given quarter.

Speaker 1: Thank you, Shirlene. We will take the last question from Ronald Kong from Goldman Sachs.

Speaker 16: Thank you. Thank you. Martin, James, John and Wendy. So my first question, I think on on FBS, we haven't talked too much.

Speaker 16: McKean's growth and the cloud business so far. Just how should we think about the landscape on these two and the growth outlook? Should we expect a further

Speaker 3: in one go, so on our shareholder return policies, how should we think about our current investment portfolio in terms of the investment and reinvestment piece this year? And any lessons or experience from the past two years of distribution that we have from our experience and how should we think about the shareholder return on the investment portfolio front? Thank you. In terms of the FBS, I think there are two parts of it, right?

Speaker 3: In terms of the FBS, I think, you know, there are two parts of it, right? You know, there is the FinTech and there is the business services. And now in terms of the FinTech, I think.

Speaker 3: What we have is a very significant platform in terms of payment, and on top of the payment, we actually offer financial services. And if you look at the business itself, it's actually growing quite nicely this year.

Speaker 3: And there are a couple of drivers. Part of it is actually growing alongside with consumption. And as you can see, although there is some macro challenges on the economy side, but the consumption in China is still growing quite nicely. And our overall.

Speaker 3: at the FinTech business actually grow alongside with that.

Speaker 3: And then on top of it, we actually have been offering financial services such as lending, such as wealth management. And these are actually falling into the model of the high-quality revenue growth model, in which these are businesses which generate high margins and they ride on a payment network which has the cost already paid for.

Speaker 3: their growth actually generates additional incremental margins.

Speaker 3: And at the same time, we actually manage these businesses in a very measured way because we want to make sure that we are very good in terms of risk management. And we also try to grow them in a measured way so that we don't take on too much risk. And we can also pick the best customers that we want to serve.

Speaker 3: So, I think, you know, that's on FinTech side. Over time, we actually sort of, you know, would like to find additional value-added services that we can actually bring value to the merchants that we serve, and for the value that we create, we charge a little bit on additional fees if they are really generating value. So, I think, you know, that's the overall model that we're thinking with respect to FinTech. FinTech.

Speaker 3: In terms of the business services, the cloud, right now there's a lot of, in the past two years, there's a lot of capacity.

Speaker 3: uh readjustment within the industry right you know the access capacities are being used up and and a lot of businesses have been

Speaker 3: trying to manage the cost down.

Speaker 3: And I think, you know, we have also proactively got rid of some low-quality businesses, too. When we look into 2024, we believe that

Speaker 3: you know, the dynamics in the market is that the squeezing of unused capacity is probably over. So, you know, if macro stays the same, there will probably be some modest growth in terms of the

Speaker 3: the cloud usage, but there probably needs to be a higher economic growth in order for higher growth to return to the market.

Speaker 3: There will be some growth with respect to a path in SaaS, and that's frankly the area that we are focused on. We believe going forward, again, we'll be more focused on the high quality revenue model in which we'll be more focused on the path and SaaS, which inherently will be generating more growth margins for us.

Speaker 4: So that's how we look at those two businesses. So James. Yeah, with regard to the investment portfolio, so we are.

Speaker 4: quite active and agile on both additional investments, but also on divestments. You know, some of that activity is visible. A lot of it is not visible. But, you know, given what we view as our share price dislocation, our primary use of cash has been buying back our own shares. And, you know, that remains the priority at this point in time.

Speaker 1: Thank you all for joining the call today. We are now ending the webinar. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tensend.com. The replay of this webinar will also be available soon. Thank you and see you next quarter.

Wendy Huang: of Quarter Result Announcement Webinar. I'm Wendy Huang from Tencent IR team.

Wendy Huang: 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 dial in by phone, if you wish to ask a question, please press five on your telephone to raise your hand. If you are accessing from the Tencent meeting or vote meeting application, please click the raise hand button at the bottom left.

Wendy Huang: And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes four looking statements, which are underlined by a number of risks and uncertainties, and it may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of reasons outside of Tencent. This presentation also contains some unordinated non-IFR's financial measures that should be considered in addition to, but not as substitute for, measures of the group's financial performance propelled in accordance with IFRS. For a detailed discussion of perspectives and non-IFR's measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce a management team on webinar tonight.

Pony Ma: Our chairman and CEO, Pony Ma, will kick off with a short overview.

Martin La: President Martin La, will discuss strategy review.

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

John Low: Chief Financial Officer John Low will conclude with financial discussion before we open the floor for questions.

Pony Ma: I will now pass it to Pony. Thank you Wendy. Good evening. Thank you, everyone, for joining us.

Pony Ma: During the third quarter of 2023, we achieved the solid and high quality revenue growth, notable margin expansion and structural operating leverage. Relatively, new services such as video accounts and mini-games contribute high margin revenue streams while we refocus away from less scalable activities. We are increasing investment in our AI models, providing new features to our products and enhancing our targeting capabilities for both content and advertising. We aspire to position our leading AI capabilities, not only as a growth multiplier for ourselves, but also as a value provided for our enterprise customers and the society a lot.

Pony Ma: Now let me go through the headline financial for the third quarter. Total revenue was 155 billion RMB up 10% year-and-year and 4% quarter-and-quarter. Growth profit was 77 billion RMB up 23% year-and-year and 8% quarter-and-quarter. Non-IFI's operating profit was 56 billion RMB up 36% year-and-year and 11% quarter-and-quarter. Non-IFI's net profit attributable to equity holders was 45 billion RMB up 49% year-and-year and 20% quarter-and-quarter. Turning to our key services for communication and social networks, combined M.A.U, of Wishing and Research Group both year and year and quarter and quarter to 1.3 billion.

Pony Ma: For games we will be important to our leadership in competitive, multi-fair games while investing to develop future hits in content driven and casual games. For cloud, we upgrade the size and capabilities of our proprietary foundation model, Tencent Holdings, we are making Huan Yuan available on a limited basis to the public and to customers and deploying Huan Yuan in Tencent meeting and Tencent box.

Martin La: I will now hand over to Martin for strategic review. Thank you, Tony, and good evening, everybody.

Martin La: In the past few years, the Internet industry in China has gone through structural challenges leading to strategic changes. A major strategic change is a shift away from seeking to maximize revenue at all costs toward delivering high quality and sustainable growth. Today, I would like to share with you the progress we have made toward high quality revenue streams and how this shift is translating into improved operating leverage and strategic position. To start with, let me walk you through the evolution of our Wishing platform and how it continues to improve its position by enhancing its value to users.

Martin La: The original Wishing experience was messaging and the franchise is stronger than ever as messaging remains the highest daily user frequency service in China. Wishing chats, DAU, and daily messages send per user a consistent increasing driven by the evergreen need for communications among friends, family members, and colleagues. Meanwhile, Wishing chat meets social networking needs through group functionalities and moments and also enables new forms of connections such as customer support services.

Martin La: Subsequently, we supplemented messaging with open platforms which connect users with a range of external services. These include official accounts which enable brands and content creators to reach their followers with text and image content and mini programs which allow users to transact with merchants and service providers offline and online. Each day several million hundred million unique user visits and interact with over a million unique mini programs. Mini programs facilitated over 1.5 trillion RMB of GMB in the third quarter.

Martin La: Merchants and service providers developing and managing their own mini programs provides growth and innovation for our ecosystem. Mini Games, which is a successful vertical use case for mini programs, has become the largest casual game community in China. We monetized these open platforms primarily through payment tick rate and a very light advertising load. Resouting in a wide gap between the value would deliver to participants, versus the revenue we generate ourselves. More recently, Wayshin launched Video Accounts, which is a major new addition to the Wayshin ecosystem.

Martin La: Video accounts are growing usage fast, and that usage is incremental to our messaging and open platform time spent, uplifting Wayshin's overall time spent. Video accounts are also different from chat and open platforms in that they enable us to participate in high margin monetization activities, such as infit advertising and e-commerce technology service fees. Going into Wayshin's new services monetization a bit more, our newer services in Wayshin are generating revenues at higher incremental margins than our company average, specifically for video accounts.

Martin La: Monetization generates high incremental margins because first, we're already incurring video accounts platform costs during the build phase prior to monetization. Second, once video accounts attain critical mass, our developers can start streamlining operating costs such as bandwidth, service, and content costs. Consequently, video accounts advertising revenue is high margin and offers a long runway for growth ahead, given increasing video views, low-at load compared to peers, and continued deployment of AI technology to enhance at click through rates.

Martin La: Video accounts e-commerce technology service fees, which we book on a net basis, are also high margins in nature for similar reasons. Additionally, we're cultivating more high-quality revenue stream opportunities within Wayshin. For example, mini-games, which we discussed last quarter at quite a bit of length, contribute platform fees and advertising revenues to 10 cents. From a reporting perspective, we also book platform fees on the net basis, such that mini-games revenue carries higher margins than at-base games.

Martin La: And for Wayshin's search, the increasing volume of transactions within Wayshin is driving rapid growth in our commercial, core, curate volume, and marketing search keywords on our own existing traffic generates high margin inherently. As a result, we believe we have moved into a high quality revenue growth model. Under this model, we can now deliver greater operating leverage than in past. Prior to 2021, a growth and operating profit typically grew at similar or slower rates versus our revenue.

Martin La: While in 2021 and 22, slowing revenue growth translated into even slower profit growth, or in some certain quarters profit declines. However, entering 2023, solid revenue growth rates have translated into substantially faster growth and operating profit growth rates. There are three drivers in this significant change, two sustainable ones colored in blue on the right, and one time a driver colored in gray.

Martin La: The biggest driver of this change, which we view as structural in nature, is a positive revenue shift. I.e, the growth of new high quality revenue streams and the scale back of certain low quality and activities. This positive shift is the primary reason for growth, profit, growth, exceeding revenue growth. A second driver, which we view as less recurring, is that we optimize costs by exiting certain non-core business and cut back excessive spending on operations subsidies and marketing activities during the tough time.

Martin La: This driver helps explain why operating profit growth has succeeded, growth profit growth, partly, and we view it as a lever for pulling at certain times, but not at all times. The third driver, which we keen to continuously improve operational efficiency, start slowly allocate headcount, and effectively manage marketing expenses, so as to maintain a focused organization and lean cost structure for the future.

Martin La: Lastly, I will also share with you how we think about our position in the games market. We maintain a strong and defensible franchise in competitive multiplayer games due to the ongoing popularity and performance of our flagship evergreen games, such as on-of-cans, leading legends, and peacekeeper elite. But we also supplement our success by cultivating new competitive multiplayer games, such as fights of golden spatula, arena without and valorant, which have the potential of becoming evergreen titles in the future.

Martin La: Looking across the market, but seen increased interest in casual games and renewed excitement around content-driven games, these trends have not negatively impacted our competitive multiplayer games in terms of audience and monetization. On the other hand, we see these as new opportunities for us to capture, and we are investing to benefit from these trends.

Martin La: For content-driven games, we have attained some success, including Naruto mobile, loss arc, and the K, but we aspire to create even bigger hits in the future. For casual games, we already operate the largest casual game platform in the model of mini games, we are also seeking to operate blockbuster app-based casual games with user-generated content capabilities. Looking forward, we have a substantial pipeline of new games in development, including games that expand our own game IPs such as On-of-King World, Valorant Mobile, and Delta Force.

Martin La: Mobile games that utilize well-opped licensed IPs such as Monster Hunter Mobile, Assassin Creed Mobile, and One Piece Mobile. New games with new IPs in high potential genres, such as Dreamstars and casual games, Nightingale in Survival Open World crafting, and Ash Echoes in LPG. We are taking more time than before in developing these games because we want to ensure the quality of these games and because our improved financial structure described in the previous slides offer us the ability to do so.

James Mitchell: Now, with that, I will pass to James to talk about business review. Thank you, Martin.

James Mitchell: For the third quarter of 2020, to get a total revenue increased 10% year-on-year, the AAS represented 49% of our revenue within which the social network sub-segment was 19%, domestic games 21%, and international games 9%, online advertising was 16% of our revenue, and FinTech and Business Services was 34%. The value added services, segment revenue was 76 billion RMB, up 4% year-on-year. Social networks revenue was 30 billion RMB, flat year-on-year, as revenue from music related and game-related live streaming services sharply decreased, while revenue from music subscriptions and minigames substantially increased.

James Mitchell: Profitability improved as we book entertainment live streaming revenue on a gross basis, creating revenue sharing as content cost, whereas we book mini-game revenue on a net basis, netting the game developer's revenue share out of our revenue. Long-form video subscription revenue increased 2% year-on-year, benefiting from higher output. Video subscriptions declined slightly year-on-year, though grew quarter-on-quarter to 117 million accounts. Our exclusive drama series lost you forever ranked first industry-wide by video views across all online platforms in China during the quarter.

James Mitchell: Music subscription revenue increased 42% year-on-year, since that music optimized user operations in rich membership privileges and deepened collaborations with label and assets, resulting in music subscriptions from 21% year-on-year to 103 million accounts and are increasing 17% year-on-year. Domestic games revenue grew 5% year-on-year to 33 billion RMB. The increase was driven by new launches, veterans and lost stock, as well as evergreen titles such as Honor of Kings and Dungeon and Fighter. International games revenue increased 14% year-on-year, or 7% in constant currency terms to 13 billion RMB.

James Mitchell: The recovery of PUBG Mobile and sustained contributions from Nikkei, Valorant and Triple Match 3D, grows the growth in an offset of tough comparison from power of fancies in the 3rd quarter of 2022. So communications and social networks, Waching Video Accounts, Video Views increased over 50% year-on-year thanks to a thriving creator community and growing user-mind share. Original content that is uploaded directly to Video Accounts now contributes to the large majority of our video views, demonstrating the services content creation and consumption flywheel.

James Mitchell: We're enhancing our recommendation algorithms and traffic support programs to more activity surface to which you know what content with the video accounts. Inside QQ, we're adding capabilities to QQ channels, which enable users with shared hobby activities or memberships to operate interest-based communities using software tools such as voice chat and event management. QQ now hosts over 700,000 active channels covering categories, including colleges, games, knowledge-based content and music.

James Mitchell: Moving to domestic games, the 19th Asian Games held in Hangzhou included eSports as official metal events for the first time, reflecting interesting competitive games from the general public and endorsement from governments. We published four out of the seven games selected for the Asian Games, Arena of Baller, Peacekeeper Elite, League of Legends and FC Online. During the quarter, we extended our leadership in competitive multi-player games. Honor of Kings remained the first-faced mobile game across all genres in terms of DAU, time-spanting gross receipts, while we've also grown Wild Rift's audience and monetization, such that Wild Rift now ranks among the top 10 mobile games by gross receipts too. Between our three big-bath arena games, Honor of Kings, Wild Rift and League of Legends, we serve different player needs and innovating multiple directions within the battle arena genre.

James Mitchell: Simulief, FPS games were launching new titles with appeal to different player interests to capture new gameplay concepts, such as the PC tactical first-person game Valorant and the mobile hero first-person game hyper legends. While it typically takes several years to grow individual FPS games in their potential audience and monetization, Valorant has already become one of the leading PC games in China in terms of users and of revenue. Martin spoke about our aspirations to start up in content with an casual games.

James Mitchell: The content driven games in August we launched Maple Story, The Legends of Maple, which ranked fourth across all mobile games by gross receipts in its first 30 days. The casual games we opened our mobile party game Dream Stars up for pre-registration in September, and the game has accumulated over 27 million pre-registrations so far.

James Mitchell: We're making a substantial investment around Dream Stars upcoming launch. Turning to international games, among our competitive multiplayer games after a post-COVID consolidation period, PUBG Mobile returned to year-on-year and quarter-on-quarter increases in DAU and gross receipts, benefiting from appealing content and themed events such as a Dragon Ball collaboration. Court of Duty Mobile, which we released back in 2019, achieved record high-monthly gross receipts in July, driven by new season content, including a top-tier operator and a new arena mode.

James Mitchell: Among our content-driven games, Nikkei maintained robust DAU and gross receipts via content updates, such as a collaboration with Square Enix's near-autometer. For online advertising, our revenue increased 20% year-on-year to 26 billion RMB with notable growth contributions from video accounts, mobile ad network and Wacien search. Advertising categories such as fast-moving consumer goods and local services increase standing while automobiles will weaker. Our advertising revenue year-on-year growth rate slowed first as the previous quarter, because as e-commerce has become a much bigger contributor to our ad revenue in recent periods, our advertising revenue seasonality has changed.

James Mitchell: With the second and fourth quarters of each year seeing more positive seasonality, by the first and third quarters see weaker seasonality, reflecting the wasting of e-commerce promotional activities toward the second and fourth quarter of each year.

James Mitchell: In addition, we began monetizing video accounts via input ads through the third quarter of last year. We have expanded our AI models with more parameters to increase their ad targeting and attribution accuracy, contributing to our ad revenue growth. We are also starting to provide generative AI tools to advertise our partners, which enables them to dynamically generate ad visuals based on text from, and to optimize ad sizes for different inventories, which would help advertisers create more appealing advertisements with higher click-through rates in reducing their transactions in our revenue.

James Mitchell: Close loop advertisements, which link directly to a transactional user action within the ad where the advertisement appears, provide users and advertisers with a shorter impression to transaction funnel and enhance the effectiveness and measurability of advertisers spend.

James Mitchell: Advertisers are increasingly linking their ads within Wastien to transactions or actions inside the advertiser's mini-program video account, official accounts or WICOM landing page, and such closed loop ad revenue increased over 30% year on their drink quarter, now accounting for more than half of Wastien's ad revenue. Liu, Video Accounts Art Revenue Grenodically Quarter on Quarter during by increases in video abuse and time spent on a stable art load percentage. On the content side, our long form video art revenue increased moderately year-on-year and our music art revenue maintained robust year-on-year growth.

James Mitchell: Looking at FinTech and Business Services, Segment Revenue was 52 billion revenue and be up 16% year-on-year. FinTech Services revenue sustained a team's year-on-year growth rate benefiting from increased commercial payment activity and wealth management aggregated customer assets. The commercial payments, daily active users and transaction per user both increased year-on-year, enhanced merchant solutions boosted mini-program transactions in categories such as retail, travel and transportation, and dining services, and mini-program transactions have notably increased as a proportion of our overall commercial payment volume.

James Mitchell: The Business Services revenue grew at double digit rate year-on-year and the third quarter, exaggerating versus the second quarter, and the Business Services gross margin improves significantly year-on-year. Our cloud services revenue growth benefited from the restructuring undertaken in prior periods, as well as from higher spending by industries such as finance and automotive. Video Accounts e-commerce transaction GMB increased quarter-on-quarter, and the technology service fees we collect on these transactions contributed to the Business Services revenue and margin uplift.

James Mitchell: We have upgraded our proprietary foundation model, Tencent Honyuan. We have made Tencent Honyuan bot initially available to a smaller their expanding number of users via a mini-program. Honyuan is also now powering meeting summarization in Tencent Meeting and content generation in Tencent Docks. And externally we're enabling enterprise customers to utilize our large language model via APIs or model as a service solution in our cloud. The functions such as coding, data analysis, and customer service automation.

John Low: And now I pass to John for the financial review. Thank you James. Hello everyone. For the third quarter of 2023 total revenue was 154.6 billion RMB. Up 10% year-on-year, gross profit was 76.5 billion RMB up 23% year-on-year. Upgrading profit was 48.5 billion RMB down 6% year-on-year. Finance costs were 2.8 billion RMB up 43% year-on-year due to reduced forex gains and to a lesser exam higher interest expenses.

John Low: Share profit of associates and JVs was 2.1 billion RMB compared to share of loss of 3.7 billion RMB for the third quarter of 2022. On a non-I of our spaces, share profit was 4.8 billion RMB improving from share of profit of 2.4 billion RMB last year. This was proven by better profitability of certain domestic associates thanks to their revenue growth and improved cost efficiency along with a successful game released by an overseas industry.

John Low: Income tax expense increased by 55% year-on-year to 11 billion RMB, driven by pre-tax profit growth and increased withholding tax provision. I have R.S, net profit attributable to equity holders was 36.2 billion RMB, down 9% year-on-year, the added EPS was 3.752 RMB, down 9% year-on-year. Now I'll share our non-I have R.S, financial figures.

John Low: Operating profit was 55.5 billion RMB, up 36% year-on-year. Net profit attributable to equity holders was 44.9000 RMB, up 39% year-on-year, diluted EPS was 4.657 RMB, up 41% year-on-year. Moving on to gross margins, overall gross margin was 49.5% of 5.3% each point year-on-year. This was due to higher mix of high margin games revenue, including mini-games, and lower mix of low margin music and games related life-streaming revenue, along with our cost-control meshes. Gross margins for online advertising increased to 52.3% up 6% each point year-on-year.

John Low: This was mainly driven by high incremental profits generated from video accounts at revenue, as well as our efficiency improvement. Gross margins for thin tag and business services was 40.9% up 7.6% each point year-on-year. This was driven by margin improvement for our business restructuring, emerging high margin revenue from video accounts e-commerce, technology service fees, structural shift to what's certain high margin products within thin tag services in our operational efficiency initiatives. On operating expenses, selling and marketing expenses were 7.9 billion RMB, up 11% year-on-year due to most spending on promotion advertising, and the total represented 5.1% of revenues.

John Low: On the expenses were 16.5 billion RMB, up 9% year-on-year, mainly because of higher staff course on research and development projects. GNA excluding IND were 9.8 billion RMB down 14% year-on-year, mainly due to lower staff course, including reduced civilian statements. At quarter-end, we had approximately 105,000 employees, down 3% year-on-year or up 1% quarter-end quarter.

John Low: Let's look at our operating and net margin ratios. For the first quarter of 2023, non-Iavirus operating margin was 35.9% up 6.7% each point year-on-year. Non-Iavirus net margin was 29.6% up 5.8% each point year-on-year. To conclude, I'll highlight some cash, key cash flow, and balance sheet metrics. Total cap-backs. Operating cap-backs were 6.6 billion RMB up more than 5 times year-on-year, driven by increasing dust and NGPUs and servers. Non-operating cap-backs rose by 6% year-on-year to 1.4 billion RMB.

John Low: Three cash flow was 51.1 billion RMB up 85% year and year mainly driven by higher receipts from various businesses and timing difference in the settlement of certain accounts payables. Net cash position was 36.4 billion RMB up 106% quarter in quarter, reflecting strong three cash flow generation, partially offset by cash outflow for share repurchases and strategic investments.

John Low: Thank you. Thank you, John.

Wendy Huang: We shall now open up local questions. If you are dialing by phone, please press five to raise the question, then press six to unmute yourself. If you are accessing from a Tencent meeting or group meeting application, please click the rate and button at the bottom left. We will take one main question and ask one full-up question each time.

Kenneth Fong: The first question comes from the Kenneth Fong from the UBS. Thank you. Good evening, management. Thank you for taking my questions and congrats for another solid quarter of quality growth. I have two questions.

Kenneth Fong: The first is on mini-games. Could management share with us more about the future strategy of mini-games, given Tencent, a strong franchise? We will be just staying at a platform for distribution or we can actually use mini-games to rejuvenate some of our existing titles, which are laid in their product cycles. Also going forward, any shift in our strategy on the game launch between app-based versus a mini-games in our games going forward. And I have a full-up question on AI strategy.

Kenneth Fong: We have successfully launched the Hunyuan AI model and we send our voices of peers with our use cases. Can management share with us how would the US chip send impact our AI strategy, including product launch, monetization, and also area focus? Thank you. Hi Kenneth.

Martin La: Thank you for your question. So I'll take the mini-game question, Martin, what we'll hand with AI question. For the mini-games, then we view the mini-game opportunity for Tencent primarily as a platform opportunity. And there are many thousands of game development studios that are now focused on creating mini-games. We're very happy to nurture that ecosystem and we don't want to squeeze or undue the pressure that ecosystem.

Martin La: You asked about whether we would seek to rejuvenate existing titles which are laid in their product cycle by releasing mini-games. And the reality is that our game strategy is not built on titles that have a product cycle that age and that then require heavy rejuvenation. Our game strategy is built around what we hope will become evergreen games. And it's built around making those evergreen games as popular and successful as they can be. And then adding further evergreen games that would also be popular and successful.

James Mitchell: So we don't hugely focus on taking smaller games that have a product cycle and then seeking to rejuvenate them through mini-games or anything else. In terms of Huan Yuan and the overall AI strategy, I would say we have been pretty far along in terms of building up Huan Yuan and we feel that we are one of the leaders within China and we are also continuously increasing the size of the model and preparing for the next generation of our Huan Yuan model which is going to be a mixture of experts architecture which we believe will further improve the performance of our Huan Yuan model and by building up Huan Yuan we actually have really built up our capability in general AI across the board because Huan Yuan and the transformer based model include it involves the handling of a large amount of data, large amount of training data, large size of computing cluster and a very delicate fine tuning process in terms of improving the AI performance and by going through the process right now we have also built up a lot of our AI capability which is our transformer based but you know can be applied in many of our other businesses.

James Mitchell: So if you look at Huan Yuan itself right right now we see it a very good at generating text and messages and that actually is quite useful for a lot of a lot of SaaS applications improve the capability of the SaaS service. For example in Tencent meeting we can actually leverage Huan Yuan to provide summary of meetings and help people to catch up on meetings if they have missed the first half of the meeting and so on and so forth and in Tencent dogs we can actually provide a whole set of tools for people to create documents in a much more efficient way and these services are already offered to outside customers and we also have a whole set of productivity enhancement tools such as the customer service APIs which are now being tested by a lot of customers and enterprise customers who have the need to interact with the customers.

James Mitchell: In terms of code generation it's actually sort of providing very good results and tools for our programmers as well as our outside customer programmers to improve on their coding efficiency and it's also helping in terms of content creation for both of our advertising business helping advertisers to create more ads, more targeted ads which can be used to improve the clickthrough rates of the advertising as well as in the game production process especially related to the artwork we are actually leveraging AI to actually help us to create these artwork in a more efficient and cost effective way. So that's for Huan Yuan and the general AI capabilities actually helping us quite a bit in terms of the targeting technology related to advertising and our content provisioning service.

James Mitchell: So in short video you know by improving our AI capability we can actually ramp up our video accounts at the fast equipped and in terms of the advertising business by increasing the target and capability we are actually increasing our ad revenue and by delivering better results to the... So our customers, so they are generating, so our AI capabilities is generally tentable result at this point in time. And we actually look into the future when you can actually provide a lot of tools for enterprise customers, it can further improve our advertising business efficiency by in the future, really merging the advertising stage and the selling stage right now if we can actually provide very good customer service capability then then a lot of merchants can actually combine the advertising and sales process into one and you know we also feel that further in the future when there's actually a consumer facing product that you know it's more like a smart agent for people right now that is further down the road but you know it actually carries a quite a bit of room for imagination.

James Mitchell: Now in terms of the chip situation right now we actually have one of the largest inventory of of AI chips in China among all the players and one of one of the key things that we had done was actually we were the first to put in order for H 800 and that allow us to have a pretty good inventory of H 800 chips. So we have enough chips to continue our development of Huan Yuan for at least a couple more generations and the band does not really affect the development of Huan Yuan and our AI capability in the near future and going forward we will have to figure out ways to make our usage of our AI chips more efficient.

James Mitchell: We'll try to see whether we can offload a lot of the inference capability to lower performance chips so that we can retain the majority of our high performance AI chips for training purpose and we'll also try to look for domestic source for these training chips. Thank you Martin and James. Thank you.

Gary Yu: We will take the next question from Gary from Morgan Stanley. Hi.

Gary Yu: Thank you management for the opportunity and congratulations for another sort of quarter. My first question is also related to the games business. I think two years ago we also identified game is the key investment area for future growth. I think at that time we were expecting a kind of two to three years production cycle. We commented that because of the improvement financial performance we now had the luxury to taking to take a longer time for production cycle.

Gary Yu: So where are we right now at the kind of production cycle and how should we look at these investment translating into games pipelying in different genres and also financial performance in the next couple years. And then I have a full of questions related to our capital management. I think last year we increased dividends. We have also stepped up our share by back. How should we look at the opportunities and how investment portfolio similar to what we did on JD and May 20th distribution in the past two years. Thank you. Hi, Gary.

Gary Yu: So, of the game question, then in general, we have chosen the Elon Gate, our game production cycle, you know, sometimes by six months, sometimes by 18 months. And there's a couple of reasons for that. One is that we can see empirically that there's bigger opportunities now for the best games, especially if the development studio is patient about investing at the time, the resources to make the best games be all that they can be.

Gary Yu: And of course, we want to in a capitalise on that and release the best games. And then secondly, as you alluded to, with the high quality revenue growth model in place, we feel we now have the luxury where our business, because of video accounts, because of minigames, because of search in the commerce, is actually capable of sustaining quite healthy earnings growth rates, even without releasing a big game in a given three month period.

Gary Yu: And therefore, with the, in a boat of those in place, we think that for us, it has made sense for us to play the long game. And you know, really focus on making the games in our pipeline be all that they can be. And you know, Martin highlighted nine games in our pipeline. In one of those games, we'll be released in the coming weeks. The others will be released in the coming few months.

Gary Yu: And you know, those will be the test cases of how effectively we're executing in that direction. But overall, we feel that, you know, we now have this luxury of playing the long game because the high quality revenue growth model provides us with earnings growth irrespective of, you know, whether we're launching a game in a quarter or not. Yeah, in terms of shareholder return and capital management, I would say a few points. Right. Number one, we are very focused on shareholder return. And we'll try a different ways to improve it.

Gary Yu: And secondly, we do have very strong cash flow alongside with a very large investment portfolio, half of which is actually in the liquid stocks. So we do have the flexibility of using different tools to increase a shareholder return. And if you look at the tools that we have, right, you know, obviously you mentioned their share buyback. There's a dividend. There is also a distribution of investing shares that we have executed before.

Gary Yu: And there's also a divesting investment. So that we generate cash so that we can actually do more of share buyback and dividend. So we will use these tools dynamically and also at different times in different combination to improve and return, improve the shareholder return and return capital to our shareholders. But I would say at this point in time, if you look at the market, the valuation in the market for China in that stock is almost at historical levels. Right. So I would say at this point, buyback will be a more favorable means for our shareholders than other means. Thank you, Gary.

William Packer: Thank you. All the takes the next question from William Packer, from the MP. William, your line is over.

William Packer: Hi, this is Will Pack, can you hear me? Yeah, we can. Thanks very much and congrats on the strong calls. My question is around the sustainability of gross margin improvement across the key VAS adjunct index segment of your portfolio. Are the gains we've seen year-to-date sustainable into 2024 and beyond? And is there further upside from mixtures?

William Packer: And my follow-up question was around domestic gaming, gross green volatile and recent years as you've digested the impact of lockdowns, replication, et cetera, we now seem to have settled into a more normalised period. How should we think about the medium to long-term growth algorithm for the segment? And to what extent are you aligned on new hit content within that segment? Thank you. Hi, Will.

James Mitchell: So on the margin question, we talked about how there's three drivers of the uplift in margins in recent quarters. And two of them we view as sustainable and recurring in nature. One of them, which is the head count adjustments we structure and so forth, is more episodic in nature.

James Mitchell: And looking forward, in general, the revenue streams that are growing fastest in our business, are the revenue streams with the highest margins. So we believe that the current level of margin of gross margin is sustainable. And we believe that there is room for margins to improve further. If you look at the advertising segment, for example, the gross margin has improved from 30 per cent to around 50 per cent. Our closest global comparable is running an advertising gross margin of 80 per cent. So that's on the margin side.

James Mitchell: With regards to the games, then we believe that the existing evergreen games provide a certain amount of growth. And then on top of that, we have new games in the pipeline. And depending on when we release those and the success of those new games, those can provide additional growth on top. Thank you. Thank you, William.

John Troy: Next question comes from John Troy from Taiwan. John, your line is open now. So, good evening.

John Troy: Thank you for taking my question. I have just a quick one question on the games, as you mentioned. I think I think you guys mentioned a domestic or more comfortable.

John Troy: It was the more launches, but as we go into the international side, can you kind of elaborate what kind of investments that we have to do further as we continue to invest? I do understand that we have, at first, I think, called duty mobile. You mentioned that after, despite being launched four years ago, we had a record July. So, I want to know what are kind of how do you elongate or revive some of the old titles while you balance the new launches?

John Troy: And just a quick follow-up on your catpex and head count plan. Can you kind of share us, you know, what I think this quarter we did see elevated catpex this time and also head count did see a sequential improvement. So, as you go into 2024, could you imagine it, you know, share some color on this area. Thank you. Hi, John.

John Troy: So on the international games, you know, we've already been running a race substantial investment in international game development through our PNL. If you take, you know, our studios, such as, you know, riot, super style mini clip, fat shark, shark mob and, you know, on and on and on. Then, you know, we're actually one of the biggest game developers in the world, excluding our China business. And of course, our big China studios, such as in the Unquantum, you know, add many thousands more of developers who are creating games that are targeting an international as well as a domestic market.

John Troy: So we feel that we have, you know, that the teams in place now to create, you know, big budget, high production value and, you know, ultimately successful games, you know, for the international market and, you know, we'll be bringing those games to release in the quarters to come. So that's on the game side. Excellent.

John Troy: Operating cap packs represent about three to five, three point five percent of the total revenue, three to three point five in 2023. And for 2024, I think you would be at similar level. And if we are able to get more GPUs to add on and a 1% on top of that, three to three point five percent. For non operating cap packs every year, you know, on the construction side, we spend roughly one billion US dollars in the past few years. That's excluding, you know, any land acquisition, if we add on land acquisition, you shouldn't be more than additional, you know, one billion on top of that construction cost.

John Troy: In terms of the head counts, we believe most of the efficiency optimization have been done. And we have the right size of workforce for our existing business. We are hiring selectively to grow our new businesses. But also, it's actually very important for us to recognize that big teams are actually not very good for focus and efficiency execution of businesses. So in the past, I think, you know, we and maybe many other companies have actually sort of built teams up too quickly and built too large a team.

John Troy: And so going forward, you know, consistent with what we talked about in our new high quality revenue growth model, you know, one of the key things is actually discipline and the cost discipline is really part of it is trying to keep our teams smaller. But with better people so that we can actually help our team to focus on the real value at the things to work on. And that turns out to usually be a value creation exercise for our business and make ourselves our business strategically stronger. Thank you.

Alicia Yap: We will take the next question for Alicia. Hi, good evening.

Alicia Yap: So, yeah, thanks for taking my questions. Also, congrats on the solid profit speech. Two questions, first is on the video account advertising revenue as we started to laptop the low base, and although we're going to still have the close group e-commerce transactions to benefit and support that solid at growth for the video account. Just wondering, what could be the steady stage of the growth rate for the overall online ad revenue going forward.

Alicia Yap: And then a follow-up is on the phone you and model, I think management did mention potentially sometimes down the road, there will be a commercial product for consumer and so just wondering, you know, when we can see, for example, the AI system to be integrated into each end and pew pew. And when that is ready, would that be potentially also a commercial service charge, for example, like the subscription. Thank you. Hi, Alicia.

James Mitchell: So, on your first question about video account advertising revenue, you know, we're not super focused on, you know, whether there's a low base or a higher base because actually we have, you know, four discrete growth drivers, we see supporting our advertising revenue growth, you know, not just the price. But for many years to come, you know, the first of them is traffic. So, you know, the number of video views today is substantially greater than 50% higher than it was when we began monetizing video accounts just over a year ago.

James Mitchell: And so that's an immediate uplift in an ongoing uplift because we believe video accounts traffic will continue to grow. Second, there's the ad load, you know, today the ad load we operate at on video accounts is less than 3%. The ad load that our domestic peers operate at is over 10%.

James Mitchell: And so we have room to very substantially multiply our ad load over the years to come versus where it is today. Thirdly, there's the ability to uplift our click through rates using artificial intelligence. You know, today a typical click through rate might be around 1%.

James Mitchell: And as you deploy large language models, then you can make more use of the thousands of discrete data points that we have potentially for targeting and bring them to bear and turn them into reality. And you can get pretty substantial uplift in click through rate and therefore in revenue, which is what the big in a US social networks are now starting to see. And fourth, there's the close loop opportunity. If you look at our domestic peers in the short video space, they've been very focused and very effective at maximizing closed loop transactions, because those generate the most information.

James Mitchell: And those enable that the greatest future targeting forward targeting abilities. And you know, given our mini programs, given our week on landing pages, given video accounts, and given the consent payment infrastructure, we feel we're in an ideal position to further ramp up our own closed loop capabilities. So, you know, with those four drivers in place, obviously the macro environment is out of our control that we have four important drivers as growth within our control. Thank you.

James Mitchell: Now, in terms of the when you're in and in the future, you know, the potential of the AI assistant, I think, you know, it's fair to say it's still in a very, very early stage of concept design. So definitely not at the stage of product design yet, and definitely not at the stage of thinking about monetization yet. But of course, right, you know, if you look at any of these generative AI technology at this point of time, influence cost is a real valuable cost, which needs to be considered in the entire equation.

James Mitchell: And that to some extent adds to the challenge of the product design to you. So, you know, I would say at this point of time, it's actually very early stage, there is a promise and imaginary room for opportunity for the future. But it's too early to talk very concretely about it for now. Okay, thank you.

Thomas Chong: Thank you. We will take the next question from Thomas Chong from Jeffy.

Thomas Chong: Thanks, management for taking my questions. My question is about life streaming e-commerce given that the competitive environment is very intense. And we are seeing video accounts is gaining a very good traction and drawing very fast growth. So I just want to get some color from management perspective about our strategies and our goal in coming years. And in particular, how we should think about the internal advertising as well as the commissions, both trend or any market position that we want to achieve in coming years. Thank you.

Thomas Chong: Well, in terms of life streaming e-commerce, I think the playbook is actually quite clear. Once you have the short video franchise, you actually start taking that into the life streaming and build a franchise there. And then from life streaming, if you can actually establish the tools and the connection and supply chain of merchant, then you can start building up the life streaming e-commerce. So the playbook is actually well developed.

Thomas Chong: What we're doing is actually we want to build it in a systematic way step by step. And it does involve a process of many steps, including including building a strong ops team so that we can ensure the quality of the products offered on our platform, building category teams to manage different categories. Building tools and infrastructure to facilitate merchants to do more businesses.

Thomas Chong: We need to have integration of the entire ecosystem into our app system. And also we need to build up a KOL ecosystem so that the merchants can leverage the KOL to facilitate the life streaming e-commerce business. So I think this would actually if played out step by step, right, you know, would basically, you mirror the market share that we have on short video, right, you have short video, you have the life streaming and the life streaming actually sort of you have the life streaming e-commerce GMV. And I think, you know, if we execute all those steps well within the playbook, then it would give us a fair share. But over and beyond, we believe we have some pretty.

Thomas Chong: We have a very strong mini program ecosystem, and there are a lot of merchants and brands who are already doing a lot of businesses on mini programs. And if we can actually connect our life streaming e-commerce with the mini programs and that additional layer of integration. Integration and ability to do more business, we have social sharing within our ecosystem right now and that would actually help merchants and products to be shared to many other friends and connections and as a result can generate more sales.

Thomas Chong: And we also have a pretty significant group of high income and affluent customer base who are probably not that used to shopping on short video platform at this point of time. And if we can bring them to the entire life streaming and e-commerce ecosystem, then that could offer further upside. So that's the way we think about the life streaming e-commerce at this point of time. Thank you.

Unknown Executive: Next question is you're welcome to see me there. Okay, good evening, management team. Thank you for taking my question and a good quarter. I have a two questions.

Unknown Executive: Number one, regarding the ghost driver of advertising business, Jen, you mentioned wishing search as one of the driver. Sure, there's a little bit more metrics in terms of where the business is. For example, percentage of a wishing DAU who use wishing search et cetera, et cetera. And more importantly, I would like to understand how you think about the long term monetization opportunity given search ads is a legacy as model with the many years of operational history in China internet. So that's the first one on wishing search.

Unknown Executive: Second question is on the mini game. We noticed the super majority of the me core and hardcore game activities is still mostly take place in apps. What does it take for those of me core and the hardcore game activity to migrate into mini game ecosystem is it currently constrained by technology or bandwidth or it's more of a user behavior issue. Thank you. Why don't I take the mini game question.

Martin La: So that there's a number of constraints, you know, we believe the most important is in that the capable the technical capabilities and the game development tools for making mini games that are comparable to app based games. And you know, I say that first of all, because if you look at in a similar concept, such as Roblox, and over time, there's been a steady broadening in the range of games available on Roblox in it to more graphically immersive, more and more multi player, more and more fast paced switch based games.

Martin La: And, you know, we're seeing now something similar in mini games where the initial mini games for typically single player, you know, then there were basic multi player card games, you know, now we're moving into multi player role playing games and then going into the future, we expect to see multi player first person action games.

Martin La: So, you know, as the handsets become more sophisticated as the mini game architecture becomes more powerful as the developers become more expert in creating mini games, then there should be a long term convergence in terms of the capabilities and the experiences of mini games versus app based games. And, you know, as that happens, then there's no intrinsic reason why people who are currently playing app based games wouldn't also start playing mini games.

Martin La: Now, in terms of recent search, right now, the penetration is actually quite high, right? So starting from people basically searching for, you know, in-app contact and content, you know, basically everybody does it on a very frequent basis every day, right? You know, but then in addition to that, everybody has to actually search something on the open web as well as in the ecosystem. So the content search, everybody has done some of that.

Martin La: But, you know, what we need to do is actually need to have people use it more frequently. And the way through which we can actually make it more frequently used is, of course, one, the search technology, right? You know, within waste and we have been constantly building up the technology.

Martin La: And I think, you know, the search technology has improved consistently. And after we have acquired so-go, you know, the technology of our search have also taken a step up. The second is that actually the search user experience, because the Waysian is a tool which people communicate.

Martin La: So we actually need to have a user experience that allow people to find the content more quickly than normally if people open up browser and try to do searches. And I think, you know, that web-made progress, but there's still more work to be done. And the third one is actually the ecosystem, right?

Martin La: You know, so we have a lot of content within Waysian. And that's through official accounts. And there's also an increasingly large mini program ecosystem that's sitting on Waysian. And now there's also video accounts.

Martin La: The ability for us to leverage the Waysian search and connect it to all the content within our ecosystem is actually something that we are building over time. And once we have done that right now, we can allow people to search on the open web or also have unique content that's uniquely available on Waysian, then the Waysian search value proposition and content will be even better. So I think, you know, those are things that we have been doing in order to increase the frequency of usage by our users on search.

Martin La: And we have seen encouraging signs on that because the VV and in general VV on content have been increasing consistently over the past few years. And over time, once we have built up that content search traffic within Waysian on a consistent basis, then we can actually overlay the monetization, right? And right now, the at-load on our search is still very, very low.

Unknown Executive: So that there's actually a lot of potential for us to increase it. But more important, I think the ability for us to build a transaction ecosystem within Waysian is actually very important for the future growth of Waysian search. The more mini-program transactions that we can generate, the more life streaming e-commerce that we can generate over time, that would actually help us to increase the potential for Waysian search monetization. And we feel there's actually a very long runway in terms of growing this part of the Thank you. Thank you, Wendy.

Unknown Executive: I have some questions. First is on advertising, which obviously has been a really strong year for Tencent as the platform has been gaining market share. Considering e-commerce is becoming a bigger contributor and obviously there are, you know, seasonality factors that comes with that contribution from wasting surge. And, you know, next year obviously what we could see, however, is your year comes for video accounts after it has delivered very much growth this year. Should we expect, I guess, growth to accelerate into the next quarter or 2024, just generally how you're thinking about, you know, the outlook. Thank you. And then follow up on cash again.

James Mitchell: I've tried to, we've missed some of the question. I think I also may have overlapped a little bit with Alicia's question earlier. So I just refer back to that in that, you know, we see four to three growth drivers for our advertising business, including traffic growth, increased ad load to converge with industry peers, deployment of AI to boost CTR, and closed loop advertising. And so those are all on the positive side. And then, you know, macro could be a potential negative.

James Mitchell: But, you know, candidly, this year hasn't been a spectacular year from a macro perspective anyway. In terms of, you know, what that translates into, you know, for growth in the next quarter or next year, we don't give guidance. And, you know, the theme we've been talking about this evening is not, you know, high revenue growth model, it's high quality revenue growth model. So, you know, we're less focused on, you know, maximizing the speed of our revenue growth.

James Mitchell: And in your given quarter, we're more focused on, you know, having a healthy, sustainable revenue growth rate. And we believe with sustainable revenue growth rate, we can drive a faster earnings growth rate. So that's on the advertising question. Thank you.

Unknown Executive: I guess, separately, on international games, you know, I guess what factors should be focusing on, as we think about again, the outlook. Obviously, we're reading a little bit more about layoffs in the industry. How should we think about contributing factors like, you know, user spending as well as development pace and your launches and consolidation within the industry? How would these things kind of play out, you know, whether it will help a bit or help a, you know, benefit 10 cents? Thank you.

Unknown Executive: But I don't think there's a, you know, very simple single-ounce, you know, it's a complex industry. And it went through a period of rapid head count increase over the last two to three years. Now it's going through a period of, you know, head count consolidation. You know, that's happened many times in the past. And unfortunately, it may happen again in the future.

Unknown Executive: And it's just incumbent on us to, you know, navigate that effectively. But again, we have the benefit in[inaudible] We have a number of other businesses that are growing quickly. Therefore, we don't feel pressure to maximize our international or optimistic game revenue growth in any single quarter. If you're looking at Microsoft, then Microsoft doesn't feel it has to release a new Halo game on December 31st rather than January 1st, because people keep using Windows and Office and a zero and all with the other Microsoft products that also generate profit growth.

Unknown Executive: I think we're now in that position where with the improving margins of our advertising business, with the improving margins of our fintech business with the turnaround in our business service, there's new contributions from e-commerce and so forth. Then we have a multi-pronged growth model. As and when international games has a big new product and accelerates, that's great. But in the meantime, international games is not the primary determinant of whether we grow our earnings or not in a different quarter.

Unknown Executive: Thank you, Shirley.

Unknown Executive: Where do it take the last question from, Ronald Khan from Gomes X? Thank you. Thank you, Tony Martin, James, John and Wendy. So, my first question, I think on FDS, we haven't talked too much on the fintech mid-teens growth and the cloud business so far, just how should we think about the landscape on these two and the growth outlook? Should we expect for the recovery, particularly on the business services, excluding the e-commerce size of the cloud business in the competitive landscape and outlook? Maybe that's the second question as well, just in one go.

Unknown Executive: So, I'll now share how to return policies. How should we think about our current investment portfolio in terms of the investment and reinvestment piece this year and any lessons or experience from the past two years of distribution that we have in and from our experience and how should we think about the showed return on the investment portfolio front? Thank you.

James Mitchell: In terms of the FDS, I think there are two projects that there is the fintech and there's the business services. Now, in terms of the fintech, I think what we have is a very significant platform maintenance payment and on top of the payment, we actually offer financial services and if you look at the business itself, it's actually growing quite nicely this year and there are a couple of drivers. Party is actually growing alongside with consumption, right?

James Mitchell: As you can see, although there are some macro challenges on the economy side, but consumption in China is still growing quite nicely and our overall fintech business actually grow alongside with that and then on top of it, we actually have been offering financial services such as landings, such as wealth management and these are actually falling into the model of the high quality revenue growth model in which these are businesses which generates high margins and they ride on a payment network which has the cost paid for so their growth actually generates additional incremental margins, and at the same time, we actually manage these businesses in a very measured way because we want to make sure that we are very good in terms of risk management and we also try to grow them in a measured way so that we don't take on too much risk and we can also pick the best customers that we want to serve. So I think that's on Fintech side over time, we actually sort of would like to find additional value at the services that we can actually bring value to the merchants that we serve and for the value that we create, we charge a little bit on additional fees if they are really generating value.

James Mitchell: So I think that's the overall model that we're thinking with respect to Fintech. In terms of the business service at the cloud, I think right now there's a lot of, in the past two years, there's a lot of capacity re-adjustment within the industry. The access capacity is being used up and a lot of businesses have been trying to manage their cost down. And I think we have also proactively got rid of some low quality businesses too.

James Mitchell: When we look into 2024, we believe that the dynamics in the market is that the squeezing of unused capacity is probably over. So if macro stays the same, there will probably some modest growth in terms of the cloud usage, but there probably need to be a higher economic growth in order for higher growth to return to the market.

James Mitchell: There will be some growth with respect to a path in SaaS, and that's frankly the area that we're focused on. We believe going forward, again, we're more focused on the high quality revenue model in which would be more focused on the past and SaaS. It's inherently, it will be generating more growth margins for us.

James Mitchell: So that's how we look at those two businesses. We regard the investment portfolio, so we are quite active and agile on both additional investments, but also on divestments. Some of that activity is visible, a lot of it is not visible, but given what we view as our share price dislocation, primary use of cash has been buying back our own shares.

James Mitchell: And so that remains the priority at this point in time. Thank you, Martin and James. Thank you all for joining the call today, we are now ending the webinar. If you wish to check out our first release and other financial information, please visit the IR section of a company website at www.tensin.com. The replay of this webinar will also be available soon. Thank you and see you next quarter.

Operator: Quarter Results Announcement Webinar. I'm Wendy Huang from the Tencent IR team. 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 dial in by phone, if you wish to ask a question, please press five on your telephone to raise your hand. If you are accessing from the Tencent Meeting or VooV Meeting application, 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 undermined 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.

Wendy Huang: Quarter Results Announcement Webinar. I'm Wendy Huang from the Tencent IR team. 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 dial in by phone, if you wish to ask a question, please press five on your telephone to raise your hand. If you are accessing from the Tencent Meeting or VooV Meeting application, 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 undermined 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.

Wendy Huang: Results Announcement Webinar. I'm Wendy Huang from the Tencent IR team. 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 dial in by phone, if you wish to ask a question, please press 5 on your telephone to raise your hand. If you are accessing from the Tencent Meeting or VU Meeting application, please click the raise hand button at the bottom left.

When do you want from Tencent IR team.

At this time all participants are in a listen only mode.

After 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 five on your telephone to raise your hand if.

If you are accessing from the change of meeting overall meeting application.

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

Unknown Executive: And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes four forward-looking statements, which are underpinned by a number of risks and uncertainties, and they may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-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.

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

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

Operator: This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President Martin Lau will discuss strategy review. Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lo will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony.

Wendy Huang: This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President Martin Lau will discuss strategy review. Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lo will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony.

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

For a detailed discussion of risk factors and non <unk> measures. Please refer to our disclosure documents on the IR section of our website.

Wendy Huang: Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Paul Nima, will kick off with a short overview. President Martin Lau will discuss the strategy review. Chief Strategy Officer, James Mitchell, will provide a business review. Chief Financial Officer, John Lowe, will conclude with a financial discussion before we open the floor for questions. I will now pass it to Pony.

Let me now introduce our management team on Webinar Tonight.

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

<unk> Martine La will discuss strategy review.

<unk> strategy Officer, James Mitchell will provide a business review.

<unk> Financial Officer, John Lowe will conclude with financial discussion before we open the floor for questions.

I'll now pass it to pony.

Pony Ma: Thank you, Wendy. Good evening. Thank you everyone for joining us. During Q3 2023, we achieved a solid and high quality revenue growth, notable margin expansion, and structural operating leverage. Relatively new services such as Video Accounts and Mini Games contribute high margin revenue streams, while we refocused away from less scalable activities. We are increasing investment in our AI models, providing new features to our products, and enhancing our targeting capabilities for both content and advertising. We aspire to position our leading AI capability not only as a growth multiplier for ourselves, but also as a value provider to our enterprise customers and the society at large. Now, let me go through the headline financial for the third quarter. Total revenue was CNY 165 billion, up 10% year on year and 4% quarter on quarter.

Pony Ma: Thank you, Wendy. Good evening. Thank you everyone for joining us. During Q3 2023, we achieved a solid and high quality revenue growth, notable margin expansion, and structural operating leverage. Relatively new services such as Video Accounts and Mini Games contribute high margin revenue streams, while we refocused away from less scalable activities. We are increasing investment in our AI models, providing new features to our products, and enhancing our targeting capabilities for both content and advertising. We aspire to position our leading AI capability not only as a growth multiplier for ourselves, but also as a value provider to our enterprise customers and the society at large. Now, let me go through the headline financial for the third quarter. Total revenue was CNY 165 billion, up 10% year on year and 4% quarter on quarter.

Thank you Randy.

Huateng Ma: Good evening. Thank you, everyone, for joining us. During the third quarter of 2023, we achieved solid and high-quality revenue growth, notable margin expansion, and structural operating leverage. Relatively new services such as video accounts and mini-games contribute high-margin revenue streams while we focus away from less scalable activities. We are increasing investment in our AI model, providing new features to our products, and enhancing our targeting capabilities for both content and advertising. We aspire to position ourselves as a leading AI capability.

Good evening, Thank you everyone for joining us.

During the third quarter of 2023, we achieved a solid and high quality revenue growth notable margin expansion.

Structure.

Operating leverage.

Relatively newer services such as video calls mini games contribute higher margin revenue streams, while we leave focuses away from less scalable activities.

We are increasing investment in our AI models.

Providing new features to our products.

Our pocketing a abilities.

While both content and advertising.

We aspire to position, our leading AI capabilities.

Huateng Ma: Not only as a growth multiplier for ourselves but also as a value provider to our enterprise customers and the Society at Large. Now, let me go through the headline financial results for the third quarter. Total revenue was 155 billion RMB, up 10% year-on-year and 4% quarter-on-quarter. Gross profit was 77 billion RMB, up 23% year-on-year and 8% quarter-on-quarter. Non-IFRS operating profit was 56 billion RMB, up 36% year-on-year and 11% Non-IFRS net profit attributable to equity holders was 45 billion RMB, up 39% year-on-year and 20% quarter-on-quarter.

Not only us.

Growth multiplier for ourselves, but also as a value provider to our enterprise customers.

The society at large.

Now let me go through the headline.

Financials for the third quarter.

Total revenue was 155 billion RMB up 10% year on year, and 4% quarter on quarter.

Pony Ma: Gross profit was CNY 77 billion, up 23% year on year and 8% quarter on quarter. Non-IFRS operating profit was CNY 56 billion, up 36% year on year and 11% quarter on quarter. Non-IFRS net profit attributable to equity holders was CNY 45 billion, up 39% year on year and 20% quarter on quarter. Turning to our key services. For communication and social networks, combined MAU of Weixin and WeChat grew both year on year and quarter on quarter to 1.3 billion. For games, we reinforced our leadership in competitive multiplayer games while investing to develop future hits in content-driven and casual games. For cloud, we upgrade the size and capabilities of our proprietary foundation model, Tencent Hunyuan. We are making Hunyuan available on a limited basis to the public and to customers and deploying Hunyuan in Tencent Meeting and Tencent Docs.

Pony Ma: Gross profit was CNY 77 billion, up 23% year on year and 8% quarter on quarter. Non-IFRS operating profit was CNY 56 billion, up 36% year on year and 11% quarter on quarter. Non-IFRS net profit attributable to equity holders was CNY 45 billion, up 39% year on year and 20% quarter on quarter. Turning to our key services. For communication and social networks, combined MAU of Weixin and WeChat grew both year on year and quarter on quarter to 1.3 billion. For games, we reinforced our leadership in competitive multiplayer games while investing to develop future hits in content-driven and casual games. For cloud, we upgrade the size and capabilities of our proprietary foundation model, Tencent Hunyuan. We are making Hunyuan available on a limited basis to the public and to customers and deploying Hunyuan in Tencent Meeting and Tencent Docs.

Gross profit was 77 billion RMB up 23% year on year, and 8% quarter on quarter.

Non <unk> operating profit was $15 6 billion up 36% year on year and 11% quarter on quarter.

Non.

<unk> net profit.

Attributable to equity holders was 45 billion RMB up 49% year on year and 20% quarter on quarter.

Martin Lau: Tune in to our key services. For communication and social networks, the combined MAU of WeChat group both year and year and quarter and quarter to 1.3 billion. For games, we reinforced our leadership in competitive multiplayer games while investing to develop a future hit in content-driven and casual games. For clouds, we upgraded the size and capabilities of our proprietary foundation model, Tencent Quicken. We are making Hunyuan available on a limited basis to the public and to customers and deploying Hunyuan in Tencent Meeting and Tencent Box. I will now hand over to Martin for a strategic review. Thank you, Pony, and good evening, everybody.

Turning to our Q services.

For communication and social networks.

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One 3 billion.

Hawkins will reinforces our leadership competitive multiplayer games, while investing to develop a future hits in content driven and casual games.

For cloud, we upgrade the size and capabilities of our proprietary Foundation model Tencent point again, we are making.

Available on a limited basis to the public and to customers and deploying linger in Tencent meeting and Tencent box.

Pony Ma: I will now hand over to Martin Lau for strategy review.

Pony Ma: I will now hand over to Martin Lau for strategy review.

I will now hand over to Martin for strategic review.

Martin Lau: Thank you, Pony, and good evening, everybody. In the past few years, the internet industry in China has gone through structural challenges, leading to strategic changes. A major strategic change is a shift away from seeking to maximize revenue at all costs toward delivering high quality and sustainable growth. Today, I would like to share with you the progress we have made towards high quality revenue streams and how this shift is translating into improved operating leverage and strategic position. To start with, let me walk you through the evolution of our Weixin platform and how it continues to improve its position by enhancing its value to users. The original Weixin experience was messaging, and the franchise is stronger than ever as messaging remains the highest daily user frequency service in China.

Martin Lau: Thank you, Pony, and good evening, everybody. In the past few years, the internet industry in China has gone through structural challenges, leading to strategic changes. A major strategic change is a shift away from seeking to maximize revenue at all costs toward delivering high quality and sustainable growth. Today, I would like to share with you the progress we have made towards high quality revenue streams and how this shift is translating into improved operating leverage and strategic position. To start with, let me walk you through the evolution of our Weixin platform and how it continues to improve its position by enhancing its value to users. The original Weixin experience was messaging, and the franchise is stronger than ever as messaging remains the highest daily user frequency service in China.

Thank you Pony and good evening, everybody and.

Martin Lau: In the past few years, the internet industry in China has gone through structural challenges leading to strategic changes. A major strategic change is a shift away from seeking to maximize revenue at all costs toward delivering high quality and sustainable growth. Today, I would like to share with you the progress we have made toward high-quality revenue streams and how this shift is translating into improved operating leverage and strategic position. To start with, let me walk you through the evolution of our Waysharing platform and how it continues to improve its position by enhancing its value to users.

In the past few years, the internet industry in China has gone through a structural challenges leading to strategic changes or major strategic change is a shift away from seeking to maximize revenue at all costs toward delivering high quality and sustainable growth.

I would like to share with you the progress we've made towards high quality revenue streams and how this shift is translating into improved operating leverage and strategic position.

To start with let me walk you through the evolution of our <unk> platform and how it continues to improve its position by enhancing its value to users.

Martin Lau: The original Weixin experience was messaging, and the franchise is stronger than ever, as messaging remains the highest daily user frequency service in China. Weixin Chat's DAU and daily messages sent per user are consistently increasing, driven by the evergreen need for communications among friends, family members, and colleagues. Meanwhile, Weixin Chat meets social networking needs through group functionalities and moments, and also enables new forms of connections, such as customer support services.

Our regionalization experience with messaging and the franchise is stronger than ever as messaging remains the highest daily user frequency service in China.

Martin Lau: Weixin Chat's DAU and daily messages sent per user are consistently increasing, driven by the evergreen need for communications among friends, family members, and colleagues. Meanwhile, Weixin Chat meets social networking needs through group functionalities and moments, and also enables new forms of connections such as customer support services. Subsequently, we supplemented messaging with open platforms which connect users with a range of external services. These include Official Accounts which enable brands and content creators to reach their followers with text and image content, Mini Programs which allow users to transact with merchants and service providers offline and online. Each day, several hundred million unique users visit and interact with over 1 million unique Mini Programs. Mini Programs facilitated over CNY 1.5 trillion of GMV in Q3. Merchants and service providers developing and managing their own Mini Programs provide growth and innovation for our ecosystem.

Martin Lau: Weixin Chat's DAU and daily messages sent per user are consistently increasing, driven by the evergreen need for communications among friends, family members, and colleagues. Meanwhile, Weixin Chat meets social networking needs through group functionalities and moments, and also enables new forms of connections such as customer support services. Subsequently, we supplemented messaging with open platforms which connect users with a range of external services. These include Official Accounts which enable brands and content creators to reach their followers with text and image content, Mini Programs which allow users to transact with merchants and service providers offline and online. Each day, several hundred million unique users visit and interact with over 1 million unique Mini Programs. Mini Programs facilitated over CNY 1.5 trillion of GMV in Q3. Merchants and service providers developing and managing their own Mini Programs provide growth and innovation for our ecosystem.

Wishing chats.

And daily messages sent per user are consistently increasing driven by the evergreen need for communications among friends family members and colleagues. Meanwhile, we should chat social networking needs food group functionalities and moments and also enables new forms of connections such as.

Customer support services.

Martin Lau: Subsequently, we supplemented messaging with open platforms that connect users with a range of external services. These include official accounts that enable brands and content creators to reach their followers with text and image content, and many programs that allow users to transact with merchants and service providers offline and online. Each day, several hundred million unique users visit and interact with over a million unique mini programs. Many programs facilitated over 1.5 trillion RMB of GMB in the third quarter.

Subsequently, we supplemented the messaging with open platforms, which connect users with a range of external services.

These include official account, which enables brands and content creators to reach the followers with text and image content.

Our mini programs, which.

Allow users to transact with merchants and service providers offline and online.

Each day several many at 100 million unique user visits and interact with over a million unique.

Many programs.

Mini programs facilitated over one five trillion RMB of <unk> in the third quarter.

Martin Lau: Merchants and service providers developing and managing their own mini-programs provide growth and innovation for our ecosystem. Mini Games, which is a successful vertical use case for mini programs, has become the largest casual game community in China. We monetize these open platforms primarily through payment tick rates and a very light advertising load, resulting in a wide gap between the value we deliver to participants versus the revenue we generate ourselves. More recently, Weixin launched the Video Account, which is a major new addition to the Weixin ecosystem. Video accounts are growing in usage fast, and that usage is incremental to our messaging and open platform time spent. Upslip can waste overall time spent.

<unk> and service providers, developing and managing their own mini programs provides growth and innovation for our ecosystem.

Martin Lau: Mini Games, which is a successful vertical use case for Mini Programs, has become the largest casual game community in China. We monetize these open platforms primarily through payment tech rates and a very light advertising load, resulting in a wide gap between the value we deliver to participants versus the revenue we generate ourselves. More recently, Weixin launched Video Accounts, which is a major new addition to the Weixin ecosystem. Video Accounts are growing usage fast, and that usage is incremental to our messaging and open platform time spent, uplifting Weixin's overall time spent. Video Accounts also differ from chat and open platforms in that they enable us to participate in high-margin monetization activities such as in-feed advertising and e-commerce technology service fees. Going into Weixin's new services monetization a bit more. Our newest services in Weixin are generating revenues at higher incremental margins than our company average.

Martin Lau: Mini Games, which is a successful vertical use case for Mini Programs, has become the largest casual game community in China. We monetize these open platforms primarily through payment tech rates and a very light advertising load, resulting in a wide gap between the value we deliver to participants versus the revenue we generate ourselves. More recently, Weixin launched Video Accounts, which is a major new addition to the Weixin ecosystem. Video Accounts are growing usage fast, and that usage is incremental to our messaging and open platform time spent, uplifting Weixin's overall time spent. Video Accounts also differ from chat and open platforms in that they enable us to participate in high-margin monetization activities such as in-feed advertising and e-commerce technology service fees. Going into Weixin's new services monetization a bit more. Our newest services in Weixin are generating revenues at higher incremental margins than our company average.

Many games, which is a successful vertical use case for mini programs has become the largest casual game community in China.

We monetize these open platforms, primarily through payment tick rates and a very light advertising load.

Resulting in a wide gap between the value we deliver to participants.

Versus the revenue we generate ourselves.

More recently <unk> launched video accounts, which is a major new addition to the <unk> ecosystem.

<unk> accounts are growing usage fast and that usage is incremental to our messaging and open platform time spent.

Uplifting <unk> overall time spent.

Martin Lau: Video accounts also differ from chat and open platforms in that they enable us to participate in high-margin monetization activities such as in-feed advertising and e-commerce technology. Service Fee Going into Weixin's new services monetization a bit more, our newest services in Weixin are generating revenues at higher incremental margins than our company average, specifically for video accounts. Monetization generates high incremental margins because, first, we're already incurring video account platform costs during the build phase prior to monetization.

Video accounts also differ from chat and open platforms in that they enable us to participate in high margin monetization activities, such as infinite advertising and E Commerce technology <unk>.

Service fees.

Okay.

Total installations, new services monetization that bit more our newest services inflation are generating revenues at higher incremental margins than our company average.

Martin Lau: Specifically for Video Accounts, monetization generates high incremental margins because, first, we are already incurring Video Accounts platform costs during the build phase prior to monetization. Second, once Video Accounts attain critical mass, our developers can start streamlining operating costs such as bandwidth, service, and content costs. Consequently, Video Accounts advertising revenue is high margin and offers a long runway for growth ahead given increasing video views, low ad load compared to peers, and continued deployment of AI technology to enhance ad click-through rates. Video Accounts e-commerce technology service fees, which we book on a net basis, are also high margins in nature for similar reasons. Additionally, we're cultivating more high-quality revenue stream opportunities within Weixin. For example, Mini Games, which we discussed last quarter quite a bit of length, contribute platform fees and advertising revenues to Tencent.

Martin Lau: Specifically for Video Accounts, monetization generates high incremental margins because, first, we are already incurring Video Accounts platform costs during the build phase prior to monetization. Second, once Video Accounts attain critical mass, our developers can start streamlining operating costs such as bandwidth, service, and content costs. Consequently, Video Accounts advertising revenue is high margin and offers a long runway for growth ahead given increasing video views, low ad load compared to peers, and continued deployment of AI technology to enhance ad click-through rates. Video Accounts e-commerce technology service fees, which we book on a net basis, are also high margins in nature for similar reasons. Additionally, we're cultivating more high-quality revenue stream opportunities within Weixin. For example, Mini Games, which we discussed last quarter quite a bit of length, contribute platform fees and advertising revenues to Tencent.

Specifically for video accounts.

Monetization generates high incremental margins because first we're already incurring video accounts platform cost during the build up phase prior to monetization.

Martin Lau: Second, once video accounts attain critical mass, our developers can start streamlining operating costs such as bandwidth, service, and content costs. Consequently, our video accounts' advertising revenue is high-margin and offers a long runway for growth ahead, given increasing video views, low ad load compared to peers, and continued deployment of AI technology to enhance ad click-through rates. Video accounts and e-commerce technology service fees, which we book on a net basis, are also high margins in nature for similar reasons.

Once video accounts attained critical mass our developers can start streamlining operating costs, such as bandwidth service and content costs.

Consequently video accounts the advertising revenue is high margin and offers a long runway for growth ahead, given increasing video views low AD load compared to peers and continued the deployment of AI technology to enhance at click through rates.

Video accounts E Commerce technology service fees, which we book on a net basis.

Also high margins in nature for similar reasons.

Martin Lau: Additionally, we're cultivating more high-quality revenue stream opportunities within Weixin. For example, Minigames, which we discussed last quarter at quite a bit of length, contribute platform fees and advertising revenues to Tencent. From a reporting perspective, we'll also book platform fees on an app basis such that mini-games revenue carries higher margins than app-based games.

Additionally, we're cultivating more high quality revenue stream opportunities with inflation for example.

Any games, which we discussed last quarter.

Quite a bit of length contribute platform fees and advertising revenue was to Tencent.

Martin Lau: From a reporting perspective, we also book platform fees on a net basis such that Mini Games revenue carries higher margins than app-based games. For Weixin Search, the increasing volume of transactions within Weixin is driving rapid growth in our commercial query volume, and marketing search keywords on our own existing traffic generates high margin inherently. As a result, we believe we have moved into a high-quality revenue growth model. Under this model, we can now deliver greater operating leverage than in past. Prior to 2021, our growth and operating profit typically grew at similar or slower rates versus our revenue, while in 2021 and 2022, slowing revenue growth translated into even slower profit growth or in some certain quarters, profit declines. However, entering 2023, solid revenue growth rates have translated into substantially faster growth and operating profit growth rates.

Martin Lau: From a reporting perspective, we also book platform fees on a net basis such that Mini Games revenue carries higher margins than app-based games. For Weixin Search, the increasing volume of transactions within Weixin is driving rapid growth in our commercial query volume, and marketing search keywords on our own existing traffic generates high margin inherently. As a result, we believe we have moved into a high-quality revenue growth model. Under this model, we can now deliver greater operating leverage than in past. Prior to 2021, our growth and operating profit typically grew at similar or slower rates versus our revenue, while in 2021 and 2022, slowing revenue growth translated into even slower profit growth or in some certain quarters, profit declines. However, entering 2023, solid revenue growth rates have translated into substantially faster growth and operating profit growth rates.

From a reporting perspective, we're also broke platform fees on a net basis such that the Muni games revenue carries higher margins than App based games.

Martin Lau: And for Weixin Search, the increasing volume of transactions within Weixin is driving rapid growth in our commercial query volume, and marketing search keywords on our own existing traffic generates high margins inherently. As a result, we believe we have moved into a high quality revenue growth model. Under this model, we can now deliver greater operating leverage than in the past. Prior to 2021, our growth and operating profit typically grew at similar or slower rates versus our revenue.

And for <unk> search the increasing volume of transactions with inflation is driving rapid growth in our commercial <unk> volume.

And marketing search keywords on our own existing traffic generates high margin inherently.

As a result.

We believe we have moved into a high quality revenue growth model.

Under this model, we can now deliver greater operating leverage and in past.

Prior to 2021 gross and operating profit typically grew at similar or slower rates versus our revenue.

Martin Lau: While in 2021 and 2022, slowing revenue growth translated into even slower profit growth, or in certain quarters, profit decline. However, entering 2023, solid revenue growth rates have translated into substantially faster growth and operating profit growth rates. There are three drivers in this significant change. Two sustainable ones colored in blue on the right, and one one-time driver colored in gray.

While in 2021, and 'twenty two slowing revenue growth translated into even slower profit growth or in some certain quarters profit declines.

However, entering 2023 solid revenue growth rates have translated into substantially faster growth and operating profit growth rates.

Martin Lau: There are three drivers in this significant change. Two sustainable ones colored in blue on the right and one-time driver colored in gray. The biggest driver of this change, which we view as structural in nature, is a positive revenue mix shift, i.e., the growth of new high-quality revenue streams and the scale-back of certain low-quality activities. This positive mix shift is the primary reason for gross profit growth exceeding revenue growth. A second driver, which we view as less recurring, is that we optimize costs by exiting certain non-core business and cut back excessive spending on operations subsidies and marketing activities during the tough time. This driver helps explain why operating profit growth has exceeded gross profit growth, partly, and we view it as a lever for pulling at certain times, but not at all times.

Martin Lau: There are three drivers in this significant change. Two sustainable ones colored in blue on the right and one-time driver colored in gray. The biggest driver of this change, which we view as structural in nature, is a positive revenue mix shift, i.e., the growth of new high-quality revenue streams and the scale-back of certain low-quality activities. This positive mix shift is the primary reason for gross profit growth exceeding revenue growth. A second driver, which we view as less recurring, is that we optimize costs by exiting certain non-core business and cut back excessive spending on operations subsidies and marketing activities during the tough time. This driver helps explain why operating profit growth has exceeded gross profit growth, partly, and we view it as a lever for pulling at certain times, but not at all times.

There are three drivers in this significant change to sustainable ones colored in blue on the right and one.

One time driver colored inquiry.

Martin Lau: The biggest driver of this change, which we view as structural in nature, is a positive revenue mix shift, i.e., the growth of new high-quality revenue streams and the scale-back of certain low-quality activities. This possible mixed shift is the primary reason for gross profit growth exceeding revenue growth. A second driver, which we view as less recurring, is that we optimize costs by exiting certain non-core businesses and cutting back excessive spending on operations, subsidies, and marketing activities during the tough times.

The biggest driver of this change, which we view as structural in nature as a positive revenue mix shift.

I E. The growth of new high quality revenue streams, and the scale back of certain low quality and activities.

This positive mix shift as the primary reason for gross profit growth exceeding revenue growth.

A second driver, which we view as less recurring is that we optimize costs by exiting certain noncore business and cutback excessive spending on operations subsidies and marketing activities during the tough time.

Martin Lau: This driver helps explain why operating profit growth has succeeded gross profit growth, partly, and we view it as a lever for pooling at certain times, but not at all times. The third driver, which we view as ongoing, is our heightened focus on cost discipline. We're seeking to continuously improve operational efficiency, thoughtfully allocate headcount, and effectively manage marketing expenses so as to maintain a focused organization and a lean cost structure for the future.

This driver helps explain why operating profit growth has exceeded gross profit growth, partly and we view it as a lever for pulling at certain times, but not at all times.

Martin Lau: The third driver, which we view as ongoing, is our heightened focus on cost discipline. We're seeking to continuously improve operational efficiency, thoughtfully allocate headcount, and effectively manage marketing expenses so as to maintain a focused organization and lean cost structure for the future. Lastly, I will also share with you how we think about our position in the games market. We maintain a strong and defensible franchise in competitive multiplayer games due to the ongoing popularity and performance of our flagship evergreen games such as Honor of Kings, League of Legends, and Peacekeeper Elite. We also supplement our success by cultivating new competitive multiplayer games such as Battle of Golden Spatula, Arena Breakout, and VALORANT, which have the potential of becoming evergreen titles in the future.

Martin Lau: The third driver, which we view as ongoing, is our heightened focus on cost discipline. We're seeking to continuously improve operational efficiency, thoughtfully allocate headcount, and effectively manage marketing expenses so as to maintain a focused organization and lean cost structure for the future. Lastly, I will also share with you how we think about our position in the games market. We maintain a strong and defensible franchise in competitive multiplayer games due to the ongoing popularity and performance of our flagship evergreen games such as Honor of Kings, League of Legends, and Peacekeeper Elite. We also supplement our success by cultivating new competitive multiplayer games such as Battle of Golden Spatula, Arena Breakout, and VALORANT, which have the potential of becoming evergreen titles in the future.

The foot driver, which we view as ongoing.

Our heightened focus on cost discipline, we're sticking to continuously improve operational efficiency thoughtfully allocate head count and effectively manage marketing expenses, so as to maintain a focused organization and lean cost structure for the future.

Martin Lau: Lastly, I will also share with you how we think about our position in the games market. We maintain a strong and defensible franchise in competitive multiplayer games due to the ongoing popularity and performance of our flagship evergreen games such as Honor of Kings, League of Legends, and Peacekeeper Elite. But we also supplement our success by cultivating new competitive multiplayer games, such as Fights of Golden Spatula, Arena Breakout, and Valorant, which have the potential to become evergreen titles in the future.

Lastly, I'll also share with you how we think about our position that the games market.

We maintain a strong and defensible franchise in competitive multi player games due to the ongoing popularity and performance of our flagship evergreen games, such as honour of Kings Liberty <unk> and Peacekeeper elite.

But we also supplement our success by cultivating new competitive multiplayer games, such as Pfizer of Gordon Spatula arena out and salaries.

Which have the potential of becoming evergreen titles in the future.

Martin Lau: Looking across the market, we've seen increased interest in casual games and renewed excitement around content-driven games. However, these trends have not negatively impacted our competitive multiplayer games in terms of audience and monetization. But on the other hand, we see these as new opportunities for us to capture, and we are investing to benefit from these trends. For content-driven games, we have attained some success, including Naruto Mobile, Lost Ark, and K. But we aspire to create even bigger hits in the future. For casual games, we already operate the largest casual game platform in the model of mini-games.

Martin Lau: Looking across the market, we've seen increased interest in casual games and renewed excitement around content-driven games. These trends have not negatively impacted our competitive multiplayer games in terms of audience and monetization. On the other hand, we see these as new opportunities for us to capture, and we are investing to benefit from these trends. For content-driven games, we have attained some success, including Naruto Mobile, Lost Ark, and NIKKE, but we aspire to create even bigger hits in the future. For casual games, we already operate the largest casual game platform in a model of Mini Games. We are also seeking to operate blockbuster app-based casual games with user-generated content capabilities. Looking forward, we have a substantial pipeline of new games in development, including games that expand our own game IPs such as Honor of Kings: World, VALORANT Mobile, and Delta Force.

Martin Lau: Looking across the market, we've seen increased interest in casual games and renewed excitement around content-driven games. These trends have not negatively impacted our competitive multiplayer games in terms of audience and monetization. On the other hand, we see these as new opportunities for us to capture, and we are investing to benefit from these trends. For content-driven games, we have attained some success, including Naruto Mobile, Lost Ark, and NIKKE, but we aspire to create even bigger hits in the future. For casual games, we already operate the largest casual game platform in a model of Mini Games. We are also seeking to operate blockbuster app-based casual games with user-generated content capabilities. Looking forward, we have a substantial pipeline of new games in development, including games that expand our own game IPs such as Honor of Kings: World, VALORANT Mobile, and Delta Force.

Looking across the market <unk> seen increased interest in casual games and renewed excitement around content driven games. These trends have not negatively impacted competitive multiplayer games in terms of audience monetization.

But on the other hand, we see these as new opportunities for us to capture and we are investing to benefit from these trends for.

For content driven games, we have obtained some success.

Including Naruto mobile lost arc in the K.

But we aspire to create even bigger hits in the future.

For casual games, we already operate the largest casual game platform in our motto of mini games.

James Gordon Mitchell: We are also seeking to operate... Blockbuster app based casual games with user generated content capability. Looking forward, we have a substantial pipeline of new games in development, including, Games that expand our own game IPs such as Honor of Kings World, Valorant Mobile, and Delta Force, mobile games that utilize well-loved and licensed IPs such as Monster Hunter Mobile, Assassin's Creed Mobile, and One Piece Mobile, and new games with new IPs in high potential genres such as Dreamstars and Casual Games, Nightingale and Survival Open World Crafting, and Ash Echoes in LPG.

We're also seeking to operate blocked.

Blockbuster App based casual games with user generated content capabilities.

Looking forward, we have a substantial pipeline of new games in development, including.

Games that expand our own game Ips such as on a King World Valerie mobile and Delta for Us.

Martin Lau: Mobile games that utilize well-loved licensed IPs such as Monster Hunter Mobile, Assassin's Creed Mobile, and One Piece Mobile. New games with new IPs in high potential genres such as Dream Stars in casual games, Nightingale in survival open-world crafting, and Ash Echoes in RPG. We're taking more time than before in developing these games because we want to ensure the quality of these games, and because our improved financial structure described in the previous slides offer us the ability to do so. Now with that, I will pass to James to talk about business review.

Martin Lau: Mobile games that utilize well-loved licensed IPs such as Monster Hunter Mobile, Assassin's Creed Mobile, and One Piece Mobile. New games with new IPs in high potential genres such as Dream Stars in casual games, Nightingale in survival open-world crafting, and Ash Echoes in RPG. We're taking more time than before in developing these games because we want to ensure the quality of these games, and because our improved financial structure described in the previous slides offer us the ability to do so. Now with that, I will pass to James to talk about business review.

Mobile games that utilized well often licensed IP uses such as Monster Hunter.

Mobile assassins Creed, mobile and one piece mobile.

And new games, with new Ips and high potential designers, such as Dream stars and casual games Nightingale in survival open word crafty.

And echoes in LPG.

James Gordon Mitchell: We're taking more time than before in developing these games because we want to ensure the quality of these games and because our improved financial structure, described in the previous slides, offers us the ability to do so. Now, with that, I will pass to James to talk about the business review. Thank you, Martin.

We're taking more time than before in developing these games because we want to ensure the quality of these games and because our improved financial structure described in the previous slides offer us the ability to do so.

Now with that I will pass to James to talk about business review.

James Gordon Mitchell: For the third quarter of 2020, our federal revenue increased 10% year-on-year. EAS represented 49% of our revenue, within which the social network sub-segment was 19%, domestic gains 21%, and international gains 9%. Online advertising was 16% of our revenue, and FinTech and business services were 34%.

James Mitchell: Thank you, Martin. For Q3 2022, our total revenue increased 10% year on year. VAS represented 49% of our revenue, within which the social network sub-segment was 19%, domestic games 21%, and international games 9%. Online advertising was 16% of our revenue, and FinTech and business services was 34%. The Value-Added Services segment revenue was CNY 76 billion, up 4% year on year. Social networks revenue was CNY 30 billion, flat year on year, as revenue from music-related and game-related live streaming services sharply decreased, while revenue from music subscriptions and mini-games substantially increased. Profitability improved as we book entertainment live streaming revenue on a gross basis, treating revenue sharing as content cost, whereas we book mini-game revenue on a net basis, netting the game developer's revenue share out of our revenue.

James Mitchell: Thank you, Martin. For Q3 2022, our total revenue increased 10% year on year. VAS represented 49% of our revenue, within which the social network sub-segment was 19%, domestic games 21%, and international games 9%. Online advertising was 16% of our revenue, and FinTech and business services was 34%. The Value-Added Services segment revenue was CNY 76 billion, up 4% year on year. Social networks revenue was CNY 30 billion, flat year on year, as revenue from music-related and game-related live streaming services sharply decreased, while revenue from music subscriptions and mini-games substantially increased. Profitability improved as we book entertainment live streaming revenue on a gross basis, treating revenue sharing as content cost, whereas we book mini-game revenue on a net basis, netting the game developer's revenue share out of our revenue.

Thank you Martin for the third quarter of 2020, Idaho revenue increased 10% year on year.

<unk> represented 49% of our revenue within which the social networks Subsegment was 19% domestic games, 21% and international games, 9% online advertising was 16% of our revenue and Fintech and business services was 34%.

James Gordon Mitchell: The value-added services segment revenue was 76 billion renminbi, up 4% year on year; social networks revenue was 30 billion renminbi, flat year on year; as revenue from music-related and game-related live streaming services sharply decreased. While revenue from music subscriptions and minigames substantially increased, profitability improved as we book entertainment live streaming revenue on a gross basis, treating revenue sharing as content cost, whereas we book minigame revenue on a net basis, netting the game developer's revenue share out of our revenue.

The value added services segment revenue was 76 billion renminbi up 4% year on year, Social networks revenue was 30 billion renminbi flat year on year as revenue from music related and game related live streaming services shop decreased while revenue from music subscriptions and many gains substantially increased profitability.

Improved as we book Entertainment live streaming revenue on a gross basis, creating revenue sharing is content cost, whereas we book many game revenue on a net basis net into game developments revenue share out of our revenue.

James Gordon Mitchell: Long-form video subscription revenue increased 2% year-on-year, benefiting from higher ARPU. However, video subscriptions declined slightly year-on-year, though they grew quarter-on-quarter to 117 million accounts. Our exclusive drama series, Lost You Forever, ranked first in the industry by video views across all online platforms in China during the quarter.

James Mitchell: Long-form video subscription revenue increased 2% year on year, benefiting from higher ARPU. Video subscriptions declined slightly year on year, though grew quarter on quarter to 117 million accounts. Our exclusive drama series, Lost You Forever, ranked first industry-wide by video views across all online platforms in China during the quarter. Music subscription revenue increased 42% year on year. Tencent Music optimized user operations, enriched membership privileges, and deepened collaborations with labels and artists, resulting in music subscriptions growing 21% year on year to 103 million accounts, and ARPU increasing 17% year on year. Domestic games revenue grew 5% year on year to CNY 33 billion. The increase was driven by new launches, VALORANT, and Lost Ark, as well as evergreen titles such as Honor of Kings, and Dungeon & Fighter.

James Mitchell: Long-form video subscription revenue increased 2% year on year, benefiting from higher ARPU. Video subscriptions declined slightly year on year, though grew quarter on quarter to 117 million accounts. Our exclusive drama series, Lost You Forever, ranked first industry-wide by video views across all online platforms in China during the quarter. Music subscription revenue increased 42% year on year. Tencent Music optimized user operations, enriched membership privileges, and deepened collaborations with labels and artists, resulting in music subscriptions growing 21% year on year to 103 million accounts, and ARPU increasing 17% year on year. Domestic games revenue grew 5% year on year to CNY 33 billion. The increase was driven by new launches, VALORANT, and Lost Ark, as well as evergreen titles such as Honor of Kings, and Dungeon & Fighter.

Long form video subscription revenue increased 2% benefiting from higher Pds.

Video subscriptions declined slightly year on year that grew quarter on quarter to 117 million accounts are.

Our exclusive drama series lost you forever ranked fast industry wide by video views across all online platforms in China during the quarter.

James Gordon Mitchell: Music subscription revenue increased 42% year-on-year. Tencent Music optimized user operations, enriched membership privileges, and deepened collaborations with labels and artists. Resulting in music subscriptions from 21% year-on-year to 103 million accounts and ARPA increasing 17% year-on-year. Meanwhile, domestic games revenue grew 5% year-on-year to $33 billion in B. The increase was driven by new launches, Valorant and Lost Ark, as well as evergreen titles such as Honor of Kings and Dungeon and Fighter. International games revenue increased 14% year-on-year, or 7% in constant currency terms, to $13 billion renminbi.

Music subscription revenue increased 42% year on year, Tencent music optimized use of operations enriched membership privileges and deepened collaborations with labels and artists, resulting in music subscriptions and 21% year on year to 103 million accounts and offer increasing 17% year on year.

Domestic games revenue grew 5% year on year to 33 billion renminbi. The increase was driven by new launches veterans and loss stock as well as evergreen titles, such as honour of Kings in Dungeon <unk> fighter.

James Mitchell: International games revenue increased 14% year on year, or 7% in constant currency terms, to CNY 13 billion. The recovery of PUBG MOBILE and sustained contributions from NIKKE, VALORANT, and Triple Match 3D drove the growth and offset a tough comparison from Tower of Fantasy's launch quarter from Q3 2022. For communications and social networks, Weixin Video Accounts video views increased over 50% year on year, thanks to a thriving creator community and growing user mindshare. Original content that is uploaded directly to Video Accounts now contributes to the large majority of our video views, demonstrating the service's content creation and consumption flywheel. We're enhancing our recommendation algorithms and traffic support programs to more actively surface original content within the Video Accounts.

James Mitchell: International games revenue increased 14% year on year, or 7% in constant currency terms, to CNY 13 billion. The recovery of PUBG MOBILE and sustained contributions from NIKKE, VALORANT, and Triple Match 3D drove the growth and offset a tough comparison from Tower of Fantasy's launch quarter from Q3 2022. For communications and social networks, Weixin Video Accounts video views increased over 50% year on year, thanks to a thriving creator community and growing user mindshare. Original content that is uploaded directly to Video Accounts now contributes to the large majority of our video views, demonstrating the service's content creation and consumption flywheel. We're enhancing our recommendation algorithms and traffic support programs to more actively surface original content within the Video Accounts.

International games revenue increased 14% year on year was 7% in constant currency terms to 13 billion renminbi the recovery of <unk> T mobile and sustained contributions from Nikkei about rins and triple matched <unk> drove the growth and offset a tough comparison from tower, our fantasies launch quarter in the third quarter of 2002.

James Gordon Mitchell: The recovery of PUBG Mobile and sustained contributions from Nikkei, Valorant, and Triple Match 3D drove the growth and offset a tough comparison from Tower of Fantasy's launch quarter in the third quarter of 2022. In Communications and Social Networks, Weixin Video Accounts' video views increased over 50% year-on-year, thanks to a thriving creator community and growing user mindshare. Original content that is uploaded directly to video accounts now contributes to a large majority of our video views, demonstrating the service's content creation and consumption flywheel.

92.

Our communications and social networks <unk> video accounts video views increased by over 50% year on year. Thanks to a thriving create a community and growing user mindshare original content. It is uploaded directly to video accounts now contributes to the large majority of our video views demonstrating the services content creation.

And consumption flywheel, we're enhancing our recommendation algorithms and traffic support programs and more activity surface switching our content within the <unk> accounts.

James Gordon Mitchell: We're enhancing our recommendation algorithms and traffic support programs to more actively surface original content within the video accounts. Inside QQ, we're adding capabilities to QQ channels, which enable users with shared hobbies, activities, or membership to operate interest-based communities using software tools such as VoiceChat and Event Manager. QQ now hosts over 700,000 active channels covering categories including colleges, games, knowledge-based content, and music. Moving to domestic games, the 19th Asian Games held in Hangzhou included esports as official medal events for the first time, reflecting interest in competitive games from the general public and endorsement from governments.

James Mitchell: Inside QQ, we're adding capabilities to QQ Channels, which enable users with shared hobbies, activities, or memberships to operate interest-based communities using software tools such as voice chat and event management. QQ now hosts over 700,000 active channels covering categories including colleges, games, knowledge-based content, and music. Moving to domestic games, the 19th Asian Games held in Hangzhou included esports as official medal events for the first time, reflecting interest in competitive games from the general public and endorsement from governments. We published 4 out of the 7 games selected for the Asian Games: Arena of Valor, Peacekeeper Elite, League of Legends, and FC Online. During the quarter, we extended our leadership in competitive multiplayer games.

James Mitchell: Inside QQ, we're adding capabilities to QQ Channels, which enable users with shared hobbies, activities, or memberships to operate interest-based communities using software tools such as voice chat and event management. QQ now hosts over 700,000 active channels covering categories including colleges, games, knowledge-based content, and music. Moving to domestic games, the 19th Asian Games held in Hangzhou included esports as official medal events for the first time, reflecting interest in competitive games from the general public and endorsement from governments. We published 4 out of the 7 games selected for the Asian Games: Arena of Valor, Peacekeeper Elite, League of Legends, and FC Online. During the quarter, we extended our leadership in competitive multiplayer games.

Inside QQ, we're adding capabilities to Kyushu channels, which enable users with Chad <unk> activities on memberships to operate interest based communities using software tools, such as voice chat and event management Q2, now has over 700000 active channels covering categories, including colleges gains knowledge base.

Consenting music.

James Gordon Mitchell: We publish four out of the seven games selected for the Asian Games. These are Arena of Valor, Peacekeeper Elite, League of Legends, and FC Online. During the quarter, we extended our leadership in competitive multiplayer games. Honor of Kings remained the top mobile game across all genres in terms of DAU, time spent in gross receipts, while we've also grown Wild Rift's audience and monetization, such that Wild Rift now ranks among the top 10 mobile games by gross receipts too. Between our three big battle arena games, Honor of Kings, Wild Rift, and League of Legends, we serve different player needs and innovate in multiple directions within the battle arena genre.

Moving to domestic games, the 19th Asian games held in Hangzhou included esports as official metal events for the first time, reflecting interesting competitive games from the general public and endorsement from governments, we published four out of seven games selected for the Asian Games Arena of Valor Peacekeeper elite sneak of actions and FSC online.

During the quarter, we extended our leadership and competitive multiplayer games honour of Kings remains a fast face mobile game across all genres and <unk> time spent in crush receipts. While we've also groundwater risks audience and monetization such that wild risk now ranks among the top 10 mobile games by crush receipts too.

James Mitchell: Honor of Kings remained the first-place mobile game across all genres in terms of DAU, time spent, and gross receipts, while we've also grown Wild Rift's audience and monetization, such that Wild Rift now ranks among the top 10 mobile games by gross receipts too. Between our three big battle arena games, Honor of Kings, Wild Rift, and League of Legends, we serve different player needs and innovate in multiple directions within the battle arena genre. Similarly, for FPS games, we're launching new titles that appeal to different player interests and capture new gameplay concepts, such as the PC tactical first-person game, VALORANT, and the mobile hero first-person game, Hyper Front.

James Mitchell: Honor of Kings remained the first-place mobile game across all genres in terms of DAU, time spent, and gross receipts, while we've also grown Wild Rift's audience and monetization, such that Wild Rift now ranks among the top 10 mobile games by gross receipts too. Between our three big battle arena games, Honor of Kings, Wild Rift, and League of Legends, we serve different player needs and innovate in multiple directions within the battle arena genre. Similarly, for FPS games, we're launching new titles that appeal to different player interests and capture new gameplay concepts, such as the PC tactical first-person game, VALORANT, and the mobile hero first-person game, Hyper Front.

<unk> three big box Arena games honour of Kings, what rift and league of legends, we serve different player needs and innovate in multiple directions within the back levering as genre.

James Gordon Mitchell: Similarly, for FPS games, where launching new titles would appeal to different player interests and capture new gameplay concepts, such as the PC tactical first-person game Valorant and the mobile hero first-person game Hyper Legends. While it typically takes several years to grow individual FPS games to their potential audience and monetization, Valorant has already become one of the leading PC games in China in terms of users and revenue. Martin spoke about our aspirations to size up in content-driven and casual games.

Similarly, if Fps games, we're launching new titles with appeal to different payer interest recapture new game play concepts such as the PC Tactical fast fashion game Valley Ranch, and the mobile hero FASTPASS again high collections, while it typically takes several years to grow individual Fps games is that potential audience and monetization rather.

James Mitchell: While it typically takes several years to grow individual FPS games given their potential audience and monetization, VALORANT has already become one of the leading PC games in China in terms of users and of revenue. Martin spoke about our aspirations to size up in content-driven and casual games. For content-driven games, in August, we launched MapleStory: The Legends of Maple, which ranked fourth across all mobile games by gross receipts in its first 30 days. For casual games, we opened our mobile party game, Dream Stars, up for pre-registration in September, and the game has accumulated over 27 million pre-registrations so far. We're making a substantial investment around Dream Stars' upcoming launch.

James Mitchell: While it typically takes several years to grow individual FPS games given their potential audience and monetization, VALORANT has already become one of the leading PC games in China in terms of users and of revenue. Martin spoke about our aspirations to size up in content-driven and casual games. For content-driven games, in August, we launched MapleStory: The Legends of Maple, which ranked fourth across all mobile games by gross receipts in its first 30 days. For casual games, we opened our mobile party game, Dream Stars, up for pre-registration in September, and the game has accumulated over 27 million pre-registrations so far. We're making a substantial investment around Dream Stars' upcoming launch.

<unk> has already become one of the leading PC games in China in terms of users and revenue.

James Gordon Mitchell: For content-driven games, in August, we launched MapleStory: The Legends of Maple, which ranked fourth across all mobile games by gross receipts in its first 30 days. For Casual Games, we opened our mobile party game, DreamStars, up for pre-registration in September, and the game has accumulated over 27 million pre-registrations so far.

Martin spoke about our aspirations to size up in content, driven and casual games are content driven games in August we launched Maple story, then that can serve maple, which ranked fourth across all mobile games by gross receipts in its first 30 days.

Our casual games, we opened on mobile Posse game Dream starts up for pre registration in September and the game has accumulated over 27 million pre registrations. So far we're making a substantial investment around feedstock upcoming launch.

James Gordon Mitchell: We're making a substantial investment around DreamStars' upcoming launch. Turning to international games, among our competitive multiplayer games, after a post-COVID consolidation period, PUBG Mobile returned to year-on-year and quarter-on-quarter increases in DAU and gross receipts, benefiting from appealing content and themed events such as a Dragon Ball collaboration. Call of Duty Mobile, which we released back in 2019, achieved record high monthly gross receipts in July, driven by new season content, including a top-tier operator and a new arena mode.

James Mitchell: Turning to international games, among our competitive multiplayer games, after a post-COVID consolidation period, PUBG MOBILE returned to year-on-year and quarter-on-quarter increases in DAU and gross receipts, benefiting from appealing content and themed events such as a Dragon Ball collaboration. Call of Duty: Mobile, which we released back in 2019, achieved record high monthly gross receipts in July, driven by new season content, including a top-tier operator and a new arena mode. Among our content-driven games, Nikke maintained robust DAU and gross receipts via content updates, such as a collaboration with Square Enix's NieR: Automata. For online advertising, our revenue increased 20% year-on-year to CNY 26 billion, with notable growth contributions from Video Accounts, mobile ad network, and Weixin Search. Advertiser categories such as fast-moving consumer goods and local services increased spending, while automobiles were weaker.

James Mitchell: Turning to international games, among our competitive multiplayer games, after a post-COVID consolidation period, PUBG MOBILE returned to year-on-year and quarter-on-quarter increases in DAU and gross receipts, benefiting from appealing content and themed events such as a Dragon Ball collaboration. Call of Duty: Mobile, which we released back in 2019, achieved record high monthly gross receipts in July, driven by new season content, including a top-tier operator and a new arena mode. Among our content-driven games, Nikke maintained robust DAU and gross receipts via content updates, such as a collaboration with Square Enix's NieR: Automata. For online advertising, our revenue increased 20% year-on-year to CNY 26 billion, with notable growth contributions from Video Accounts, mobile ad network, and Weixin Search. Advertiser categories such as fast-moving consumer goods and local services increased spending, while automobiles were weaker.

Turning to international games, among our competitive multiplayer games after post COVID-19 consolidation period.

T mobile a return to year on year and quarter on quarter increases in <unk> and gross receipts benefiting from appealing contents in themed events such as the Dragon ball collaboration.

<unk> mobile, which we released back in 2019 achieved record high monthly gross receipts in July driven by new season content, including a top tier operator, and a new arena mode. Among.

James Gordon Mitchell: Among our content-driven games, Nikkei maintained robust DAU and gross receipts via content updates, such as a collaboration with Square Enix's Nia Automata. For online advertising, our revenue increased 20% year-on-year to R26 billion, with notable growth contributions from video accounts, mobile ad network, and Weixin Search. Advertiser categories such as fast-moving consumer goods and local services increased spending while automobiles were weaker. However, our advertising revenue year-on-year growth rate slowed versus the previous quarter because, as e-commerce has become a much bigger contributor to our ad revenue in recent periods, our advertising revenue seasonality has changed, with the second and fourth quarters of each year seeing more positive seasonality, while the first and third quarters see weak In addition, we began monetizing video accounts via in-feed ads in the third quarter of last year.

Among our content driven games Nikkei maintain robust Cie and gross receipts via content updates such as our collaboration with square Enix sits near automata.

So online advertising our revenue increased 20% year on year to <unk> 6 billion renminbi with notable growth contributions from video accounts mobile App network inflation, such advertiser categories, such as fast moving consumer goods and local services increased spending while automobiles will recap.

James Mitchell: Our advertising revenue year-on-year growth rate slowed versus the previous quarter because as e-commerce has become a much bigger contributor to our ad revenue in recent periods, our advertising revenue seasonality has changed, with Q2 and Q4 of each year seeing more positive seasonality, while Q1 and Q3 see weaker seasonality, reflecting the weighting of e-commerce promotional activities toward Q2 and Q4 of each year. In addition, we began monetizing Video Accounts via in-feed ads through Q3 of last year. We have expanded our AI models with more parameters to increase their ad targeting and attribution accuracy, contributing to our ad revenue growth.

James Mitchell: Our advertising revenue year-on-year growth rate slowed versus the previous quarter because as e-commerce has become a much bigger contributor to our ad revenue in recent periods, our advertising revenue seasonality has changed, with Q2 and Q4 of each year seeing more positive seasonality, while Q1 and Q3 see weaker seasonality, reflecting the weighting of e-commerce promotional activities toward Q2 and Q4 of each year. In addition, we began monetizing Video Accounts via in-feed ads through Q3 of last year. We have expanded our AI models with more parameters to increase their ad targeting and attribution accuracy, contributing to our ad revenue growth.

Our advertising revenue year on year growth rate slowed versus the previous quarter, because as E. Commerce has become a much bigger contributor to our AD revenue in recent periods. Our advertising revenue seasonality has changed with the second through fourth quarters of each yes, seeing more positive seasonality, while the first and third quarters see weaker seasonality.

Reflecting the wasting of e-commerce promotional activities towards the second and fourth quarter of each year.

In addition, we began monetizing video accounts by <unk> through the third quarter of last year.

James Gordon Mitchell: We have expanded our AI models with more parameters to increase their ad targeting and attribution accuracy, contributing to our ad revenue growth. We're also starting to provide generative AI tools to our partners, which enable them to dynamically generate ad visuals based on text prompts and to optimize ad sizes for different inventories, which should help advertisers create more appealing advertisements with higher click-through rates, boosting their transactions and our revenue. Closed loop advertisements, which link directly to a transactional user action within the app where the advertisement appears, provide users and advertisers with a shorter impression to transaction funnel and enhance the effectiveness and measurability of advertising spend.

We have expanded our AI models with more parameters to increase their AD targeting and attribution accuracy contributing to <unk> revenue growth.

James Mitchell: We're also starting to provide generative AI tools to advertiser partners, which enables them to dynamically generate ad visuals based on text prompts and to optimize ad sizes for different inventories, which should help advertisers create more appealing advertisements with higher click-through rates, increasing their transactions and our revenue. Closed loop advertisements which link directly to a transaction or user action within the app where the advertisement appears, provide users and advertisers with a shorter impression to transaction funnel and enhance the effectiveness and measurability of advertising spend. Advertisers are increasingly linking their ads within Weixin to transactions or actions inside the advertiser's mini program, video account, official accounts, or WeCom landing page. Such closed loop ad revenue increased over 30% year-on-year during the quarter, now accounting for more than half of Weixin's ad revenue.

James Mitchell: We're also starting to provide generative AI tools to advertiser partners, which enables them to dynamically generate ad visuals based on text prompts and to optimize ad sizes for different inventories, which should help advertisers create more appealing advertisements with higher click-through rates, increasing their transactions and our revenue. Closed loop advertisements which link directly to a transaction or user action within the app where the advertisement appears, provide users and advertisers with a shorter impression to transaction funnel and enhance the effectiveness and measurability of advertising spend. Advertisers are increasingly linking their ads within Weixin to transactions or actions inside the advertiser's mini program, video account, official accounts, or WeCom landing page. Such closed loop ad revenue increased over 30% year-on-year during the quarter, now accounting for more than half of Weixin's ad revenue.

We're also starting to provide generative AI tools to advertise the partners, which enables them to dynamically generate at visuals based on text, France and to optimize AD sizes for different inputs inventories, which should help advertisers create more appealing it budd instruments with higher click through rates, you see that transactions not revenue.

Yes.

Close loop advertisement switch linked directly to a transactional user action within the App, where the advertisement to pay us provide users and advertisers with a shorter impressions transaction funnel and enhance the effectiveness and measure ability of advertising spend.

James Gordon Mitchell: Advertisers are increasingly linking their ads with in-way shipping to transactions or actions inside the advertiser's mini program, video account, official account, or Wecom landing page. And such closed-loop ad revenue increased over 30% year-on-year during the quarter, now accounting for more than half of Weixin's ad revenue. Video accounts ad revenue grew notably quarter on quarter, driven by increases in video views and time spent on a stable ad load percent. On the content side, our long-form video ad revenue increased moderately year-on-year, and our music ad revenue maintained robust year-on-year growth.

Advertisers are increasingly linking their apps with emulation transactions our actions inside the appetizers mini program video accounts efficient accounts or we come landing page and such close Snoop <unk> revenue increased over 30% year on debt during the quarter now accounting for more than half Inflations ad revenue.

James Mitchell: Video Accounts ad revenue grew notably quarter-on-quarter, driven by increases in video views and time spent on a stable ad load percentage. On the content side, our long-form video ad revenue increased moderately year-on-year, and our music ad revenue maintained robust year-on-year growth. Looking at Fintech and Business Services, segment revenue was CNY 52 billion, up 16% year-on-year. Fintech services revenue sustained a teens year-on-year growth rate, benefiting from increased commercial payment activity and wealth management aggregated customer assets. For commercial payments, daily active users and transaction per user both increased year-on-year. Enhanced merchant solutions boosted Mini Program transactions in categories such as retail, travel and transportation, and dining services. Mini Program transactions have notably increased as a proportion of our overall commercial payment volume.

James Mitchell: Video Accounts ad revenue grew notably quarter-on-quarter, driven by increases in video views and time spent on a stable ad load percentage. On the content side, our long-form video ad revenue increased moderately year-on-year, and our music ad revenue maintained robust year-on-year growth. Looking at Fintech and Business Services, segment revenue was CNY 52 billion, up 16% year-on-year. Fintech services revenue sustained a teens year-on-year growth rate, benefiting from increased commercial payment activity and wealth management aggregated customer assets. For commercial payments, daily active users and transaction per user both increased year-on-year. Enhanced merchant solutions boosted Mini Program transactions in categories such as retail, travel and transportation, and dining services. Mini Program transactions have notably increased as a proportion of our overall commercial payment volume.

Accounts that RAF nuclear notably quarter on quarter, driven by increases in video views and time spent on a stable at a percentage.

On the content side, our long form video AD revenue increased moderately year on year and our music revenue maintained robust year on year right.

James Gordon Mitchell: Looking at FinTech and business services, Segment revenue is 52 billion renminbi, up 16% year on year. FinTech services revenue sustained a team zero on year growth rate benefiting from increased commercial payment activity and wealth management aggregated customer assets. For commercial payments, daily active users and transactions per user both increased year-on-year. Enhanced merchant solutions boosted mini-program transactions in categories such as retail, travel and transportation, and dining services, and mini-program transactions have notably increased as a proportion of our overall commercial payment volume.

Looking at Fintech and business services segment revenue was 52 billion renminbi up 16% year on year.

Fintech services revenues sustained a teens year on year growth rate benefiting from increased commercial payment activity and wealth management aggregated customer assets.

Commercial payments daily active users and transaction per use of both increased year on year enhanced merchant solutions boosted mini program transactions in categories, such as retail travel and transportation and dining services I mean, each program transactions have notably increased as a proportion of our overall commercial payment volume.

James Gordon Mitchell: For business services, revenue grew at a double-digit rate year-on-year in the third quarter, accelerating versus the second quarter, and the business services gross margin improved significantly year-on-year. Our cloud services revenue growth benefited from the restructuring undertaken in prior periods, as well as from higher spending by industries such as finance and automotive. Video accounts, e-commerce, transaction GMV increased quarter-on-quarter, and the technology service fees we collect on these transactions contributed to the business services revenue and margin increase. We've upgraded our proprietary foundation model, Tencent Honyuan. We've made Tencent Honyuan Bot initially available to a small or their expanding number of users via a mini program.

James Mitchell: For business services, revenue grew at a double-digit rate year-on-year in Q3, accelerating versus Q2, and the business services gross margin improved significantly year-on-year. Our cloud services revenue growth benefited from the restructuring undertaken in prior periods, as well as from higher spending by industries such as finance and automotive. Video Accounts e-commerce transaction GMV increased quarter-on-quarter, and the technology service fees we collect on these transactions contributed to the business services revenue and margin uplift. We have upgraded our proprietary foundation model, Tencent Hunyuan. We have made Tencent Hunyuan Bot initially available to a smaller, though expanding number of users via a Mini Program. Hunyuan is also now powering meeting summarization in Tencent Meeting and content generation in Tencent Docs.

James Mitchell: For business services, revenue grew at a double-digit rate year-on-year in Q3, accelerating versus Q2, and the business services gross margin improved significantly year-on-year. Our cloud services revenue growth benefited from the restructuring undertaken in prior periods, as well as from higher spending by industries such as finance and automotive. Video Accounts e-commerce transaction GMV increased quarter-on-quarter, and the technology service fees we collect on these transactions contributed to the business services revenue and margin uplift. We have upgraded our proprietary foundation model, Tencent Hunyuan. We have made Tencent Hunyuan Bot initially available to a smaller, though expanding number of users via a Mini Program. Hunyuan is also now powering meeting summarization in Tencent Meeting and content generation in Tencent Docs.

The business services revenue grew at a double digit rate year on year in the third quarter accelerating versus the second quarter and the business services gross margin improved significantly year on year.

Our cloud services revenue growth benefited from the restructuring undertaken in prior periods as well as from higher spending by industries, such as finance and automotive.

Video accounts E Commerce transaction GMP increased quarter on quarter and the technology service fees. We collect on these transactions contributed to the business services revenue and margin uplift.

We have upgraded our proprietary foundation model <unk> with my attention Honeywell bought initiative edibles for smaller Theyre expanding number of users via mini program. <unk> is also now powering missing summarization, and Tencent meeting and content generation intense talks and externally, we're enabling enterprise customers to utilize.

John Lowe: Honyuan is also now powering meeting summarization in Tencent Meeting and content generation in Tencent Docs. And externally, we're enabling enterprise customers to utilize our large language model via APIs or model as a service solutions in our cloud for functions such as coding, data analysis, and customer service automation. Now I'll pass to John for the financial review. Thank you, James. Hello, everyone.

James Mitchell: Externally, we're enabling enterprise customers to utilize our large language model via APIs or Model-as-a-Service solutions in our cloud for functions such as coding, data analysis, and customer service automation. Now I'll pass to John for the financial review.

James Mitchell: Externally, we're enabling enterprise customers to utilize our large language model via APIs or Model-as-a-Service solutions in our cloud for functions such as coding, data analysis, and customer service automation. Now I'll pass to John for the financial review.

Our large language model via Apis, all model as a service solutions in our cloud and our functions such as coding data analysis and customer service automation and now I'll pass to John for the financial review.

John Lowe: For the first quarter of 2023, total revenue was 154.6 billion RMB, up 10% year-on-year. Gross profit was 76.5 billion RMB, up 23% year-on-year. Operating profit was 48.5 billion RMB, down 6% year-on-year. Finance costs were 2.8 billion RMB, a 43% year-on-year decrease due to reduced Forex gains and a lesser-than-higher interest expense.

John Lo: Thank you, James. Hello, everyone. For Q3 2023, total revenue was CNY 154.6 billion, up 10% year-on-year. Gross profit was CNY 76.5 billion, up 23% year-on-year. Operating profit was CNY 48.5 billion, down 6% year-on-year. Finance costs were CNY 2.8 billion, up 43% year-on-year, due to reduced forex gains and to a lesser extent, higher interest expenses. Share profit of associates and JVs was CNY 2.1 billion, compared to a share of loss of CNY 3.7 billion for Q3 2022.

John Lo: Thank you, James. Hello, everyone. For Q3 2023, total revenue was CNY 154.6 billion, up 10% year-on-year. Gross profit was CNY 76.5 billion, up 23% year-on-year. Operating profit was CNY 48.5 billion, down 6% year-on-year. Finance costs were CNY 2.8 billion, up 43% year-on-year, due to reduced forex gains and to a lesser extent, higher interest expenses. Share profit of associates and JVs was CNY 2.1 billion, compared to a share of loss of CNY 3.7 billion for Q3 2022.

Thank you James.

Hello, everyone for the first quarter of 2023 total revenue was $154 6 billion renminbi.

Up 10% year on year gross profit was $76 5 billion renminbi up 23% year on year operating profit was $48 5 billion renminbi down 6% year on year.

Finance costs were $2 8 billion renminbi up 43% year on year due to reduced for forex gains and to a lesser extent higher interest expenses.

John Lowe: Share profit of Associates and JVs was $2.1 billion RMB compared to a share of loss of $3.7 billion RMB for the third quarter of 2022. On a non-IFRS basis, share profit was RMB4.8 billion, improving from RMB2.4 billion last year. This was driven by better profitability of certain domestic associates thanks to their revenue growth and improved cost efficiency along with a successful game released by an overseas investor. Income tax expense increased by 55% year-on-year to RMB11 billion, driven by pre-tax profit growth and increased withholding tax provision.

Share of profit of associates, and JV was $2 1 billion renminbi compared to share of loss of $3 7 billion renminbi for the third quarter of 2022.

John Lo: On a non-IFRS basis, share profit was CNY 4.8 billion, improving from share profit of CNY 2.4 billion last year. This was driven by better profitability of certain domestic associates, thanks to their revenue growth and improved cost efficiency, along with a successful gain released by an overseas investee. Income tax expense increased by 55% year on year to CNY 11 billion, driven by pre-tax profit growth and increased withholding tax provision. IFRS net profit attributable to equity holders was CNY 36.2 billion, down 9% year on year. Diluted EPS was CNY 3.752, down 9% year on year. Now I'll share our non-IFRS financial figures. Operating profit was CNY 55.5 billion, up 36% year on year. Net profit attributable to equity holders was CNY 44.9 billion, up 39% year on year.

John Lo: On a non-IFRS basis, share profit was CNY 4.8 billion, improving from share profit of CNY 2.4 billion last year. This was driven by better profitability of certain domestic associates, thanks to their revenue growth and improved cost efficiency, along with a successful gain released by an overseas investee. Income tax expense increased by 55% year on year to CNY 11 billion, driven by pre-tax profit growth and increased withholding tax provision. IFRS net profit attributable to equity holders was CNY 36.2 billion, down 9% year on year. Diluted EPS was CNY 3.752, down 9% year on year. Now I'll share our non-IFRS financial figures. Operating profit was CNY 55.5 billion, up 36% year on year. Net profit attributable to equity holders was CNY 44.9 billion, up 39% year on year.

On a non <unk> basis share of profit was $4 8 billion Amendment date, improving from share of profit of $2 4 billion renminbi last year.

This was driven by better profitability of certain domestic associates. Thanks to their revenue growth and improved cost efficiency along with the success of a game released by and overseas investigate.

Income tax expense increased by 55% year on year to 11% in renminbi, driven by pre tax profit growth and increased withholding tax provision.

John Lowe: IFRS Net Profit Attributable to Equity Holders was 36.2 billion RMB, down 9% year-on-year. Diluted EPS was 3.752 RMB, down 9% year-on-year. Now I'll share our non-nayavirus financial figures.

<unk> net profit attributable to equity holders was $36 2 billion renminbi down 9% year on year.

Diluted EPS was <unk> 75 to renminbi down 9% year on year.

Now I'll share our non <unk> financial figures.

John Lowe: Operating profit was $55.5 billion RMB, up 36% year-on-year. Net profit attributable to equity holders was $44.9 billion RMB, up 39% year-on-year. Diluted EPS was $4.657 RMB, up 41% year-on-year.

Operating profit was $55 5 billion renminbi up 36% year on year net profit attributable to equity holders was $44 9 billion renminbi up 39% year on year diluted EPS was $4 $65 seven renminbi up 41% year on year.

John Lo: Diluted EPS was CNY 4.657, up 41% year on year. Moving on to gross margins. Overall gross margin was 49.5%, up 5.3 percentage points year on year. By segment, gross margin for VAS was 55.5%, up 3.8 percentage points year on year. This was due to higher mix of high-margin games revenue, including Mini Games and lower mix of low-margin music and games related live streaming revenue, along with our cost control measures. Gross margin for Online Advertising increased to 52.3%, up 6 percentage points year on year. This was mainly driven by high incremental profits generated from Video Accounts ad revenue, as well as our efficiency improvement. Gross margin for FinTech and Business Services was 40.9%, up 7.6 percentage points year on year.

John Lo: Diluted EPS was CNY 4.657, up 41% year on year. Moving on to gross margins. Overall gross margin was 49.5%, up 5.3 percentage points year on year. By segment, gross margin for VAS was 55.5%, up 3.8 percentage points year on year. This was due to higher mix of high-margin games revenue, including Mini Games and lower mix of low-margin music and games related live streaming revenue, along with our cost control measures. Gross margin for Online Advertising increased to 52.3%, up 6 percentage points year on year. This was mainly driven by high incremental profits generated from Video Accounts ad revenue, as well as our efficiency improvement. Gross margin for FinTech and Business Services was 40.9%, up 7.6 percentage points year on year.

John Lowe: Moving on to Gross Margins, overall gross margin was 49.5%, up 5.3 percentage points year-on-year. By assessment, gross margin for VAS was 55.5%, a 3.8 percentage point year-on-year. This was due to a higher mix of high-margin games revenue, including mini-games, and a lower mix of low-margin music and games-related live streaming revenue, along with our cost-controlled meshes. Gross margin for online advertising increased to 52.3%, up 6% each point year-on-year. This was mainly driven by high incremental profits generated from video ad revenue, as well as our efficiency improvement.

Moving onto gross margin.

Overall gross margin was 49, 5% up five three percentage points year on year.

By segment gross margin for Vas was 55, 5% up three eight percentage points year on year.

This was due to higher mix of high margin games revenue, including many gains and lower mix of low margin music and gains related live streaming revenue along with our cost control measures.

Gross margin for online advertising increased to 52, 3% up six percentage points year on year. This was mainly driven by high incremental profit generated from video accounts at revenue as well as our efficiency improvement.

John Lowe: Gross margin for FinTech and business services was 40.9%, up 7.6 percentage points year-on-year. This was driven by margin improvement for in-crowd business restructuring, emerging high-margin revenue from video accounts, e-commerce, and technology service fees. A structural shift to what?

Gross margin for Fintech and business services was 44, 9% up seven six percentage points year on year. This was driven by margin improvement for <unk> cloud business restructuring emerging high margin revenue from video accounts ecommerce technology service fees.

John Lo: This was driven by margin improvement following cloud business restructuring, emerging high-margin revenue from Video Accounts e-commerce, technology service fees, structural shift towards certain high-margin products within FinTech services, and our operational efficiency initiatives. On operating expenses, selling and marketing expenses were CNY 7.9 billion, up 11% year on year due to more spending on promotion advertising, and the total represented 5.1% of revenues. R&D expenses were CNY 16.5 billion, up 9% year on year, mainly because of higher staff costs on research and development projects. G&A excluding R&D were CNY 9.8 billion, down 14% year on year, mainly due to lower staff costs, including reduced severance payments. At quarter end, we had approximately 105,000 employees, down 3% year on year or up 1% quarter on quarter.

John Lo: This was driven by margin improvement following cloud business restructuring, emerging high-margin revenue from Video Accounts e-commerce, technology service fees, structural shift towards certain high-margin products within FinTech services, and our operational efficiency initiatives. On operating expenses, selling and marketing expenses were CNY 7.9 billion, up 11% year on year due to more spending on promotion advertising, and the total represented 5.1% of revenues. R&D expenses were CNY 16.5 billion, up 9% year on year, mainly because of higher staff costs on research and development projects. G&A excluding R&D were CNY 9.8 billion, down 14% year on year, mainly due to lower staff costs, including reduced severance payments. At quarter end, we had approximately 105,000 employees, down 3% year on year or up 1% quarter on quarter.

Structural shift to certain high margin products within Fintech services, and our operational efficiency initiatives.

John Lowe: certain high-margin products within FinTech services within our operational efficiency initiative. On operating expenses, selling and marketing expenses were 7.9 billion RMB, up 11% year-on-year due to more spending on promotion and advertising, and the total represented 5.1% each year. 5.1% of revenues. R&D expenses were 16.5 billion RMB, up 9% year-on-year, mainly because of higher staff hours on research and development projects. GNA, excluding R&D, we're 9.8 billion renminbi, down 14% year-on-year, mainly due to a lower staff force, including reduced surveillance payment. At quarter end, we had approximately 105,000 employees, down 3% year-on-year or up 1% quarter-on-quarter.

On operating expenses, selling and marketing expenses were $7 9 billion renminbi up 11% year on year due to more spending on promotion advertising and the total represented five one percentage.

One 1% of revenues R&D.

<unk> expenses were $16 5 billion renminbi up 9% year on year, mainly because of higher staff costs on research and development projects.

G&A, excluding R&D were $9 8 billion renminbi down 14% year on year, mainly due to lower staff costs, including reduced other than statements.

At quarter end, we had approximately 105000 employees down 3% year on year or up 1% quarter on quarter.

John Lowe: Let's look at our operating and net margin ratios. For the first quarter of 2023, non-IR virus operating margin was 35.9%, up 6.7 percentage points year-on-year. Non-IR virus net margin was 29.6%, up 5.8 percentage points year-on-year. To conclude, I will highlight some key cash flow and balance sheet metrics.

John Lo: Let's look at our operating and net margin ratios. For Q1 2023, non-IFRS operating margin was 35.9%, up 6.7 percentage points year on year. Non-IFRS net margin was 29.6%, up 5.8 percentage points year on year. To conclude, I'll highlight some key cash flow and balance sheet metrics. Total CapEx was CNY 8 billion, more than triple year on year. Within total CapEx, operating CapEx was CNY 6.6 billion, up more than five times year on year, driven by increasing investment in GPUs and servers. Non-operating CapEx rose by 6% year on year to CNY 1.4 billion.

John Lo: Let's look at our operating and net margin ratios. For Q1 2023, non-IFRS operating margin was 35.9%, up 6.7 percentage points year on year. Non-IFRS net margin was 29.6%, up 5.8 percentage points year on year. To conclude, I'll highlight some key cash flow and balance sheet metrics. Total CapEx was CNY 8 billion, more than triple year on year. Within total CapEx, operating CapEx was CNY 6.6 billion, up more than five times year on year, driven by increasing investment in GPUs and servers. Non-operating CapEx rose by 6% year on year to CNY 1.4 billion.

Let's look at our operating and net margin ratios for the first quarter of 2023, non <unk> operating margin was 35, 9% up six seven percentage points year on year.

On <unk> net margin was 29, 6% up five eight percentage points year on year.

To conclude I'll highlight some cash key cash flow and balance sheet metrics.

John Lowe: Total cutbacks was 8 billion RMB, more than triple year-on-year. Within total capex, operating capex was 6.6 billion RMB, up more than five times year-on-year, driven by increasing investment in GPUs and servers. Non-operating capex rose by 6% year-on-year to RMB1.4 billion. Free cash flow was 51.1 billion RMB, up 85% year-on-year, mainly driven by higher receipts from various businesses and timing differences in the settlement of certain accounts payable. The net cash position was $36.4 billion RMB, up 106% quarter-on-quarter, reflecting strong free cash flow generation, partially offset by cash outflow for share repurchases and strategic indexes.

Total Capex was <unk> 8 billion around being more than tripled year on year.

Within total Capex operating Capex was $6 6 billion renminbi up more than five times year on year, driven by increasing that's been in GPU servers.

Nonoperating Capex rose by 6% year on year to $1 4 billion renminbi.

John Lo: Free cash flow was CNY 51.1 billion, up 85% year-on-year, mainly driven by higher receipts from various businesses and timing difference in the settlement of certain accounts payables. Net cash position was CNY 36.4 billion, up 106% quarter-on-quarter, reflecting strong free cash flow generation, partially offset by cash outflow for share repurchases and strategic investments. Thank you.

John Lo: Free cash flow was CNY 51.1 billion, up 85% year-on-year, mainly driven by higher receipts from various businesses and timing difference in the settlement of certain accounts payables. Net cash position was CNY 36.4 billion, up 106% quarter-on-quarter, reflecting strong free cash flow generation, partially offset by cash outflow for share repurchases and strategic investments. Thank you.

Free cash flow was $51 1 billion renminbi up 85% year on year, mainly driven by higher receipts from various businesses and timing difference in the settlement of certain accounts payables.

Net cash position was $36 4 billion renminbi up 106% quarter on quarter, reflecting strong free cash flow generation, partially offset by cash outflow for share repurchases and strategic investments.

Thank you.

Wendy Huang: Thank you, John. We shall now open the floor for questions. If you are dialing in by phone, please press five to raise a question, then press six to unmute yourself. If you are accessing from the Tencent meeting or group meeting application, please click the raise hand button at the bottom left.

Operator: Thank you, John. 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 from the Tencent Meeting or Group meeting application, please click the Raise Hand button at the bottom left. We will take one main question after one follow-up question each time. The first question comes from the Kenneth Fong from UBS. Kenneth, your line is open.

Operator: Thank you, John. 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 from the Tencent Meeting or Group meeting application, please click the Raise Hand button at the bottom left. We will take one main question after one follow-up question each time. The first question comes from the Kenneth Fong from UBS. Kenneth, your line is open.

Thank you John we shall now open up local questions.

You are dialing in by phone. Please press <unk> raised a question then faster to annuity yourself, if youre accessing pharma Tencent meeting or group meeting application.

Makes a raytheon button at the bottom that we will take one main question.

Last question each time.

Wendy Huang: We will take one main question after one follow-up question each. The first question comes from Kenneth Fong from the UDN. Hi. Thank you.

The first question comes from the strong profit UBS.

Kenneth Fong: Hi. Thank you. Good evening, management. Thank you for taking my questions and congrats for another solid quarter of quality growth. I have two questions. The first is on Mini Games. Could management share with us more about the future strategy of Mini Games, given Tencent a strong franchise? Will we be just staying at a platform for distribution, or we can actually use Mini Games to rejuvenate some of our existing titles which are late in their product cycles? Also going forward, any shift in our strategy on the game launch between app-based versus a Mini Games in our games going forward? I have a follow-up question on AI strategy. We have successfully launched our Hunyuan AI model, and we stand out versus our peers with our use cases.

Kenneth Fong: Hi. Thank you. Good evening, management. Thank you for taking my questions and congrats for another solid quarter of quality growth. I have two questions. The first is on Mini Games. Could management share with us more about the future strategy of Mini Games, given Tencent a strong franchise? Will we be just staying at a platform for distribution, or we can actually use Mini Games to rejuvenate some of our existing titles which are late in their product cycles? Also going forward, any shift in our strategy on the game launch between app-based versus a Mini Games in our games going forward? I have a follow-up question on AI strategy. We have successfully launched our Hunyuan AI model, and we stand out versus our peers with our use cases.

And it's very high.

Kenneth Fong: Thank you. Good evening, management. Thank you for taking my questions, and congratulations on another solid quarter of quality growth. I have two questions.

Thank you good evening management. Thank you for taking my questions and congrats on another solid quarter of quality growth.

Kenneth Fong: The first is on minigames. Could management share with us more about the future strategy of minigames, given Tencent is a strong franchise? Will we be just staying as a platform for distribution, or can we actually use minigames to rejuvenate some of our existing titles which are late in their product cycles? Also, going forward, any shift in our strategy on the game launch between app-based versus mini-games in our games going forward?

I have two questions. The first is on many gains could management share with us more about the future strategy of mini games given Tencent. The strong franchise, we will be just seeing as a platform for tissue pollution or we can actually use media games to rejuvenate some of our existing titles, which are late in their product cycles.

So going forward any shift in our strategy on the game launch between at base versus a mini games.

Teams going forward.

Kenneth Fong: And I have a follow-up question on the AI strategy. We have successfully launched the Hunyuan AI model, and we stand up versus our peers with our use cases. Can management share with us how the US chip spend will impact our AI strategy, including product launch, monetization, and also areas of focus? Thank you.

And I have a follow up question on the AI strategy.

<unk> successfully launched <unk> <unk>.

<unk> module, and we say now versus our peers with our use cases.

Kenneth Fong: Can management share with us how would the US chip ban impact our AI strategy, including product launch, monetization, and also area of focus? Thank you.

Kenneth Fong: Can management share with us how would the US chip ban impact our AI strategy, including product launch, monetization, and also area of focus? Thank you.

Can management share with us how would the U S. Chips, then impact our AI strategy, including product launch monetization and also area of focus thank you.

James Gordon Mitchell: Hi Kenneth, thank you for your question. So I'll take the minigame question, and Martin will handle the AI question. For the minigames, then we view the minigame opportunity for Tencent primarily as a platform opportunity. And, you know, there are many thousands of game development studios that now focus on creating minigames. We're very happy to nurture that ecosystem, and we don't want to, you know, squeeze or unduly pressure that ecosystem.

John Lo: Hi, Kenneth. Thank you for your question. I'll take the Mini Games question, Martin will handle the AI question. For the Mini Games, then we view the Mini Games opportunity for Tencent primarily as a platform opportunity.

John Lo: Hi, Kenneth. Thank you for your question. I'll take the Mini Games question, Martin will handle the AI question. For the Mini Games, then we view the Mini Games opportunity for Tencent primarily as a platform opportunity.

Hi, Kenneth Thank you for your question, so I'll take the mini game crafts, and Matson will handle the AI question.

So there are many games then.

We view the mini game opportunity for <unk>, primarily as a platform opportunity.

And.

James Mitchell: You know, there are many thousands of game development studios that now focus on creating Mini Games. You know, we're very happy to, you know, nurture that ecosystem, and we don't want to, you know, squeeze or unduly pressure that ecosystem. You asked about whether we would seek to rejuvenate existing titles which are late in their product cycle by releasing Mini Games. You know, the reality is that our game strategy is not built on titles that, you know, have a product cycle that age and that then require, you know, heavy rejuvenation.

James Mitchell: You know, there are many thousands of game development studios that now focus on creating Mini Games. You know, we're very happy to, you know, nurture that ecosystem, and we don't want to, you know, squeeze or unduly pressure that ecosystem. You asked about whether we would seek to rejuvenate existing titles which are late in their product cycle by releasing Mini Games. You know, the reality is that our game strategy is not built on titles that, you know, have a product cycle that age and that then require, you know, heavy rejuvenation.

Sure.

There are many.

Sort of game development Studios that you can now focus on creating mini games, we're very happy to nurture that ecosystem, and we don't want to squeeze or on duty pressure that ecosystem.

You asked about whether we would seek to rejuvenate existing titles, which relate in their product cycle.

James Gordon Mitchell: You asked about whether we would seek to rejuvenate existing titles, which are late in their product cycle, by releasing minigames. And, you know, the reality is that our game strategy is not built on titles that, you know, have a product cycle that is aging and that then require, you know, heavy rejuvenation.

<unk> really seen many games.

The reality is that our game strategy is not built on titles.

A product cycle today and that then require heavy rejuvenation.

James Gordon Mitchell: Our game strategy is built around, you know, what we hope will become, you know, evergreen games. And it's built around, you know, making those evergreen games as popular and successful as they can be, and then adding further, you know, evergreen games that will also be popular and successful. So we don't, you know, hugely focus on taking smaller games that have a product cycle and then seeking to rejuvenate them through minigames or anything else.

James Mitchell: Our game strategy is built around, you know, what we hope will become, you know, evergreen games, and it's built around, you know, making those evergreen games as popular and successful as they can be, and then adding further, you know, evergreen games that will also be popular and successful. We don't, you know, hugely focus on, you know, taking smaller games that, you know, have a product cycle and then seeking to rejuvenate them through mini games or anything else.

James Mitchell: Our game strategy is built around, you know, what we hope will become, you know, evergreen games, and it's built around, you know, making those evergreen games as popular and successful as they can be, and then adding further, you know, evergreen games that will also be popular and successful. We don't, you know, hugely focus on, you know, taking smaller games that, you know, have a product cycle and then seeking to rejuvenate them through mini games or anything else.

<unk> strategy is built around what we hope will become an evergreen games and it's built around making does evergreen games as popular and successful as they can be and then adding.

Further in evergreen games that would also be popular and successful so we didn't.

Hugely focused on.

Taking smaller gains.

Have a product cycle had been seeking to rejuvenate them through mini games, so or anything else.

Martin Lau: In terms of Huanyuan and the overall AI strategy, I would say we, have been pretty far along in terms of building up Hunyuan, and we feel that we are one of the leaders within China, and we are also continuously increasing the size of the model and preparing for the next generation of our Hunyuan model, which is going to be a mixture of experts, architecture, which we believe will further improve the performance of our Hunyuan model, and by building up Hunyuan, we actually have really build up our capability in general, AI, you know, across the board, because when you're in the transformer based model include involves the handling of a large amount of data, large amount of training data, large size of computing cluster, and a very delicate fine-tuning process in terms of improving the AI performance. And by going through the process right now, we have also built up a lot of our AI capability, which is not transformer-based, but can be applied in many of our other businesses.

Martin Lau: In terms of Hunyuan and the overall AI strategy, I would say we have been pretty far along in terms of building up Hunyuan, and we feel that we are one of the leaders within China. We are also continuously increasing the size of the model and preparing for the next generation of our Hunyuan model, which is gonna be a mixture of experts architecture, which we believe will further improve the performance of our Hunyuan model. By building up Hunyuan, we actually have really built up our capability in general AI, you know, across the board.

Martin Lau: In terms of Hunyuan and the overall AI strategy, I would say we have been pretty far along in terms of building up Hunyuan, and we feel that we are one of the leaders within China. We are also continuously increasing the size of the model and preparing for the next generation of our Hunyuan model, which is gonna be a mixture of experts architecture, which we believe will further improve the performance of our Hunyuan model. By building up Hunyuan, we actually have really built up our capability in general AI, you know, across the board.

In terms of.

When you're in the overall AI strategy.

I'd say we.

Have been pretty far along in terms of building up and we feel that.

We are one of the leaders.

Within China, and we are also.

Continuously increasing the size of the model and preparing for the next generation of our when your amount of which is going to be a mixture of experts architecture, which we believe will further improve.

The performance of when your model.

By building up when you're in we actually have.

Really build up our capability in general AI across the board because when youre in the transformer base to model include evolves.

Martin Lau: Because you know, Hunyuan, the transformer-based model, it involves the handling of a large amount of data, large amount of training data, large size of a computing cluster, and a very delicate fine-tuning process in terms of improving the AI performance. By going through the process right now, we have also built up a lot of our AI capability, which is not transformer-based, but you know can be applied in many of our other businesses. If you look at Hunyuan itself, right? Right now, we see it is very good at generating text and messages.

Martin Lau: Because you know, Hunyuan, the transformer-based model, it involves the handling of a large amount of data, large amount of training data, large size of a computing cluster, and a very delicate fine-tuning process in terms of improving the AI performance. By going through the process right now, we have also built up a lot of our AI capability, which is not transformer-based, but you know can be applied in many of our other businesses. If you look at Hunyuan itself, right? Right now, we see it is very good at generating text and messages.

The handling of large.

Amount of data larger amount of training data large size of computing cluster.

Very good.

Dedicate fine tuning process in terms of.

Improving the AI performance and by.

Going through the process right now we have also built a lot of.

I kept their ability, which is not transformer base, but it can be applied in many of our other businesses. So if you look at when you're in itself right right.

Martin Lau: So if you look at Huanyuan itself, right now, we see it is very good at generating text and messages. And that actually is quite useful for a lot of, A lot of SaaS applications improve the capability of the SaaS service. For example, in Tencent Meeting, we can actually leverage Hunyuan to provide a summary of meetings and help people to catch up on meetings if they have missed the first half of the meeting, and so on and so forth. And in Tencent Docs, we can actually provide a whole set of tools for people to create documents in a much more efficient way. And these services are already offered to outside customers.

Right now.

See it.

A very good at generating.

Text <unk>.

Martin Lau: That actually is quite useful for a lot of SaaS applications, improve the capability of the SaaS service. For example, in Tencent Meeting, we can actually leverage Hunyuan to provide summary of meetings, and help people to catch up on meetings, if they have missed the first half of the meeting and so on and so forth. In Tencent Docs, we can actually provide a whole set of tools for people to create documents in a much more efficient way. These services are already offered to outside customers.

<unk> and <unk>.

Martin Lau: That actually is quite useful for a lot of SaaS applications, improve the capability of the SaaS service. For example, in Tencent Meeting, we can actually leverage Hunyuan to provide summary of meetings, and help people to catch up on meetings, if they have missed the first half of the meeting and so on and so forth. In Tencent Docs, we can actually provide a whole set of tools for people to create documents in a much more efficient way. These services are already offered to outside customers.

And that actually is.

This is quite useful for a lot of.

A lot of.

<unk> applications improve the capability of the SaaS service for example, intense and meeting we can actually elaborate when you add to provide summary of meetings and help people to catch up on meetings.

I missed the first half of the meeting and so on and so forth and intense in dogs, we can actually provide a whole set of tools for people to create documents in a much more.

Efficient way.

<unk>.

These services are already offered to outside customers.

Martin Lau: We also have a whole set of productivity enhancement tools, such as customer service APIs, which are now being tested by a lot of customers and enterprise customers who have the need to interact with their customers. In terms of code generation, it's actually sort of providing very good results and tools for our programmers as well as our outside customer programmers to improve on their coding efficiency. It's also helping in terms of content creation for both of our advertising business, helping advertisers to create more ads, more targeted ads, which can be used to improve the click-through rates of the advertising, as well as in the game production process, especially related to the artwork.

Martin Lau: And we also have a whole set of productivity enhancement tools, such as the customer service APIs, which are now being tested by a lot of customers and enterprise customers who have the need to interact with their customers. In terms of code generation, it's actually providing very good results and tools for our programmers as well as our outside customer programmers to improve their coding efficiency. And it's also helping in terms of content creation for both of our advertising business, helping advertisers to create more ads, more targeted ads, which can be used to improve the click-through rates of the advertising, as well as in the game production process, especially related to the artwork. We are actually leveraging AI to help us to create this artwork in a more efficient and cost-effective way. So that's for Hunyuan.

Martin Lau: We also have a whole set of productivity enhancement tools, such as customer service APIs, which are now being tested by a lot of customers and enterprise customers who have the need to interact with their customers. In terms of code generation, it's actually sort of providing very good results and tools for our programmers as well as our outside customer programmers to improve on their coding efficiency. It's also helping in terms of content creation for both of our advertising business, helping advertisers to create more ads, more targeted ads, which can be used to improve the click-through rates of the advertising, as well as in the game production process, especially related to the artwork.

We also have a whole set of productivity enhancement tools such as.

The customer.

Service.

Apis, which.

Now being tested by a lot of.

Customers.

And enterprise customers, who have the need to queue.

To interact with their customers.

In terms of cogeneration, it's actually sort of providing very good.

Results and tools for our programmers as well as our <unk>.

Outside of customer program is at two <unk>.

Improve under coding efficiency.

And it's also helping in terms of content creation, both for both of our advertising business, helping advertisers.

To create more ads more targeted ads, which can be used to improve the click through rates of the advertising as well as in the game production process, especially related to the artwork.

Martin Lau: We are actually leveraging AI to actually help us to create these artwork in a more efficient and cost-effective way. That's for Hunyuan. The general AI capability is actually helping us quite a bit in terms of the targeting technology related to advertising and our content provisioning service. In short video, you know, by improving our AI capability, we can actually ramp up our Video Accounts at a faster clip. In terms of the advertising business, by increasing the targeting capability, we are actually increasing our ad revenue and by delivering better results to our customers. Our AI capabilities is generating tangible results at this point in time, and we actually look into the future.

Martin Lau: We are actually leveraging AI to actually help us to create these artwork in a more efficient and cost-effective way. That's for Hunyuan. The general AI capability is actually helping us quite a bit in terms of the targeting technology related to advertising and our content provisioning service. In short video, you know, by improving our AI capability, we can actually ramp up our Video Accounts at a faster clip. In terms of the advertising business, by increasing the targeting capability, we are actually increasing our ad revenue and by delivering better results to our customers. Our AI capabilities is generating tangible results at this point in time, and we actually look into the future.

We are actually leveraging AI to actually help us to create these artwork and a more efficient and cost effective way.

Look.

That's for when you add in.

Martin Lau: And the general AI capability is actually helping us quite a bit in terms of the targeting technology related to advertising and our content provisioning service. So in short, video, by improving our AI capability, we can actually ramp up our video accounts at a faster clip. And in terms of the advertising business, by increasing the targeting capability, we are actually increasing our ad revenue and by delivering better results to our customers.

And the general AI capabilities is actually helping us quite a bit in terms of the targeting technology related to advertising and our content.

Provisioning service so in short video by improving our AI capability, we can actually ramp up our video accounts.

Faster clip and in terms of the advertising businesses by increasing the targeting capability.

Actually increasing our AD revenue and.

And by delivering better results to the.

Martin Lau: So they are generating, so our AI capabilities generate tangible results at this point in time, and we look into the future. Hunyuan can actually provide a lot of tools for enterprise customers. It can further improve our advertising business efficiency by, in the future, really merging the advertising stage and the selling stage, right? You know, if we can actually provide very good customer service, then a lot of merchants can actually combine the advertising and sales processes into one.

Yeah.

So our customers. So they are generating so our AI capabilities is generally tend to pull result at this point in time, and we actually look into the future when you.

Martin Lau: Hunyuan can actually provide a lot of tools for enterprise customers. It can further improve our advertising business efficiency by, in the future, really merging the advertising stage and the selling stage, right? You know, if we can actually provide very good customer service capability, then a lot of merchants can actually combine the advertising and sales process into one. You know, we also feel that further in the future, you know, when there's actually a consumer-facing product that, you know, it's more like a smart agent for people, right? You know, that is further down the road. You know, it actually carries quite a bit of room for imagination.

Martin Lau: Hunyuan can actually provide a lot of tools for enterprise customers. It can further improve our advertising business efficiency by, in the future, really merging the advertising stage and the selling stage, right? You know, if we can actually provide very good customer service capability, then a lot of merchants can actually combine the advertising and sales process into one. You know, we also feel that further in the future, you know, when there's actually a consumer-facing product that, you know, it's more like a smart agent for people, right? You know, that is further down the road. You know, it actually carries quite a bit of room for imagination.

Can actually provide a lot of tools for enterprise customers. It can further improve our advertising business efficiency by in the future really emerging the advertising stage and the selling stage right. If we can actually provide very good customer service.

Capability than than a lot of merchants can actually combine the advertising on the sales process into one.

And we also feel that debt.

Martin Lau: And, you know, we also feel that further in the future, when there's actually a consumer-facing product that, you know, it's more like a smart agent for people right now. That is further down the road, but it actually carries quite a bit of room for imagination.

Further in the future when there is actually a consumer facing product.

It's more like a smart agent for people right now that is further down the road.

Got it.

Carriers are quite a bit of.

No room for imagination now in terms of the chip situation right now we actually have one of the largest inventory of.

Martin Lau: Now, in terms of the chip situation, right now, we actually have one of the largest inventory of AI chips in China among all the players. One of the key things that we had done was actually we were the first to put in order for H800, and that allow us to have a pretty good inventory of H800 chips. We have enough chips to continue our development of Hunyuan for at least a couple more generations. The ban does not really affect the development of Hunyuan and our AI capability in the near future. Going forward, we will have to figure out ways to make the usage of our AI chips more efficient.

Martin Lau: Now, in terms of the chip situation, right now, we actually have one of the largest inventory of AI chips in China among all the players. One of the key things that we had done was actually we were the first to put in order for H800, and that allow us to have a pretty good inventory of H800 chips. We have enough chips to continue our development of Hunyuan for at least a couple more generations. The ban does not really affect the development of Hunyuan and our AI capability in the near future. Going forward, we will have to figure out ways to make the usage of our AI chips more efficient.

Martin Lau: Now, in terms of the chip situation, right now, we actually have one of the largest inventories of AI chips in China among all the players. And one of the key things that we did was actually we were the first to put in an order for H800, and that allowed us to have a pretty good inventory of H800 chips. So we have enough chips to continue our development of Hunyuan for at least a couple more generations.

Of AI chips in China, among all of the players and.

One one of the key things that we have done was actually we were the first.

To put an order for 800 and that allow us to have a pretty good.

Inventory of H 800 chips.

So we have enough chips to continue our development of when you add in for at least a couple of more generations.

Martin Lau: And the ban does not really affect the development of Hunyuan and our AI capability in the near future. And going forward, we will have to figure out ways to... make the usage of our AI chips more efficient. We'll try to see whether we can offload a lot of the inference capability to lower-performance chips so that we can retain the majority of our high-performance AI chips for training purposes. And we'll also try to look for a domestic source for these training chips.

And.

The ban does not really affect the development when you add in our AI capability.

Our near future and going forward, we will have to figure out ways to.

<unk>.

Make our usage of our AI.

AI chips more efficient we will try to see whether we can.

Martin Lau: We'll try to see whether we can offload a lot of the inference capability to lower performance chips so that we can retain the majority of our high-performance AI chips for training purpose. We'll also try to look for a domestic source for these training chips.

Martin Lau: We'll try to see whether we can offload a lot of the inference capability to lower performance chips so that we can retain the majority of our high-performance AI chips for training purpose. We'll also try to look for a domestic source for these training chips.

Offload a lot of the inference capability to lower performance chips. So that we can retain the majority of our high performance AI chips for training purpose and we also try to look for.

Domestic source for these.

Raining chips.

Okay.

Ronald Keung: Thank you, Martin and James.

Ronald Keung: Thank you, Martin and James.

Thank you Martin and James.

Wendy Huang: Thank you. We will take the next question from Gary from Morgenstern. Hi.

Operator: Thank you. We will take the next question from Gary from Morgan Stanley.

Operator: Thank you. We will take the next question from Gary from Morgan Stanley.

Thank you.

Our next question from Gary <unk> from Morgan Stanley.

Gary Yu: Hi, thank you management for the opportunity and congratulations on another solid quarter. My first question is also related to the games business. I think two years ago, we also identified games as the key investment area for Future Grove. I think at that time, we were expecting a kind of two to three years production cycle. We commented that because of the improvement in financial performance, we now have the luxury of taking a longer time for the production cycle.

[Analyst] (Morgan Stanley): Hi. Thank you management for the opportunity and congratulations for another solid quarter. My first question is also related to the games business. I think two years ago, we also identified game as the key investment area for future growth. I think at that time we were expecting a kind of two to three years production cycle. We commented that, because of the improving financial performance, we now have the luxury to take a longer time for production cycle. Where are we right now at the kind of production cycle, and how should we look at, you know, these investment translating into games pipeline in different genres and also financial performance in the next couple years? I have a follow-up question related to our capital management.

Gary Yu: Hi. Thank you management for the opportunity and congratulations for another solid quarter. My first question is also related to the games business. I think two years ago, we also identified game as the key investment area for future growth. I think at that time we were expecting a kind of two to three years production cycle. We commented that, because of the improving financial performance, we now have the luxury to take a longer time for production cycle. Where are we right now at the kind of production cycle, and how should we look at, you know, these investment translating into games pipeline in different genres and also financial performance in the next couple years? I have a follow-up question related to our capital management.

Hi, Thank you management for the opportunity and congratulations for another solid quarter.

My first question is also related to the games business.

Two years ago, we also identified <unk> as the key investment area for future growth I think at that time, we were expecting a kind of two to three years production cycle.

We comment at that.

Because of the improving financial performance as we know.

The luxury to taking to take a longer time for our protection cycle. So where are we right now at the kind of production cycle and how should we look at these investment translating into games pipeline different genders and also financial performance in the next couple of years, and then I have a follow up questions related to <unk>.

Gary Yu: So where are we right now in the production cycle and how should we look at these investments translating into a pipeline of games in different genres and also financial performance in the next couple of years? And then I have a follow-up question related to our capital management. I think last year we increased dividends. We have also stepped up our share buyback. How should we look at the opportunities in our investment portfolio, similar to what we did with JD and May 20 distribution in the past two years? Thank you. Hi Gary.

Our capital management.

[Analyst] (Morgan Stanley): I think last year we increased dividends. We have also stepped up our share buyback. How should we look at the opportunities in our investment portfolio, similar to what we did on, you know, JD and Meituan distribution in the past two years? Thank you.

Gary Yu: I think last year we increased dividends. We have also stepped up our share buyback. How should we look at the opportunities in our investment portfolio, similar to what we did on, you know, JD and Meituan distribution in the past two years? Thank you.

I think last year, we increased dividends, we have also step up our share buyback.

How should we look at the opportunities in our investment portfolio are similar.

Similar to what we did on JD and May 12 distribution in the past two years. Thank you.

James Gordon Mitchell: So on the game question, then in general, we have chosen to elongate our game production cycle cycles, you know, sometimes by six months, sometimes by 18 months. And there are a couple of reasons for that. One thing that we can see empirically is that there are bigger opportunities now for the best games, especially if the development studio is patient about investing the time and resources to make the best games be all that they can be.

James Mitchell: Hi, Gary. On the game question then, in general, we have chosen to elongate our game production cycle, you know, sometimes by 6 months, sometimes by 18 months. There's a couple of reasons for that. One is that we can see empirically that there's bigger opportunities now for the best games, especially if the development studio is patient about investing the time, the resources to make the best games be all that they can be. Of course, we want to, you know, capitalize on that and release the best games.

James Mitchell: Hi, Gary. On the game question then, in general, we have chosen to elongate our game production cycle, you know, sometimes by 6 months, sometimes by 18 months. There's a couple of reasons for that. One is that we can see empirically that there's bigger opportunities now for the best games, especially if the development studio is patient about investing the time, the resources to make the best games be all that they can be. Of course, we want to, you know, capitalize on that and release the best games.

Hi, Gary So all the game question then in general we have chosen to elongate our game production site cycles, sometimes by six months, sometimes by 18 months and Theres a couple of reasons for that one is that we can see empirically that there's bigger opportunities now for the best game.

It's especially if the development studio is patient about the investing the time the resources to.

To make the best games feel that they can be and of course, we will answer in a capitalized on that and released the best games.

James Gordon Mitchell: And, of course, we want to capitalize on that and release the best games. And then secondly, as you alluded to, with the high-quality revenue growth model in place, we feel we now have the luxury where our business, you know, because of video accounts, because of minigames, because of search, because of e-commerce, is actually capable of sustaining quite healthy earnings growth rates even without releasing a big game in a given three-month period.

James Mitchell: Secondly, as you alluded to, with the high-quality revenue growth model in place, we feel we now have the luxury where our business, you know, because of Video Accounts, because of Mini Games, because of search, because of e-commerce, is actually capable of sustaining quite healthy earnings growth rates, even without releasing a big game in a given three-month period. Therefore, with, you know, both of those in place, we think that for us, it has made sense for us to play the long game, and, you know, really focus on making the games in our pipeline be all that they can be. You know, Martin highlighted nine games in our pipeline. You know, one of those games will be released in the coming weeks, the others will be released in the coming few months.

James Mitchell: Secondly, as you alluded to, with the high-quality revenue growth model in place, we feel we now have the luxury where our business, you know, because of Video Accounts, because of Mini Games, because of search, because of e-commerce, is actually capable of sustaining quite healthy earnings growth rates, even without releasing a big game in a given three-month period. Therefore, with, you know, both of those in place, we think that for us, it has made sense for us to play the long game, and, you know, really focus on making the games in our pipeline be all that they can be. You know, Martin highlighted nine games in our pipeline. You know, one of those games will be released in the coming weeks, the others will be released in the coming few months.

And then secondly, as you alluded to with the high quality revenue growth model in place we feel we now have the luxury where.

Our business because of video accounts because of mini games because of <unk>.

E Commerce is actually capable of sustaining a quite healthy earnings growth rates, even without releasing a big game in it given the three month period.

And therefore with the both.

James Gordon Mitchell: And therefore, with both of those in place, we think that for us, it makes, has made sense for us to play the long game and, you know, really focus on making the games in our pipeline be all that they can be. And, you know, Martin highlighted nine games in our pipeline. You know, one of those games will be released in the coming weeks. The others will be released in the coming few months.

Both of those in place, we think that for US It makes us makes sense for us to play the long game.

And really focus on making the games in our pipeline build with it they can be and Martin highlighted nine games in our pipeline.

One of those games will be released in the coming weeks the others will be released in the coming few months.

James Mitchell: You know, those will be the test cases of how effectively we're executing in that direction. But overall, we feel that, you know, we now have this luxury of playing the long game because the high-quality revenue growth model provides us with earnings growth irrespective of, you know, whether we're launching a game in a quarter or not.

James Mitchell: You know, those will be the test cases of how effectively we're executing in that direction. But overall, we feel that, you know, we now have this luxury of playing the long game because the high-quality revenue growth model provides us with earnings growth irrespective of, you know, whether we're launching a game in a quarter or not.

Those will be the.

Test cases of how effectively we are executing in that direction, but overall, we feel that we now have.

James Gordon Mitchell: And, you know, those will be the test cases of how effectively we're executing in that direction. But overall, we feel that we now have the luxury of playing the long game because the high-quality revenue growth model provides us with earnings growth, irrespective of whether we're launching a game in a quarter or not. In terms of shareholder return and capital management, I would like to say a few points, right?

This luxury of playing the long game because of the high quality revenue growth model provides us with earnings growth.

Irrespective of whether we are launching it came in a quarter or not.

Martin Lau: In terms of shareholder return and capital management, I would say a few points, right? Number one, we are very focused on shareholder return, and we try different ways to improve it. Secondly, we do have a very strong cash flow, alongside with a very large investment portfolio, half of which is actually in the liquid stocks. We do have the flexibility of using different tools to increase shareholder return. If you look at the tools that we have, right, you know, obviously, you mentioned, there's share buyback, there's dividend, there is also a distribution of investee shares that we have executed before.

Martin Lau: In terms of shareholder return and capital management, I would say a few points, right? Number one, we are very focused on shareholder return, and we try different ways to improve it. Secondly, we do have a very strong cash flow, alongside with a very large investment portfolio, half of which is actually in the liquid stocks. We do have the flexibility of using different tools to increase shareholder return. If you look at the tools that we have, right, you know, obviously, you mentioned, there's share buyback, there's dividend, there is also a distribution of investee shares that we have executed before.

Yes.

Sure.

In terms of shareholder return on a capital management I would say a few points, where our number one.

James Gordon Mitchell: Number one, we are very focused on shareholder return, and we try different ways to improve it. And secondly, we do have a very strong cash flow, alongside a very large investment portfolio, half of which is actually in liquid stock.

We are very focused on shareholder return.

We will try it different ways to improve it and secondly, we do have very strong cash flow.

Long side with a very large investment portfolio.

Half of which is actually.

In the liquid stocks.

Martin Lau: So we do have the flexibility of using different tools to increase shareholder return. And if you look at the tools that we have, right, you know, obviously, you mentioned, there's share buyback, there's dividends, there is also a distribution of investee shares that we have executed before. And there are also divesting investments so that we generate cash so that we can actually do more share buybacks and dividends. So, we will use these tools dynamically and also at different times in different combinations to improve and return, improve the shareholder return, and return capital to our shareholders.

So we do have the flexibility of using different tools to increase shareholder return.

And if you look at the tools that we have right.

You mentioned the share buyback.

There is a dividend.

There is also a distribution of MST shares that we have.

Executed before and there is also.

Martin Lau: There's also divesting investments so that we generate cash so that we can actually do more of share buyback and dividends. We will use these tools dynamically and also at different times in different combination to improve the shareholder return and return capital to our shareholders. I would say at this point in time, if you look at the market, the valuation in the market for China internet names stock is almost at historical lows, right? I would say at this point buyback will be a more favorable means for our shareholders than other means.

Martin Lau: There's also divesting investments so that we generate cash so that we can actually do more of share buyback and dividends. We will use these tools dynamically and also at different times in different combination to improve the shareholder return and return capital to our shareholders. I would say at this point in time, if you look at the market, the valuation in the market for China internet names stock is almost at historical lows, right? I would say at this point buyback will be a more favorable means for our shareholders than other means.

Divesting investment so that we generate cash so that we can actually do more of share buyback and dividend.

We will use these tools.

Dynamically and also.

At different times and different combination.

<unk>.

Improve.

Return improved shareholder returns and returning capital to.

Our shareholders.

Martin Lau: But I would say at this point in time, if you look at the market, the valuation in the market for China Internet stock is almost at historical lows. So I would say at this point, a buyback will be a more favorable means for our shareholders than other means.

But.

I would say at this point in time, if you look at the market the.

The valuation in the market for China and that stock is almost at historical lows rates, So I would say.

At this point buyback will be more favorable means for our shareholders than other means.

Martin Lau: Thank you, Gary. Thank you. We're going to take the next question from William Packer from BNP. William, you're lying to us.

Operator: Thank you, Gary.

Operator: Thank you, Gary.

Thank you Gary.

Martin Lau: Thank you.

Martin Lau: Thank you.

Right.

Operator: Thank you. We're gonna take the next question from William Packer from BNP. William, your line is open.

Operator: Thank you. We're gonna take the next question from William Packer from BNP. William, your line is open.

Thank you.

I'll take the next question from William Packer from BMC.

Yeah.

Yeah.

Hey, your line's open.

William Packer: Hi, this is William Packer. Can you hear me?

William Packer: Hi, this is William Packer. Can you hear me?

William Henry Packer: Hi, this is Will Packer. Can you hear me? Yeah, we can. Thanks very much.

Our highest as a robot can you hear me yes.

Operator: Yeah, we can.

Operator: Yeah, we can.

Yes, we can.

William Henry Packer: And congrats on the strong calls. My question is around the sustainability of gross margin improvement across the key VAS ads and FinTech segments of your portfolio. Are the gains we've seen year to date sustainable into 2024 and beyond? And is there further upside from makeshift?

William Packer: Thanks very much. Congrats on the strong quarter. My question is around the sustainability of growth margin improvement across the key VAS ads and fintech segments of your portfolio. Are the gains we've seen year to date sustainable into 2024 and beyond? Is there further upside from mix shift? My follow-up question was around domestic gaming. Growth's been volatile in recent years as you've digested the impact of lockdowns, rectification, et cetera. We now seem to have settled into a more normalized period. How should we think about the medium to long-term growth algorithm for the segment? To what extent are you reliant on new hit content within that segment? Thank you.

William Packer: Thanks very much. Congrats on the strong quarter. My question is around the sustainability of growth margin improvement across the key VAS ads and fintech segments of your portfolio. Are the gains we've seen year to date sustainable into 2024 and beyond? Is there further upside from mix shift? My follow-up question was around domestic gaming. Growth's been volatile in recent years as you've digested the impact of lockdowns, rectification, et cetera. We now seem to have settled into a more normalized period. How should we think about the medium to long-term growth algorithm for the segment? To what extent are you reliant on new hit content within that segment? Thank you.

Thanks, very much and congrats on the strong quarter.

My question is around the sustainability of gross margin improvement across the key outcome.

And Fintech segments of your portfolio all the gains we've seen year to date is sustainable into 2024 and beyond.

Further upside from mix shift.

William Henry Packer: And my follow-up question was around domestic gaming. Growth's been volatile in recent years, as you've digested, and the impact of lockdowns, replication, etc.

And my follow up question was around domestic gaming.

Grocery and volatile in recent years as you've digested the impact of Lockdowns rectification et cetera, we now seem to have settled into a more normalized period, how should we think about the medium to long term growth algorithm for the segment.

William Henry Packer: We now seem to have settled into a more normalized period. How should we think about the medium to long-term growth algorithm for the second half of the year? And to what extent are you reliant on new hit content within that segment? Thank you. Hi Will.

And to what extent are you reliant on new hit content within that segment. Thank you.

James Gordon Mitchell: So on the margin question, we talked about how there were three drivers of the uplift in margins in recent quarters, and two of them we view as sustainable and recurring in nature. One of them, which is the headcount adjustments, restructuring, and so forth, is more episodic in nature.

James Mitchell: Hi, Will. On the margin question, we talked about how there's three drivers of the uplift in margins in recent quarters. Two of them we view as sustainable and recurring in nature. One of them, which is the headcount adjustments, restructuring and so forth, is more episodic in nature. Looking forward, in general, the revenue streams that are growing fastest in our business are the revenue streams with the highest margins. We believe that the current level of margin, of gross margin is sustainable, and we believe that there is room for margins to improve further. If you look at the advertising segment, for example, the gross margin has improved from 30% to around 50%.

James Mitchell: Hi, Will. On the margin question, we talked about how there's three drivers of the uplift in margins in recent quarters. Two of them we view as sustainable and recurring in nature. One of them, which is the headcount adjustments, restructuring and so forth, is more episodic in nature. Looking forward, in general, the revenue streams that are growing fastest in our business are the revenue streams with the highest margins. We believe that the current level of margin, of gross margin is sustainable, and we believe that there is room for margins to improve further. If you look at the advertising segment, for example, the gross margin has improved from 30% to around 50%.

I will say on the margin question.

We talked about how there's three drivers.

The uplift in margins in recent quarters and two of them, we view as sustainable and recurring in nature, one of them, which is that.

Head count adjustments restructuring and so forth.

It's more episodic in nature.

And looking forward in general that revenue streams that are growing fastest in our business and our revenue streams with the highest margins. So.

James Gordon Mitchell: And looking forward, in general, the revenue streams that are growing fastest in our business are the revenue streams with the highest margins. So we believe that the current level of gross margin is sustainable. And we believe that there is room for margins to improve further. If you look at the advertising segment, for example, the gross margin has improved from 30% to around 50%. Our closest global comparable is running advertising, so that's on the margin side.

So we believe that the current level of margin of gross margin is sustainable and we believe that there is room for margins to improve.

And if you look at the advertising segment for example.

Gross margin has improved from 30% to around 50%.

James Mitchell: You know, our closest global comparable is running an advertising gross margin of 80%. That's on the margin side. You know, with regards to the games then, you know, we believe that the existing Evergreen games provide a certain quantum of growth. Then on top of that, you know, we have new games in the pipeline. Depending on when we release those and the success of those new games, you know, those can provide additional growth on top. Thank you.

James Mitchell: You know, our closest global comparable is running an advertising gross margin of 80%. That's on the margin side. You know, with regards to the games then, you know, we believe that the existing Evergreen games provide a certain quantum of growth. Then on top of that, you know, we have new games in the pipeline. Depending on when we release those and the success of those new games, you know, those can provide additional growth on top. Thank you.

Closest global comparable is running an advertising gross margin of 18%.

So that's on the margin side with regards to the games and we believe that the existing evergreen games provide a certain quantum of growth.

James Gordon Mitchell: With regard to the games, we believe that the existing evergreen games provide a certain quantum of growth. And then, on top of that, we have new games in the pipeline. And depending on when we release those and the success of those new games, those can provide additional growth on top. Thank you.

And then on top of that.

We have new games in the pipeline and depending on when we really started in the success of those new games that can provide additional growth on top.

Thank you.

Okay.

William Packer: Very kind.

William Packer: Very kind.

Many thanks.

Operator: Thank you. Thank you, William. Next question comes from John Choi from Daiwa. John, your line is open now.

Operator: Thank you. Thank you, William. Next question comes from John Choi from Daiwa. John, your line is open now.

Hyungwook Choi: Thank you. Thank you, William. The next question comes from John Choi from Daiwa. Joanne, your line is open now.

Thank you. Thank you next question comes from.

John Choi from Daiwa.

Okay.

John Your line is open now.

Hyungwook Choi: Good evening. Thank you for taking my question. I have just one question on the games, as you mentioned. I think you guys mentioned that domestically, you're more comfortable with more launches. But as we go into the international side, can you kind of elaborate on what kind of investments we have to make further as we continue to invest? I do understand that we have, first, I think Call of Duty Mobile. You mentioned that, despite being launched four years ago, we had a record July. So I wanted to know, like, what are the kind of ways you elongate or revive some of the old titles while you balance the new launches?

John Choi: Good evening. Thank you for taking my question. I have just a quick one question on the games, as you mentioned. I think you guys mentioned that domestic, you're more comfortable, you will see more launches. But as we go into the international side, can you kinda elaborate, like what kind of investments that we have to do further as we continue to invest? I do understand that we have, like first, I think Call of Duty: Mobile, you mentioned that after, despite being launched 4 years ago, we had a record July. So I wanted to know, like what are, like kind of, how do you elongate or revive some of the old titles while you balance the new launches? And just a quick follow-up on your CapEx and headcount plan.

John Choi: Good evening. Thank you for taking my question. I have just a quick one question on the games, as you mentioned. I think you guys mentioned that domestic, you're more comfortable, you will see more launches. But as we go into the international side, can you kinda elaborate, like what kind of investments that we have to do further as we continue to invest? I do understand that we have, like first, I think Call of Duty: Mobile, you mentioned that after, despite being launched 4 years ago, we had a record July. So I wanted to know, like what are, like kind of, how do you elongate or revive some of the old titles while you balance the new launches? And just a quick follow-up on your CapEx and headcount plan.

Good evening and thank you for taking my question I have just a quick one.

One question on the gains as you mentioned I think I.

I think you guys mentioned, the domestic or more comfortable you will see more launches, but as we go into the international side can you kind of elaborate like what kind of investments that we have to do further as we continue to invest to understand that we have our first I would call of duty mobile you mentioned that after despite being launched four years ago.

We had a record.

July so wanted to know like what are like kind of how do you elongate or revive some of the old titles, while you balance the new launches and just a quick follow up on your Capex and head count plan.

Hyungwook Choi: And just a quick follow-up on your CapEx and headcount plan. Can you kind of share with us what I think this quarter we did see an elevated CapEx this time, and also headcount did see a sequential improvement. So as you go into 2024, could management, you know, share some color on this area? Hi, John.

John Choi: Can you kind of share with us, you know, what, I think this quarter we did see elevated CapEx this time, and also headcount did see a sequential improvement. As you go into 2024, could management, you know, share some color on this area? Thank you.

John Choi: Can you kind of share with us, you know, what, I think this quarter we did see elevated CapEx this time, and also headcount did see a sequential improvement. As you go into 2024, could management, you know, share some color on this area? Thank you.

Can you share us.

I think this quarter, we did see elevated capex.

At this time and also head count did see sequential improvement. So as we go into 2024 can management share some color on this area. Thank you.

James Gordon Mitchell: So on the international games, you know, we've already been running a very substantial investment in international game development through RP&L. If you take, you know, our studios, such as, you know, Riot, Supercell, Miniclip, Fat Shark, Shark Mob, and on and on and on, then you know, we're actually one of the biggest game developers in the world, excluding our Chinese business. And of course, our big Chinese studios, such as Timmy and Quantum, have many thousands more developers who are creating games that are targeting an international as well as a domestic market.

James Mitchell: Hi, John. On the international games, you know, we've already been running a very substantial investment in international game development through our P&L. If you take, you know, our studios, such as, you know, Riot, Supercell, Miniclip, Fatshark, Sharkmob, and, you know, on and on and on, then, you know, we're actually one of the biggest game developers in the world, excluding our China business. Our big China studios such as TiMi and Quantum, you know, add many thousands more of developers who are creating games that are targeting an international as well as a domestic market. We feel that we have, you know, the teams in place now to create, you know, big budget, high production value and, you know, ultimately successful games, you know, for the international market.

James Mitchell: Hi, John. On the international games, you know, we've already been running a very substantial investment in international game development through our P&L. If you take, you know, our studios, such as, you know, Riot, Supercell, Miniclip, Fatshark, Sharkmob, and, you know, on and on and on, then, you know, we're actually one of the biggest game developers in the world, excluding our China business. Our big China studios such as TiMi and Quantum, you know, add many thousands more of developers who are creating games that are targeting an international as well as a domestic market. We feel that we have, you know, the teams in place now to create, you know, big budget, high production value and, you know, ultimately successful games, you know, for the international market.

Hi, John So on the international games, we have already been running a very substantial investment in.

In International game development through our P&L, if you take.

Art studios, such as riot supercell mini clip fat sharp shock mob.

And on and on and then we're actually one of the biggest game developers in the world executing our China business and of course, a big China Studios, such as <unk> and quantum add many thousands more of developers who are creating games that are targeting and international as well as the domestic market. So we feel that we have.

James Gordon Mitchell: So we feel that we have, you know, the teams in place now to create, you know, big budget, high production values, and, you know, ultimately successful games for the international market. And, you know, we'll be bringing those games for release in the quarters to come. So that's on the game side.

The teams in place now to create.

Big budget high production value.

Ultimately successful game for the international market, and we'll be bringing those games to release.

James Mitchell: You know, we'll be bringing those games to release in the quarters to come. That's on the games side.

James Mitchell: You know, we'll be bringing those games to release in the quarters to come. That's on the games side.

In the quarters to come so.

So thats on the game side Capex John please.

Martin Lau: CapEx, John, please.

Martin Lau: CapEx, John, please.

John Lowe: [inaudible] Operating CapTax represents about 3.5% of total revenue, 3 to 3.5 in 2023. And for 2024, I think it will be at a similar level. And if we are able to get more GPUs to add on, and the 1% on top of that, 3 to 3.5%. For non-operating capex every year, on the construction side, we have spent roughly $1 billion in the past few years. That's excluding any land acquisition. If we add on land acquisition, it shouldn't be more than an additional $1 billion on top of that construction cost.

James Mitchell: Yeah. Operating CapEx represents about 3 to 5, 3.5% of total revenue, 3 to 3.5% in 2023. For 2024, I think it would be at similar level. If we are able to get more GPUs, we'll add on another 1% on top of that 3 to 3.5%. For non-operating CapEx, every year, you know, on the construction side, we spend roughly $1 billion in the past few years. That's excluding, you know, any land acquisition. If we add on land acquisition, it shouldn't be more than additional, you know, 1 billion on top of that construction cost.

James Mitchell: Yeah. Operating CapEx represents about 3 to 5, 3.5% of total revenue, 3 to 3.5% in 2023. For 2024, I think it would be at similar level. If we are able to get more GPUs, we'll add on another 1% on top of that 3 to 3.5%. For non-operating CapEx, every year, you know, on the construction side, we spend roughly $1 billion in the past few years. That's excluding, you know, any land acquisition. If we add on land acquisition, it shouldn't be more than additional, you know, 1 billion on top of that construction cost.

Operating capex.

Represents about 3253, 5% of the total revenue pre 235 in 2023.

For 2024, I think you will be at similar level and if we are able to get more GPU through <unk> and 1% on top of that <unk> <unk>.

5%.

For nonoperating Capex every year on the construction side, we spent roughly 1 billion U S dollars in the past few years.

Excluding any land acquisition if we.

Add on then.

Fisher and you shouldn't be.

More than an additional 1 billion on top of that construction costs.

Martin Lau: In terms of headcount, we believe most of the efficiency optimization has been done, and we have the right size of a workforce for our existing business. We are hiring selectively to grow our new businesses. But also, it's actually very important for us to recognize that big teams are actually not very good for focus and efficiency in business execution. So, in the past, I think, you know, we and maybe many other companies have actually sort of built teams up too quickly and built too large a team.

Martin Lau: In terms of headcounts, we believe most of the efficiency optimization have been done, and we have the right size of a workforce for our existing business. We are hiring selectively to grow our new businesses. Also, it's actually very important for us to recognize that big teams are actually not very good for focus and efficiency execution of businesses. In the past, I think, you know, we and maybe many other companies have actually sort of, you know, built teams up too quickly and built too large a team. Going forward, you know, consistent with what we talk about in our new high quality revenue growth model, you know, one of the key thing is actually cost discipline.

Martin Lau: In terms of headcounts, we believe most of the efficiency optimization have been done, and we have the right size of a workforce for our existing business. We are hiring selectively to grow our new businesses. Also, it's actually very important for us to recognize that big teams are actually not very good for focus and efficiency execution of businesses. In the past, I think, you know, we and maybe many other companies have actually sort of, you know, built teams up too quickly and built too large a team. Going forward, you know, consistent with what we talk about in our new high quality revenue growth model, you know, one of the key thing is actually cost discipline.

In terms of the head counts, we believe most of the efficiency optimization has been done and we have the right size of our workforce for our existing business.

Our hiring selectively to grow our new businesses.

But also it is actually very important.

For us.

Two to recognize that.

Big teams actually not very good for four focus and efficiency execution of businesses. So in the past I think.

And maybe many other companies have actually built.

Teams up too quickly and build.

<unk> team and and so going forward.

Martin Lau: And so, going forward, consistent with what we talked about in our new high-quality revenue growth model, one of the key things is actually cost discipline, and cost discipline is really part of it, trying to keep our teams smaller but with better people so that we can actually help our teams to focus on the real value-added things to work on, and that turns out to usually be a value creation exercise for our business and make ourselves, our business, strategically stronger.

Consistent with what we've talked about in our new high quality revenue growth model one of the key thing is actually the cost.

Martin Lau: Part of it is trying to keep our teams smaller but with better people so that we can actually help our team to focus on the real value added things to work on. That turns out to usually be a value creation exercise for our business and make ourselves our business strategically stronger.

<unk> is part of it is.

Martin Lau: Part of it is trying to keep our teams smaller but with better people so that we can actually help our team to focus on the real value added things to work on. That turns out to usually be a value creation exercise for our business and make ourselves our business strategically stronger.

Trying to keep our teams smaller but with better people so that.

We can actually.

How 'bout team to focus on the real value added things to work done and that turns out to usually be.

Our value creation exercise.

Our business and make ourselves a business strategically stronger.

Operator: Thank you. We will take the next question from Alicia Yap from Citi.

Operator: Thank you. We will take the next question from Alicia Yap from Citi.

Wendy Huang: Thank you. We will take the next question from Alicia Yap.

Thank you we'll take the next.

Questions on Asia.

Alicia Yap: Hi, good evening. So yeah, thanks for taking my questions. Also, congrats on the solid profit beat. Two questions.

Alicia Yap: Hi. Good evening. Yeah, thanks for taking my questions. Also congrats on the solid profit beat. Two questions. First is on the Video Accounts advertising revenue. As we start to lap out the low base, and although we're going to still have the closed loop e-commerce transactions to benefit and support that solid ad growth for the Video Accounts. Just wondering what could be the steady state of the growth rate for the overall online ad revenues going forward. A follow-up is on the Hunyuan model. I think management did mention potentially sometime down the road there will be a commercial product for a consumer AI. Just wondering you know when we can see, for example, the AI assistant to be integrated into WeChat and QQ.

Alicia Yap: Hi. Good evening. Yeah, thanks for taking my questions. Also congrats on the solid profit beat. Two questions. First is on the Video Accounts advertising revenue. As we start to lap out the low base, and although we're going to still have the closed loop e-commerce transactions to benefit and support that solid ad growth for the Video Accounts. Just wondering what could be the steady state of the growth rate for the overall online ad revenues going forward. A follow-up is on the Hunyuan model. I think management did mention potentially sometime down the road there will be a commercial product for a consumer AI. Just wondering you know when we can see, for example, the AI assistant to be integrated into WeChat and QQ.

Hi.

Thanks.

Yeah. Thanks for taking my questions also congrats on a solid profit.

Two questions first on the BD.

Alicia Yap: First is on the video account advertising revenue as we start to lapse out the low base. And although we're going to still have the closed loop e-commerce transactions to benefit from and support that solid ad for the video account. Just wondering what could be the steady stage of the growth rate for the overall online ad revenues going forward? And then a follow-up is on the Huanyuan model. I think management did mention that potentially, sometime down the road, there will be a commercial product for consumers.

<unk> advertising revenue.

Started to lap.

Sure Paul.

And <unk> got your.

Harper Kosovo.

e-commerce transactions to pharmacy.

For the video call just wondering what could be the CDC off the growth rate.

Overall online revenues going forward.

A follow up on that one yet.

I think management deep nansen potentially sometimes are.

Theyre lumpy.

Alicia Yap: And so just wondering when we can see, for example, the AI system to be integrated into WeChat and QQ. And when that is ready, would that also be a potential commercial service charge, for example, like the subscription? Thank you.

<unk> talked about for a consumer.

So just wondering.

Can you quantify that.

Thanks, Jason.

We integrate that into wechat, and QQ and <unk> would that be potentially also a commercial service charge price on about I guess last weekend. Thank you.

Alicia Yap: When that is ready, would that be potential also a commercial service charge, for example, like a subscription fee? Thank you.

Alicia Yap: When that is ready, would that be potential also a commercial service charge, for example, like a subscription fee? Thank you.

James Gordon Mitchell: Hi Alicia, so on your first question about video account advertising revenue, you know, we're not super focused on whether there's a low base or a higher base because actually, we have four discrete growth drivers we see supporting our advertising revenue growth, not just this year, but for many years to come. You know, the first of them is traffic.

James Mitchell: Hi, Alicia Yap. On your first question about Video Accounts advertising revenue. You know, we're not super focused on, you know, whether there's a low base or a higher base, because actually we have, you know, four discrete growth drivers we see supporting our advertising revenue growth, you know, not just this year, but for many years to come. You know, the first of them is traffic. You know, the number of video views today is substantially greater than 50% higher than it was when we began monetizing Video Accounts, just over a year ago. And so that's, you know, an immediate uplift and an ongoing uplift because we believe Video Accounts traffic will continue to grow. Second, there's the ad load.

James Mitchell: Hi, Alicia Yap. On your first question about Video Accounts advertising revenue. You know, we're not super focused on, you know, whether there's a low base or a higher base, because actually we have, you know, four discrete growth drivers we see supporting our advertising revenue growth, you know, not just this year, but for many years to come. You know, the first of them is traffic. You know, the number of video views today is substantially greater than 50% higher than it was when we began monetizing Video Accounts, just over a year ago. And so that's, you know, an immediate uplift and an ongoing uplift because we believe Video Accounts traffic will continue to grow. Second, there's the ad load.

Hi, Alicia.

Your first question about video account advertising revenue.

We're not.

Super focused on whether that's a low base or a higher base because actually we have.

For discrete growth drivers, we see supporting our advertising revenue growth not just this year, but for many years to come.

James Gordon Mitchell: So, you know, the number of video views today is substantially greater than 50% higher than it was when we began monetizing video accounts just over a year ago. And so that's an immediate uplift in an ongoing uplift because we believe video account traffic will continue to grow. Second, there's the ad load. You know, today, the ad load we operate at on video accounts is less than 3%. The ad load that our domestic peers operate at is over 10%.

The first of them is traffic.

So the number of video views today is substantially greater than 50% higher than it was when we began monetizing video accounts just stay from a year ago and so that's.

An immediate uplift in an ongoing uplift because sweetly believe video accounts profitable continue to grow.

Secondly, the AD load today the AD load we operate at on video accounts with less than 3% the AD load that our domestic peers operate at over 10% and so we have room to vary substantially multiply our AD load over the yes to come versus where it is today.

James Mitchell: You know, today, the ad load we operate at on Video Accounts is less than 3%. The ad load that our domestic peers operate at is over 10%. We have room to very substantially multiply our ad load over the years to come versus where it is today. Thirdly, there's the ability to uplift click-through rates using artificial intelligence. You know, today a typical click-through rate might be around 1%. You know, as you deploy large language models, then you can make more use of the thousands of discrete data points that we have potentially for targeting and bring them to bear and turn them into reality, and you can get pretty substantial uplifts in click-through rate and therefore in revenue, which is what the big, you know, US social networks are now starting to see.

James Mitchell: You know, today, the ad load we operate at on Video Accounts is less than 3%. The ad load that our domestic peers operate at is over 10%. We have room to very substantially multiply our ad load over the years to come versus where it is today. Thirdly, there's the ability to uplift click-through rates using artificial intelligence. You know, today a typical click-through rate might be around 1%. You know, as you deploy large language models, then you can make more use of the thousands of discrete data points that we have potentially for targeting and bring them to bear and turn them into reality, and you can get pretty substantial uplifts in click-through rate and therefore in revenue, which is what the big, you know, US social networks are now starting to see.

James Gordon Mitchell: And so we have room to very substantially multiply our ad load over the years to come versus where it is today. Thirdly, there's the ability to uplift our click-through rates using artificial intelligence. You know, today, a typical click-through rate might be around 1%.

Thirdly, that's the ability to uplift our click through rates using artificial intelligence.

Today, a typical click through rate might be around 1%.

James Gordon Mitchell: And as you deploy large language models, then you can make more use of the thousands of discrete data points that we potentially have for targeting and bring them to bear and turn them into reality. And you can get pretty substantial uplifts in click through rates and, therefore, in revenue, which is what the big US social networks are now starting to see. And fourth, there's the closed loop opportunity. And if you look at our domestic peers in the short video space, you know, they've been very focused and very effective at maximizing closed loop transactions because those generate the most information, those enable the greatest future targeting and forward targeting abilities.

As you deploy large language models, then you can make more use of the thousands of discrete data points.

But we have potentially photog, hitting and bring them to bear and turn them into reality and you can get pretty substantial uplifts in click through rate and therefore revenue, which is what the bake in a U S social networks and now starting to see.

James Mitchell: Fourth, there's the closed loop opportunity. If you look at our domestic peers in the short video space, you know, they've been very focused and very effective at maximizing closed loop transactions, because those generate the most information. Those enable the greatest future targeting, forward targeting abilities. You know, given our Mini Programs, given our WeCom landing pages, given Video Accounts, and given the Tencent payment infrastructure, we feel we're in an ideal position to further ramp up our own closed loop capabilities. You know, with those four drivers in place, you know, obviously the macro environment is out of our control, but we have four important drivers of growth within our control. Thank you.

James Mitchell: Fourth, there's the closed loop opportunity. If you look at our domestic peers in the short video space, you know, they've been very focused and very effective at maximizing closed loop transactions, because those generate the most information. Those enable the greatest future targeting, forward targeting abilities. You know, given our Mini Programs, given our WeCom landing pages, given Video Accounts, and given the Tencent payment infrastructure, we feel we're in an ideal position to further ramp up our own closed loop capabilities. You know, with those four drivers in place, you know, obviously the macro environment is out of our control, but we have four important drivers of growth within our control. Thank you.

Fourth that's the closed loop opportunity if you look at our domestic peers in the short video space and that being very focused and very effective at maximizing closed loop transactions, but this does generate the most information.

Does enable that the greatest future targeting forward targeting abilities.

Given our mini programs given a week from landing pages given video accounts given the Tencent payment infrastructure. We feel we are in an ideal position to further ramp up our own closed loop capabilities.

James Gordon Mitchell: And, you know, given our mini programs, given our week on landing pages, given video accounts, and given the 10 cent payment infrastructure, we feel we're in an ideal position to further ramp up our own closed loop capabilities. So, you know, with those four drivers in place, obviously, the macro environment is out of our control, but we have four important drivers of growth within our control. Thank you.

So with those four drivers in place.

Obviously, the macro environment is out of our control, but we have four important drivers of growth within our control.

Martin Lau: Now in terms of Huanyuan and the future of AI assistants, I think, you know, it's fair to say it's still in a very, very early stage of concept design. So definitely not at the stage of product design yet, and definitely not at the stage of thinking about monetization yet. But of course, right now, if you look at any of these generative AI technologies at this point in time, inference cost is a real variable cost which needs to be considered in the entire equation.

Martin Lau: Now, in terms of the Hunyuan and in the future, you know, potential of an AI assistant, I think, you know, it's fair to say it's still in a very, very early stage of concept design. Definitely not at the stage of product design yet, and definitely not at the stage of thinking about monetization yet. Of course, right, you know, if you look at any of these generative AI technology at this point in time, inference cost is a real variable cost, which needs to be considered in the entire equation. That, to some extent, adds to the challenge of the product design too. You know, I would say at this point in time, it's actually a very early stage.

Martin Lau: Now, in terms of the Hunyuan and in the future, you know, potential of an AI assistant, I think, you know, it's fair to say it's still in a very, very early stage of concept design. Definitely not at the stage of product design yet, and definitely not at the stage of thinking about monetization yet. Of course, right, you know, if you look at any of these generative AI technology at this point in time, inference cost is a real variable cost, which needs to be considered in the entire equation. That, to some extent, adds to the challenge of the product design too. You know, I would say at this point in time, it's actually a very early stage.

So in terms of the when you're in and.

And the future potential of AI assistant I think it's fair to say, it's still in a very very early stage of concept design.

So definitely not at the stage of product design, yet and and definitely not at the stage of thinking about monetization yet.

But of course, if you look at any of these generative AI technology at this point in time influence cost is the real variable costs, which needs to be considered in the entire equation.

Martin Lau: And that, to some extent, adds to the challenge of the product design for you. So, you know, I would say at this point in time, it's actually in a very early stage. There is promise and imaginary room for opportunity for the future, but it's too early to talk very concretely about it for now.

And that to some extent add to the challenge.

Designed to so.

I would say at this point in time, it's actually a very early stage.

Martin Lau: There is a promising and emerging room for opportunity for the future, but it's too early to talk very concretely about it for now.

Martin Lau: There is a promising and emerging room for opportunity for the future, but it's too early to talk very concretely about it for now.

There is a promise and imaginary.

Going forward the opportunity for the future but.

It's too early to talk very concretely about it for now.

Alicia Yap: Okay. Thank you.

Alicia Yap: Okay. Thank you.

Okay. Thank you.

Wendy Huang: Thank you. We will take the next question from Thomas Chong from Jeffrey.

Operator: Thank you. We will take the next question from Thomas Chong from Jefferies.

Operator: Thank you. We will take the next question from Thomas Chong from Jefferies.

Thank you we'll take the next question from Thomas Chong from Jefferies.

Thomas Chong: Thanks management for taking my questions. My question is about live streaming e-commerce. Given that the competitive environment is very intense, and we are seeing video accounts are gaining very good traction and enjoying very fast growth, so I just want to get some color from a management perspective about our strategies and our goals for the coming years, and in particular, how we should think about internal advertising, as well as the commission's growth trend or any market position that we want to achieve in the coming years. Thank you.

Thomas Chong: Thanks management for taking my questions. My question is about live streaming e-commerce. Given that the competitive environment is very intense and we are seeing Video Accounts is gaining a very good traction and drawing very fast growth. I just want to get some color from a management perspective about our strategies and our goal in coming years. In particular, how we should think about the internal advertising as well as the commissions growth trend or any market position that we want to achieve in coming years. Thank you.

Thomas Chong: Thanks management for taking my questions. My question is about live streaming e-commerce. Given that the competitive environment is very intense and we are seeing Video Accounts is gaining a very good traction and drawing very fast growth. I just want to get some color from a management perspective about our strategies and our goal in coming years. In particular, how we should think about the internal advertising as well as the commissions growth trend or any market position that we want to achieve in coming years. Thank you.

Thanks management.

My questions. My question is about our live streaming e-commerce.

That is why were intense and we are seeing.

We do a congresses are gaining very good traction and joined <unk> fast growth. So I just wanted to get some color from a management perspective about our strategies and our goal in.

Coming years and in particular, how we should think about the in panel at the pricing as well as the commissions would trend or any.

Market position that we want to achieve in coming years. Thank you.

Okay.

Martin Lau: Well, in terms of live streaming e-commerce, I think the playbook is actually quite clear, right? Once you have the short video franchise, you actually start taking that into the live streaming and build a franchise there. And then from live streaming, if you can actually establish the tools and the connection and a supply chain of merchants, then you can start building up the live streaming e-commerce. So the playbook is actually quite well developed.

Martin Lau: Well, in terms of live streaming e-commerce, I think the playbook is actually quite clear, right? Once you have the short video franchise, you actually sort of, you know, start taking that into the live streaming and build a franchise there. Then from live streaming, if you can actually establish the tools, the connection, and a supply chain of merchants, then you can start building up the live streaming e-commerce. The playbook is actually well developed. What we're doing is actually we wanna build it in a systematic way, step-by-step. It does involve a process of many steps, including building a strong ops team so that we can ensure the quality of the products offered on our platform.

Martin Lau: Well, in terms of live streaming e-commerce, I think the playbook is actually quite clear, right? Once you have the short video franchise, you actually sort of, you know, start taking that into the live streaming and build a franchise there. Then from live streaming, if you can actually establish the tools, the connection, and a supply chain of merchants, then you can start building up the live streaming e-commerce. The playbook is actually well developed. What we're doing is actually we wanna build it in a systematic way, step-by-step. It does involve a process of many steps, including building a strong ops team so that we can ensure the quality of the products offered on our platform.

Well in terms of live streaming E Commerce I think the playbook is actually quite clear right. Once you have.

The short video franchise, you actually said and you start taking that into the live streaming and build a franchise there and then from live streaming if you can actually establish the tools.

The connection and our supply chain of merchants then you can start building up the live streaming e-commerce. So.

Martin Lau: What we're doing is actually building it in a systematic way, step by step. And it does involve a process of many steps, including building a strong operations team so that we can ensure the quality of the products offered on our platform, building category teams to manage different categories, and building tools and infrastructure to facilitate merchants to do more business. We need to have integration of the entire ecosystem into our ad system.

So the playbook is actually relative to hold to what were doing is actually we want to build it in.

Systematic way step by step and.

It does involve.

Process of many steps, including.

Including.

Building a strong ops team so that we can ensure the quality of the products offered on our platform building category teams to manage different categories building tools.

Martin Lau: Building category teams to manage different categories, building tools, and infrastructure to facilitate merchants to do more businesses. We need to have integration of the entire ecosystem into our app system. Also we need to build up the KOL ecosystem so that the merchants can leverage the KOL to facilitate the live streaming e-commerce business, right? I think this would actually, if played out step-by-step, right, you know, would basically, you know, mirror the market share that we have on short video, right? You know, when you have short video, you have the live streaming, and then live streaming, you actually sort of, you know, have the live streaming e-commerce GMV.

Martin Lau: Building category teams to manage different categories, building tools, and infrastructure to facilitate merchants to do more businesses. We need to have integration of the entire ecosystem into our app system. Also we need to build up the KOL ecosystem so that the merchants can leverage the KOL to facilitate the live streaming e-commerce business, right? I think this would actually, if played out step-by-step, right, you know, would basically, you know, mirror the market share that we have on short video, right? You know, when you have short video, you have the live streaming, and then live streaming, you actually sort of, you know, have the live streaming e-commerce GMV.

<unk> infrastructure to facilitate merchants to do more businesses, we need to have integration.

Martin Lau: And also, we need to build up a KOL ecosystem so that merchants can leverage the KOL to facilitate the live streaming e-commerce business. So I think this would actually, if played out step by step, it would basically mirror the market share that we have on short videos. When you have short video, you have live streaming, and live streaming, you actually have that light streaming e-commerce GMV, and I think you know if we execute all those steps well within the playbook, then it would give us a fair share, but over and beyond, we believe we have some pretty unique capabilities or characteristics that we can bring to bear that may offer further upside.

Of the entire ecosystem into our AD system.

And also we need to build up.

Our ecosystem, so that merchants can leverage to Q.

To.

<unk> facilitated the live streaming e-commerce business right. So I think this would actually if played out step by step right deal with basically.

Mirror the market share that we have on short video right now where you have short video or you have the.

Live streaming on the life streaming you're actually sort of new half.

The live streaming E Commerce GMB.

Martin Lau: I think, you know, if we execute all those steps well, within the playbook, then, it would give us a fair share. Over and beyond, right, we believe we have some pretty unique capabilities or characteristics that we can bring to bear, that may offer further upside that include, we have a very strong Mini Programs ecosystem, and there are a lot of merchants and brands who are already doing a lot of businesses on Mini Programs. If we can actually connect our live streaming e-commerce with the Mini Programs, then that add additional layer of integration and ability to do more business. We have social sharing within our ecosystem, right?

Martin Lau: I think, you know, if we execute all those steps well, within the playbook, then, it would give us a fair share. Over and beyond, right, we believe we have some pretty unique capabilities or characteristics that we can bring to bear, that may offer further upside that include, we have a very strong Mini Programs ecosystem, and there are a lot of merchants and brands who are already doing a lot of businesses on Mini Programs. If we can actually connect our live streaming e-commerce with the Mini Programs, then that add additional layer of integration and ability to do more business. We have social sharing within our ecosystem, right?

I think.

If we execute all those steps well.

Within the playbook, then it would give us our fair share, but over and beyond we believe we have some pretty.

Unique capability yourself characteristics that we can bring to bear that may offer further upside that include we have a very strong muni program.

Martin Lau: That includes We have a very strong mini-program ecosystem, and there are a lot of merchants and brands who are already doing a lot of business on mini-programs. And if we can actually connect our live streaming e-commerce platform with the mini-programs, and that additional layer of integration and ability to do more business. We have social sharing within our ecosystem right now, and that would actually help merchants and products to be shared with many other friends and connections, and as a result, can generate more sales.

Ecosystem and there are a lot of merchants and brands, we're already doing a lot of businesses on many programs and if we can actually connect our live streaming e-commerce with the media programs.

Additional layer of.

Integration and ability to do more business, we have social sharing with our within our ecosystem right now and that would actually help.

Martin Lau: You know that would actually help merchants and products to be shared to many other friends and connections, and as a result can generate more sales. We also have a pretty significant group of high income and affluent customer base who are probably not that used to shopping on short video platform at this point in time. If we can bring them to the entire live streaming and e-commerce ecosystem, then that could offer further upside. That's the way we think about the live streaming e-commerce at this point in time.

Martin Lau: You know that would actually help merchants and products to be shared to many other friends and connections, and as a result can generate more sales. We also have a pretty significant group of high income and affluent customer base who are probably not that used to shopping on short video platform at this point in time. If we can bring them to the entire live streaming and e-commerce ecosystem, then that could offer further upside. That's the way we think about the live streaming e-commerce at this point in time.

Merchants and products to be shared.

Too many other friends and connections and as a results can generate more sales and we also have a pretty significant group of high income and affluent customer base, who are probably not that used to shopping on short video platform. At this point in time, and if we can bring them too.

Martin Lau: And we also have a pretty significant group of high income and affluent customers who are probably not that used to shopping on short video platforms at this point in time, and if we can bring them into the entire live streaming and e-commerce ecosystem, then that could offer further upside. So that's the way we think about live streaming e-commerce at this point in time.

The entire.

Life streaming e-commerce ecosystem.

Who could offer further upside so that's the way we think about the livestream.

<unk> e-commerce at this point of time.

Thomas Chong: Thank you.

Thomas Chong: Thank you.

Thomas Chong: Thank you.

Thomas Chong: Thank you.

Thank you.

Okay.

Wendy Huang: The next question is from Alex Yao from Disneyland.

Operator: The next question is, Alex Yao from Goldman Sachs.

Operator: The next question is, Alex Yao from Goldman Sachs.

Your next question.

Well I'm looking at it.

Alex Yao: Hey, good evening, management team. Thank you for taking my question, and congrats on a good quarter. I have two questions. Number one, regarding the growth driver of advertising business. James, you mentioned Weixin Search as one of the driver. Can you share with us a little bit more metrics, in terms of where the business is? For example, percentage of a Weixin DAU who use Weixin Search, et cetera, et cetera. More importantly, I would like to understand how you think about the long term monetization opportunity, given search ads is a legacy ads model with many years of operational history in China Internet. So that's the first one on Weixin Search. Second question is, on the mini game.

Alex C. Yao: Okay, good evening management team. Thank you for taking my question and congratulations on a good quarter. I have two questions.

Okay.

Alex Yao: Hey, good evening, management team. Thank you for taking my question, and congrats on a good quarter. I have two questions. Number one, regarding the growth driver of advertising business. James, you mentioned Weixin Search as one of the driver. Can you share with us a little bit more metrics, in terms of where the business is? For example, percentage of a Weixin DAU who use Weixin Search, et cetera, et cetera. More importantly, I would like to understand how you think about the long term monetization opportunity, given search ads is a legacy ads model with many years of operational history in China Internet. So that's the first one on Weixin Search. Second question is, on the mini game.

Hi, Good evening management team. Thank you for taking my question.

Perhaps on a good quarter.

Alex C. Yao: Number one, regarding the gross driver of the advertising business, James, you mentioned WeChat search as one of the drivers. Can you share with us a little bit more metrics in terms of where the business is? For example, the percentage of WeChat DAUs who use WeChat search, et cetera, et cetera. And more importantly, I would like to understand how you think about the long-term monetization opportunity given search ads. Lexi's model has many years of operational history on the China Internet. So that's the first one on WeChat search.

I have two questions number one.

Regarding the gross driver.

Artisan business.

Ernest you mentioned wishing such as one month.

Driver.

Can you share with us a little bit more metrics in terms of where the business is.

For example percentage of <unk> do you, who use wishing such such et cetera, and more importantly, I would like to understand how you think about long term monetization opportunity give us search.

Our legacy US model with many years of operational history in China Internet.

So that's the first one on Wechat search.

Alex C. Yao: Second question is, on the mini-games, we notice the super majority of the mid-core and hardcore game activities still mostly take place in apps. Um, what does it take for those mid-core and harder core game activities to migrate into the mini-game ecosystem? Is it currently constrained by technology or bandwidth, or is it more of a user behavior issue? Thank you.

The question is.

On the mini game.

Alex Yao: We noticed that sort of majority of the mid-core and hard-core game activities are still mostly take place in apps. What does it take for those mid-core and harder core game activity to migrate into Mini Games ecosystem? Is it currently constrained by technology or bandwidth, or it's more of a user behavior issue? Thank you.

Alex Yao: We noticed that sort of majority of the mid-core and hard-core game activities are still mostly take place in apps. What does it take for those mid-core and harder core game activity to migrate into Mini Games ecosystem? Is it currently constrained by technology or bandwidth, or it's more of a user behavior issue? Thank you.

We know tense.

Some of them majority of the core and hardcore game.

TSS due mostly take planting apps.

Hmm.

What does it take for those mid Corps and the Harbor core game axiom to migrate into mini game ecosystem.

It currently constrained biotechnology or bandwidth or it's more of a user behavior issue.

Thank you.

James Gordon Mitchell: Why don't I take the minigame question? So there's a number of constraints, you know; we believe the most important is the capability, the technical capabilities, and the game development tools for making minigames that are comparable to app-based games. And, you know, I say that first of all because, over time, there's been a steady broadening of the range of games available on Roblox, to more graphically immersive, more and more multiplayer, more and more fast-paced, Twitch-based games.

Martin Lau: Why don't I take the Mini Games question? There are a number of constraints. You know, we believe the most important is you know the technical capabilities and the game development tools for making Mini Games that are comparable to app-based games. You know, I say that first of all, because if you look at similar concepts such as Roblox, and over time there's been a steady broadening in the range of games available on Roblox, you know, to more and more graphically immersive, more and more multiplayer, more and more fast-paced Twitch-based games. You know, we're seeing now something similar in Mini Games, where the initial Mini Games were typically single player. Then there were basic multiplayer card games.

Martin Lau: Why don't I take the Mini Games question? There are a number of constraints. You know, we believe the most important is you know the technical capabilities and the game development tools for making Mini Games that are comparable to app-based games. You know, I say that first of all, because if you look at similar concepts such as Roblox, and over time there's been a steady broadening in the range of games available on Roblox, you know, to more and more graphically immersive, more and more multiplayer, more and more fast-paced Twitch-based games. You know, we're seeing now something similar in Mini Games, where the initial Mini Games were typically single player. Then there were basic multiplayer card games.

Well why don't I take the mini game question. So there's a number of constraints. We believe the most important is the.

The Cape the technical capabilities and the game development tools.

I'm, making many games that are comparable to app based games.

And I say that festival, because if you look at.

And a similar concept such as roadblocks and over time, that's been a steady.

<unk> in the range of games available Umbro blocks.

Graphically immersive more and more multiplier more and more fast paced switch based games and we are seeing now something similar in many games, where the initial mini games with typically single player.

James Gordon Mitchell: And, you know, we're seeing something similar in minigames, where the initial minigames were typically single player, then there were basic multiplayer card games, you know, now we're moving into multiplayer role-playing games. And then going into the future, we expect to see multiplayer first-person action games. So, you know, as the handsets become more sophisticated, as the minigame architecture becomes more powerful, as the developers become more expert at creating minigames, then there should be a long-term convergence in terms of the capabilities and the experiences of minigames versus app-based games. And, you know, as that happens, then there's no intrinsic reason why people who are currently playing app-based games wouldn't also start playing minigames.

That would basically multiplayer card games you don't.

Martin Lau: You know, now we're moving into multiplayer role-playing games. Then going into the future, we expect to see multiplayer first-person action games. You know, as the-

Martin Lau: You know, now we're moving into multiplayer role-playing games. Then going into the future, we expect to see multiplayer first-person action games. You know, as the-

And now we're moving into multi play a role playing games and then going into the future. We expect to see multiplayer first person action games.

So as the.

James Mitchell: Handsets become more sophisticated, as the Mini Games architecture becomes more powerful. As the developers become more expert in creating Mini Games, then there should be a long-term convergence in terms of the, you know, capabilities and the experiences of Mini Games versus app-based games. You know, as that happens, then you know, there's no intrinsic reason why people who are currently playing app-based games wouldn't also start playing Mini Games.

Martin Lau: Handsets become more sophisticated, as the Mini Games architecture becomes more powerful. As the developers become more expert in creating Mini Games, then there should be a long-term convergence in terms of the, you know, capabilities and the experiences of Mini Games versus app-based games. You know, as that happens, then you know, there's no intrinsic reason why people who are currently playing app-based games wouldn't also start playing Mini Games.

Handsets become more sophisticated.

As the mini game architecture becomes more powerful as the developers become more expert in creating mini games, then there should be a long term convergence.

Payments of the capabilities and the experiences of mini games versus App based games.

And as that happens then.

There is no intrinsic reason why people who are currently playing app based games with them all.

Also stopped playing mini games.

Martin Lau: Now in terms of recent search, right now, the penetration is actually quite high, right? Starting from people basically searching for you in the app, contact, and content, you know basically everybody does it on a very frequent basis every day, right? But then, in addition to that, everybody has actually searched for something on the open web, as well as in the ecosystem. So content search, everybody has done some of that, but what we need to do is actually have people use it more frequently.

Martin Lau: Now, in terms of recent search, right now, the penetration is actually quite high, right? You know, so starting from people basically searching for, you know, in-app contact and content. You know, basically everybody does it on a very frequent basis every day, right? You know, but then in addition to that, everybody have actually searched something on the open web as well as in the ecosystem. With the content search, everybody has done some of that. But, you know, what we need to do is actually need to have people use it more frequently. The way through which we can actually make it more frequently used is of course one, the search technology, right?

James Mitchell: Now, in terms of recent search, right now, the penetration is actually quite high, right? You know, so starting from people basically searching for, you know, in-app contact and content. You know, basically everybody does it on a very frequent basis every day, right? You know, but then in addition to that, everybody have actually searched something on the open web as well as in the ecosystem. With the content search, everybody has done some of that. But, you know, what we need to do is actually need to have people use it more frequently. The way through which we can actually make it more frequently used is of course one, the search technology, right?

Now in terms of recent search.

No.

The penetration is actually quite high right. So starting from people basically searching for.

Yeah.

In App.

Contact and content basically everybody does it on a very frequent basis everyday right. But then in addition to that.

Everybody you have to actually search something.

On on that.

<unk>.

Open web as well as in the ecosystem. So it's the content search everybody has done some of that.

But what we need to do is actually need to have people use it more frequently and the ways in which we can actually make it more.

Martin Lau: And the way through which we can actually make it... more frequently used is, of course, one, the search technology, right? You know, within Weisheng, we have been constantly building up the technology. And I think, you know, the search technology has improved consistently. And after we acquired Sogo, you know, the search technology has also taken a step up. The second is actually the search user experience, because Weisheng has a lot of content within Weixin, and that's through official accounts. And there's also an increasingly large mini-program ecosystem that's sitting on Weixian. And now there are also video accounts.

More frequently used is of course one.

Martin Lau: You know, within Weixin, we have been constantly building up the technology and I think, you know, the search technology has improved consistently. After we have acquired Sogou, you know, the technology of search have also taken a step up. The second is that actually the search user experience, because Weixin is a tool which people communicate, we actually need to have a user experience that allow people to find the content more quickly than normally if people open up a browser and try to do searches. I think, you know, that what made progress, but there's still more work to be done. The third one is actually the ecosystem, right? You know, so we have a lot of content within Weixin, and that's through Official Accounts.

James Mitchell: You know, within Weixin, we have been constantly building up the technology and I think, you know, the search technology has improved consistently. After we have acquired Sogou, you know, the technology of search have also taken a step up. The second is that actually the search user experience, because Weixin is a tool which people communicate, we actually need to have a user experience that allow people to find the content more quickly than normally if people open up a browser and try to do searches. I think, you know, that what made progress, but there's still more work to be done. The third one is actually the ecosystem, right? You know, so we have a lot of content within Weixin, and that's through Official Accounts.

<unk> technology right now within <unk>.

<unk>, we have been constantly building up the technology and I think the search technology.

Has improved consistently and after we have acquired.

So go to technology.

Search also.

Taking a step up.

The second is that actually the search user experience because <unk> is a.

A tool, which people communicate so we actually need to have it.

User experience at that allow people to find the content more quickly than normally if people open up brown.

Browser and tried to do searches and I think that what made progress, but theres still more work to be done and the third one is actually the ecosystem. So we have a lot of content within <unk>.

That's too.

Official accounts and there is also an increasingly large mini program ecosystem, that's sitting on way Shen and now Theres also video accounts.

Martin Lau: There's also an increasingly large Mini Program ecosystem that's sitting on Weixin. Now, there's also Video Accounts. The ability for us to leverage the Weixin Search and connect it to all the content within our ecosystem is actually something that we are building over time. Once we have done that right, then we can allow people to search on the open web. We'll also have unique content that's uniquely available on Weixin than, you know, the Weixin Search value proposition and content will be even better. I think, you know, those are things that we have been doing in order to increase the frequency of usage by our users on search.

James Mitchell: There's also an increasingly large Mini Program ecosystem that's sitting on Weixin. Now, there's also Video Accounts. The ability for us to leverage the Weixin Search and connect it to all the content within our ecosystem is actually something that we are building over time. Once we have done that right, then we can allow people to search on the open web. We'll also have unique content that's uniquely available on Weixin than, you know, the Weixin Search value proposition and content will be even better. I think, you know, those are things that we have been doing in order to increase the frequency of usage by our users on search.

Martin Lau: The ability for us to leverage Weixian search and connect it to all the content within our ecosystem is actually something that we are building over time. And once we have done that, then we can allow people to search on the open web. We'll also have unique content that's uniquely available on Weixian. And the Weixian search value proposition and content will be even better. So I think those are things that we have been doing in order to increase the frequency of usage by our users in search.

<unk> for us to leverage the <unk>.

<unk> search and connect to all the content within our ecosystem is actually something that we are.

Building over time and once we have done that right. There we can allow people to search on the open web will also have unique content, that's uniquely available on <unk> and the <unk> search.

Value proposition, our content will be even better.

So I think those are things that we have been doing in order to increase the frequency of usage by our users on search and we have seen encouraging signs on that because the VEB.

Martin Lau: And we have seen encouraging signs of that because the VV and, in general, VV on content have been increasing consistently over the past few years. And, over time, we felt, you know, once we had built up that content search traffic within Weishen on a consistent basis, then we could actually overlay demonetization, right? You know, and right now, the ad load on our search is still very, very low. So there's actually a lot of potential for us to increase it.

Martin Lau: We have seen encouraging signs on that because the VV and in general VV on content have been increasing consistently over the past few years. Over time, we felt, you know, once we have built up that content search traffic within Weixin on a consistent basis, then we can actually overlay monetization, right? You know, right now the ad load on our search is still very, very low, so there's actually a lot of potential for us to increase it. But more important, I think, you know, the ability for us to build a transaction ecosystem within Weixin is actually very important for the future growth of Weixin Search.

James Mitchell: We have seen encouraging signs on that because the VV and in general VV on content have been increasing consistently over the past few years. Over time, we felt, you know, once we have built up that content search traffic within Weixin on a consistent basis, then we can actually overlay monetization, right? You know, right now the ad load on our search is still very, very low, so there's actually a lot of potential for us to increase it. But more important, I think, you know, the ability for us to build a transaction ecosystem within Weixin is actually very important for the future growth of Weixin Search.

In general we'd be on content.

Been increasing consistently over the past few years and.

Overtime, we felt once we have buildup that content search.

Traffic within <unk> on a consistent basis, then we can actually overlay the monetization right and right now.

The AD load on our search is still very very low so that theres actually a lot of potential for us to increase it.

Martin Lau: But more important, I think, you know, the ability for us to build a transaction ecosystem within Weishen is actually very important for the future growth of Weishen Search. The more mini-transactions that we can generate, the more live streaming e-commerce that we can generate over time, that would actually help us to increase the potential for Weishen Search monetization. And we feel there's actually a very long runway in terms of growing this part of the business.

But more important I think the ability for us to build.

Transaction ecosystem with inflation is actually very important.

For the future growth of <unk> search.

Martin Lau: The more mini program transactions that we can generate, the more live streaming e-commerce that we can generate over time, that would actually help us to increase the potential for Weixin Search monetization. We feel there's actually a very long runway in terms of growing this part of the business.

James Mitchell: The more mini program transactions that we can generate, the more live streaming e-commerce that we can generate over time, that would actually help us to increase the potential for Weixin Search monetization. We feel there's actually a very long runway in terms of growing this part of the business.

More.

Mini program transactions that we can generate the more.

The life streaming e-commerce that we can generate over time that would actually help us to.

Increase the potential formulation search monetization and we feel there is actually a very long.

Runway in terms of growing this part of the business.

Yeah.

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

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

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

Thank you we'll take the next question comes shutting Neal.

SPC.

Charlene Liu: Thank you. Thank you, Wendy.

Charlene Liu: Thank you. Thank you, Wendy. I have two questions. First is on advertising, which obviously has been a really strong year for Tencent as the platform has been gaining market share. Considering e-commerce is becoming a bigger contributor, and obviously there are, you know, seasonality factors that comes with that contribution from Weixin Search. And, you know, next year obviously we could see coverage on your account for Video Accounts, after it has delivered very robust growth this year. Should we expect, I guess, growth to accelerate into the next quarter or 2024? Just generally how you're thinking about, you know, the outlook. Thank you. On the follow-up into social games.

Charlene Liu: Thank you. Thank you, Wendy. I have two questions. First is on advertising, which obviously has been a really strong year for Tencent as the platform has been gaining market share. Considering e-commerce is becoming a bigger contributor, and obviously there are, you know, seasonality factors that comes with that contribution from Weixin Search. And, you know, next year obviously we could see coverage on your account for Video Accounts, after it has delivered very robust growth this year. Should we expect, I guess, growth to accelerate into the next quarter or 2024? Just generally how you're thinking about, you know, the outlook. Thank you. On the follow-up into social games.

Okay.

Thank you Andy I have two questions first is on advertising, which obviously has been a really strong year for capstone as the platform has been gaining market share.

Considering e-commerce is becoming a bigger contributor than obviously the arch.

The analogy factors that comes with that contribution from wasting Serge.

And next year, obviously, we'll see.

For video accounts Astor has delivery today my basketball this year should.

Charlene Liu: I have two questions. First is on advertising, which obviously has been a really strong year for Tencent as the platform has been gaining market share. Should we expect, I guess, growth to accelerate into the next quarter or 2024, just generally how are you thinking about it? Thank you. And then on the phone, I'll go into our short game.

Should we expect I guess growth just salary.

A quarter or 2020 or just generally how are you.

Thank you and then on the pharma like Joshua Gale.

James Gordon Mitchell: Hi Charlene, we've missed some of the questions. I think it may have overlapped a little bit with Alicia's question earlier.

James Mitchell: Hi, Charlene Liu. We've missed some of the question. I think also it may have overlapped a little bit with Alicia Yap's question earlier, so I'll just refer back to that. You know, we see four discrete growth drivers for our advertising business, including traffic growth, increased ad load to converge with industry peers, deployment of AI to boost CTR in closed loop advertising. Those are all on the positive side. You know, macro could be a potential negative, but candidly this year hasn't been a spectacular year from a macro perspective anyway. In terms of what that translates into for growth in next quarter or next year, we don't give guidance.

James Mitchell: Hi, Charlene Liu. We've missed some of the question. I think also it may have overlapped a little bit with Alicia Yap's question earlier, so I'll just refer back to that. You know, we see four discrete growth drivers for our advertising business, including traffic growth, increased ad load to converge with industry peers, deployment of AI to boost CTR in closed loop advertising. Those are all on the positive side. You know, macro could be a potential negative, but candidly this year hasn't been a spectacular year from a macro perspective anyway. In terms of what that translates into for growth in next quarter or next year, we don't give guidance.

I shall we missed some of the question I think I'll set may have overlaps in little bit with Alicia's question earlier, So I guess.

James Gordon Mitchell: So I just refer back to that in that, you know, we see four to three growth drivers for our advertising business, including traffic growth, increased ad load to converge with industry peers, deployment of AI to boost CTR, and closed-loop advertising. And so those are all on the positive side. And then, you know, macro could be a potential negative.

Refer back to that at the end, we see four discrete growth drivers for our advertising business, including traffic growth.

Increased ad load to converge with industry peers deployment of AI to boost ctr.

And close loop advertising.

And so those are all on the positive side, and then macro could be a potential negative but candidly this year hasn't been a spectacular year from a macro perspective anyway.

James Gordon Mitchell: But, you know, candidly, this year hasn't been a spectacular year from a macro perspective. In terms of, you know, what that translates into, you know, for growth in the next quarter or next year, we don't give guidance. And, you know, the theme we've been talking about this evening is not We're less focused on maximizing the speed of our revenue growth in any given quarter. We're more focused on having a healthy, sustainable revenue growth rate. And we believe with a sustainable revenue growth rate, we can drive a faster earnings growth rate. So that's the advertising question.

In terms of what that translates into.

Yes.

Growth in next quarter and next year, we don't give guidance.

James Mitchell: You know, the theme we've been talking about this evening is not, you know, high revenue growth model, it's high quality revenue growth model. You know, we're less focused on, you know, maximizing the speed of our revenue growth in any given quarter. We're more focused on, you know, having a healthy, sustainable revenue growth rate. We believe with a sustainable revenue growth rate, we can drive a faster earnings growth rate. That's on the advertising question.

James Mitchell: You know, the theme we've been talking about this evening is not, you know, high revenue growth model, it's high quality revenue growth model. You know, we're less focused on, you know, maximizing the speed of our revenue growth in any given quarter. We're more focused on, you know, having a healthy, sustainable revenue growth rate. We believe with a sustainable revenue growth rate, we can drive a faster earnings growth rate. That's on the advertising question.

We have been talking about this evening is not.

High revenue growth model, which is high quality revenue growth model.

So we're less focused on maximizing the speed of our revenue growth in any given quarter. We're more focused on now having a healthy sustainable revenue growth rate and we believe with sustainable revenue growth rate, we can drive a faster earnings growth right. So thats on the advertising question.

James Gordon Mitchell: Thank you. I guess separately on international games, you know, I guess what factors should we be focusing on as we think about, again, the outlook? Obviously, we're reading a little bit more about layoffs in the industry. But how should we think about contributing factors like user spending, as well as the development pace and new launches and consolidation within the industry? How would these things kind of play out, you know, whether they will help or benefit Tencent? Thank you.

Charlene Liu: Thank you. I guess separately on international games, you know, I guess what factors should we be focusing on, as we think about again, the outlook? Obviously we're reading a little bit more about layoffs in the industry. How should we think about, contributing factors like, you know, user spending, as well as development pace and new launches and consolidation within the industry? How would these things kind of play out, you know, whether it will help a bit or help or, you know, benefit Tencent? Thank you.

Charlene Liu: Thank you. I guess separately on international games, you know, I guess what factors should we be focusing on, as we think about again, the outlook? Obviously we're reading a little bit more about layoffs in the industry. How should we think about, contributing factors like, you know, user spending, as well as development pace and new launches and consolidation within the industry? How would these things kind of play out, you know, whether it will help a bit or help or, you know, benefit Tencent? Thank you.

Thank you.

Separately on international games.

I guess, what factors should we be focusing on as you think about again the outlook.

Obviously, we're reading a little bit more about layoffs in the industry.

How should we think about.

Contributing factors.

Users spending.

As well as development piece of new launches and consolidation within the industry. How would these things kind of play out.

Whether it will help with that or help our <unk>.

Benefits that Tencent. Thank you.

James Gordon Mitchell: But I don't think there's a very simple single answer. It's a complex industry, and it went through a period of rapid headcount increase over the last two to three years. Now it's going through a period of headcount consolidation. That's happened many times in the past, and unfortunately, it may happen again in the future.

James Mitchell: I don't think there's a you know very simple single answer. You know, it's a complex industry, and it went through a period of rapid headcount increase over the last 2 to 3 years. Now it's going through a period of you know headcount consolidation. You know, that's happened many times in the past and you know unfortunately it may happen again in the future, and it's just incumbent on us to you know navigate that effectively. Again, we have the benefit in that because you know we have a number of other businesses that are growing quickly, therefore we don't feel pressure to you know maximize our international or our domestic game revenue growth in any single quarter.

James Mitchell: I don't think there's a you know very simple single answer. You know, it's a complex industry, and it went through a period of rapid headcount increase over the last 2 to 3 years. Now it's going through a period of you know headcount consolidation. You know, that's happened many times in the past and you know unfortunately it may happen again in the future, and it's just incumbent on us to you know navigate that effectively. Again, we have the benefit in that because you know we have a number of other businesses that are growing quickly, therefore we don't feel pressure to you know maximize our international or our domestic game revenue growth in any single quarter.

But I don't think thats in a very simple single answer it's a complex industry.

Went through a period of rapid head count increase.

Over the last two to three years now it's going through a period of head count consolidation that's happened in many times in the past and unfortunately, it may happen again in the future and it's just incumbent upon us to navigate that effectively but again.

James Gordon Mitchell: And it's just incumbent on us to navigate that effectively. But again, we have the benefit of that because we know we have a number of other businesses that are growing quickly. Therefore, we don't feel pressure to, you know, maximize our international or our domestic game revenue growth in any single quarter. You know, if you're looking at Microsoft, then Microsoft doesn't feel it has to release a new Halo game on December 31st, rather than January 1st, because, you know, people keep using Windows and Office and Azure and all of the other Microsoft products that also generate profit growth.

We have the benefit in the because we.

We have a number of other businesses that are growing quickly. Therefore, we don't feel pressure to maximize international or domestic game revenue growth.

In any single quarter, if you're looking at Microsoft than Microsoft has to release, a new Halo game on December 31st drop in January the first.

James Mitchell: You know, if you're looking at Microsoft, then you know, Microsoft doesn't feel it has to release a new Halo game, you know, on 31 December rather than 1 January because you know, people keep using Windows and Office and Azure and all of the other Microsoft products that also generate profit growth. You know, I think we're now in that position where with the improving margins of our advertising business, with the improving margins of our fintech business, with the turnaround in our business services, the new contributions from e-commerce and so forth, you know, we have a multi-pronged growth model. You know, as and when international games has a big new product and accelerates, you know, that's great.

James Mitchell: You know, if you're looking at Microsoft, then you know, Microsoft doesn't feel it has to release a new Halo game, you know, on 31 December rather than 1 January because you know, people keep using Windows and Office and Azure and all of the other Microsoft products that also generate profit growth. You know, I think we're now in that position where with the improving margins of our advertising business, with the improving margins of our fintech business, with the turnaround in our business services, the new contributions from e-commerce and so forth, you know, we have a multi-pronged growth model. You know, as and when international games has a big new product and accelerates, you know, that's great.

People keep using windows and office centers zero and all of the other Microsoft products that also generate profit growth and I think we're now in that position, where with the improving margins of our advertising business with improving margins.

James Gordon Mitchell: And, you know, I think we're now in that position where, with the improving margins of our advertising business, with the improving margins of our fintech business, with the turnaround in our business services, new contributions from e-commerce, and so forth, then, you know, we have a multi-pronged growth model. And so, you know, as and when international games has a big new product and accelerates, you know, that' But in the meantime, you know, international games are not, you know, the primary determinant of whether we grow our earnings or not in a given quarter.

Fintech business with the turnaround in our business services, new contributions from E Commerce and so forth then we have a multi pronged growth model and so as my name's National games has a big new product and accelerates that's great but in the meantime international games is not.

James Mitchell: In the meantime, you know, international games is not, you know, the primary determinant of whether we grow our earnings or not in a different quarter.

James Mitchell: In the meantime, you know, international games is not, you know, the primary determinant of whether we grow our earnings or not in a different quarter.

Primary determinant of whether we grow our earnings on at any given quarter.

Charlene Liu: Thank you, Charlene. We will take the last question from Ronald Kong from Goldman Sachs.

Operator: Thank you, Charlene Liu. We will take the last question from Ronald Keung from Goldman Sachs.

Operator: Thank you, Charlene Liu. We will take the last question from Ronald Keung from Goldman Sachs.

Thank you Jody what will it take that last question will now come from Goldman Sachs.

Ronald Keung: Thank you. Thank you, Bonnie, Martin, James, John, and Wendy.

Ronald Keung: Thank you. Thank you, Pony Ma, Martin Lau, James Mitchell, John Lo, and Wendy Huang. My first question I think on FBS. We haven't talked too much on the fintech, Weixin's growth and the cloud business so far. How should we think about the landscape on these two and the growth outlook? Should we expect a further recovery, particularly on the business services, excluding the e-commerce side, so the cloud business, in the competitive landscape and outlook? Maybe I'll ask the second question as well, just in one go. On our shareholder return policies, how should we think about our current investment portfolio in terms of the investment and reinvestment piece this year?

Ronald Keung: Thank you. Thank you, Pony Ma, Martin Lau, James Mitchell, John Lo, and Wendy Huang. My first question I think on FBS. We haven't talked too much on the fintech, Weixin's growth and the cloud business so far. How should we think about the landscape on these two and the growth outlook? Should we expect a further recovery, particularly on the business services, excluding the e-commerce side, so the cloud business, in the competitive landscape and outlook? Maybe I'll ask the second question as well, just in one go. On our shareholder return policies, how should we think about our current investment portfolio in terms of the investment and reinvestment piece this year?

Thank you Thank you Bonnie Martin and James.

John and Wendy So my first question I think on FBS, we havent okay.

Ronald Keung: So my first question, I think on FDS, we haven't talked too much about fintech, McKeen's growth, and the cloud business so far. Just how should we think about the landscape for these two and the growth outlook? Should we expect a further recovery, particularly in business services, excluding e-commerce and cloud business in the company landscape and outlook? Maybe I'll ask the second question as well, just in one go.

So much on the Fintech mid.

Mid teens growth in our business. So far just how should we think about.

The landscape on these two and the growth outlook should we expect a further.

Recovery, particularly on the business services, excluding the e-commerce side, so the cloud business.

Got it landscape and outlook.

The second question as well is just that.

Ronald Keung: So on our shareholder return policies, how should we think about our current investment portfolio in terms of the investment and reinvestment piece this year? And any lessons or experience from the past two years of distribution that we have from our experience? And how should we think about shareholder return on the investment portfolio front?

One goes on our shareholder return policies, how should we think about our current investment portfolio in terms of the investment and reinvestment piece this year.

Ronald Keung: Any lessons or experience from the past two years of distribution that we have in a former experience, and how should we think about the shareholder return on the investment portfolio front? Thank you.

Ronald Keung: Any lessons or experience from the past two years of distribution that we have in a former experience, and how should we think about the shareholder return on the investment portfolio front? Thank you.

And any lessons or experience from the past two years of distribution that we have from my experience and how should we think about that.

They showed a return on the investment portfolio front. Thank you.

Ronald Keung: Thank you.

James Mitchell: In terms of the FBS, I think, you know, there are two parts of it, right? You know, there is the fintech and there is the business services. Now, in terms of the fintech, I think what we have is a very significant platform in terms of payment, and on top of the payment, we actually offer financial services. If you look at the business itself, it's actually growing quite nicely this year. There are a couple drivers. Part of it is actually growing alongside with consumption, right?

James Mitchell: In terms of the FBS, I think, you know, there are two parts of it, right? You know, there is the fintech and there is the business services. Now, in terms of the fintech, I think what we have is a very significant platform in terms of payment, and on top of the payment, we actually offer financial services. If you look at the business itself, it's actually growing quite nicely this year. There are a couple drivers. Part of it is actually growing alongside with consumption, right?

Okay.

Martin Lau: In terms of the FBS, I think, you know, there are two parts to it, right? You know, there is FinTech and there is business services. And now, in terms of FinTech, I think what we have is a very significant platform in terms of payment. And on top of payment, we actually offer financial services. And if you look at the business itself, it's actually growing quite nicely this year. And there are a couple of drivers.

In terms of the FBS I think there are.

Two parts of it.

There is the Fintech and there is the business services in terms of the Fintech I think.

What we have is a very significant platform <unk> payment and on top of the payment we actually offer.

Financial services and if you look at the.

Business itself, it's actually growing quite nicely this year.

Martin Lau: Part of it is actually growing alongside consumption, right? And as you can see, although there are some macro challenges on the economic side, consumption in China is still growing quite nicely. And our overall fintech business actually grows alongside with that. And then, on top of it, we have actually been offering financial services such as lending, such as wealth management. And these are actually falling into the model of the high quality revenue growth model, in which these are businesses that generate high margins, and they ride on a payment network that has the cost already paid for.

Sure.

And.

A couple of drivers party is actually growing alongside with consumption.

James Mitchell: As you can see, although there is some macro challenges on the economy side, but the consumption in China is still growing quite nicely and our overall fintech business actually grow alongside with that. Then on top of it, we actually have been offering financial services such as lending, such as wealth management. These are actually falling into the model of the high quality revenue growth model in which these are businesses which generates high margins, and they ride on a payment network which has the cost already paid for. Their growth actually generates additional incremental margins.

James Mitchell: As you can see, although there is some macro challenges on the economy side, but the consumption in China is still growing quite nicely and our overall fintech business actually grow alongside with that. Then on top of it, we actually have been offering financial services such as lending, such as wealth management. These are actually falling into the model of the high quality revenue growth model in which these are businesses which generates high margins, and they ride on a payment network which has the cost already paid for. Their growth actually generates additional incremental margins.

C. Although.

There is some macro challenges.

The economy side.

Consumption in China is still growing quite nicely.

Our overall.

<unk>.

Fintech business is actually grow alongside with that and then on top of it we actually have been offering financial services, such as lending such as wealth management and these are actually falling into the model of the high quality revenue growth model in which these.

Our businesses, which generates high margins and they ride on.

Payment network, which has the cost already paid for so.

Their growth actually generates additional.

Incremental margins.

Martin Lau: So their growth actually generates additional incremental margins. And at the same time, we actually manage these businesses in a very measured way because we want to make sure that we are very good in terms of risk management. And we also try to grow them in a measured way so that we don't take on too much risk.

James Mitchell: At the same time, Ronald Keung, we actually manage these businesses in a very measured way because we wanna make sure that we are very good in terms of risk management and we also try to grow them in a measured way so that we don't take on too much risk, and we can also pick the best customers that we wanna serve. I think, you know, that's on fintech side. Over time, we actually sort of, you know, would like to find additional value-added services that we can actually bring value to the merchants that we serve.

And at the same time revenue, we actually manage these businesses in a very measured way because we want to make sure that we are very good in terms of risk management and we also were trying to grow them.

James Mitchell: At the same time, Ronald Keung, we actually manage these businesses in a very measured way because we wanna make sure that we are very good in terms of risk management and we also try to grow them in a measured way so that we don't take on too much risk, and we can also pick the best customers that we wanna serve. I think, you know, that's on fintech side. Over time, we actually sort of, you know, would like to find additional value-added services that we can actually bring value to the merchants that we serve.

In a measured way so that we don't take on too much risk and we can also pick the best customers that we want to serve.

Martin Lau: And we can also pick the best customers that we want to serve. So, I think, you know, that's on the Fintech side. Over time, we actually sort of would like to find additional value-added services that we can actually bring value to the merchants that we serve, and for the value that we create, we charge a little bit for additional fees if they are really generating value.

So I think that's that's on Fintech side over time, we actually sort of you would like to find additional value added services that we can actually bring value to the merchants that we serve and for the value that we create we charge a little bit on.

Martin Lau: For the value that we create, we charge a little bit on additional fees if they are really generating value. I think, you know, that's the overall model that we're thinking with respect to fintech. In terms of the business service of the cloud, I think, you know, right now, in the past two years, there's a lot of capacity readjustment within the industry, right? You know, the excess capacities are being used up and a lot of businesses have been trying to manage their costs down. I think we have also proactively got rid of some low-quality businesses too.

James Mitchell: For the value that we create, we charge a little bit on additional fees if they are really generating value. I think, you know, that's the overall model that we're thinking with respect to fintech. In terms of the business service of the cloud, I think, you know, right now, in the past two years, there's a lot of capacity readjustment within the industry, right? You know, the excess capacities are being used up and a lot of businesses have been trying to manage their costs down. I think we have also proactively got rid of some low-quality businesses too.

Additional.

Additional fees.

If they are really generating value. So I think that's the overall model that we're thinking with respect to fintech.

Martin Lau: So, I think, you know, that's the overall model that we're thinking with respect to Fintech. In terms of business services, the cloud, right now, I think, you know, right now, there's a lot of, in the past two years, there's a lot of capacity readjustment within the industry, right? You know, the access capacities are being used up, and a lot of businesses have been trying to manage their costs down. And I think we have also proactively got rid of some low quality businesses, too.

Fintech.

In terms of the business services the cloud right.

Right now there is a lot of in the past two years, there is a lot of capacity.

Readjustment within the industry right.

Excess capacity it is being used up.

And a lot of businesses have been.

Trying to match.

<unk> manage their costs down.

And I think we have also proactively got rid of some low quality businesses too.

Martin Lau: When we look into 2024, we believe that, you know, the dynamics in the market is that the squeezing of unused capacity is probably over. You know, if macro stays the same, there will probably be some modest growth in terms of the cloud usage. There probably needs to be a higher economic growth in order for higher growth to return to the market. There will be some growth with respect to PaaS and SaaS, and that's frankly the area that we are focused on. We believe going forward, again, we'll be more focused on the high quality revenue model, in which, you know, we'll be more focused on the PaaS and SaaS, which inherently will be generating more gross margins for us.

Martin Lau: When we look into 2024, we believe that, you know, the dynamics in the market are that the squeezing of unused capacity is probably over. So, you know, if macro stays the same, there will probably be some modest growth in terms of cloud usage. But there probably needs to be higher economic growth in order for higher growth to return to the market.

James Mitchell: When we look into 2024, we believe that, you know, the dynamics in the market is that the squeezing of unused capacity is probably over. You know, if macro stays the same, there will probably be some modest growth in terms of the cloud usage. There probably needs to be a higher economic growth in order for higher growth to return to the market. There will be some growth with respect to PaaS and SaaS, and that's frankly the area that we are focused on. We believe going forward, again, we'll be more focused on the high quality revenue model, in which, you know, we'll be more focused on the PaaS and SaaS, which inherently will be generating more gross margins for us.

When we look into 2024, we believe that.

The dynamics in the market is that the squeezing of of.

Unused capacity is probably over so if macro stays the same there will probably some modest growth in terms of the.

The cloud usage.

There probably needs to be a high economic growth in order for higher growth to return to the market.

James Gordon Mitchell: There will be some growth with respect to the path in SaaS, and that's frankly the area that we are focused on. We believe going forward, again, we'll be more focused on the high quality revenue model in which we'll be more focused on the path. And SaaS inherently will be generating more growth margins for us. So that's how we look at those two businesses. So James,

There will be some growth with respect to our Paas and SaaS and that's frankly the area that we're focused on we believe going forward.

Our gateway.

We're focused on the high quality revenue.

Model, and which would be more focused on the paas and SaaS inherently will be generating more more gross margins for us. So that's how we look at those two businesses.

Martin Lau: That's, you know, how we look at those two businesses. James.

James Mitchell: That's, you know, how we look at those two businesses. James.

James Mitchell: With regard to the investment portfolio, you know, we are quite active and agile on both additional investments, but also on divestments. You know, some of that activity is visible. A lot of it is not visible. You know, given what we view as our share price dislocation, our primary use of cash has been buying back our own shares, and you know, that remains the priority at this point in time.

James Gordon Mitchell: Yeah, with regard to the investment portfolio, we are quite active and agile on both additional investments but also on divestments. You know, some of that activity is visible. A lot of it is not visible. But, you know, given what we view as our share price dislocation, our primary use of cash has been buying back our own shares. And, you know, that remains the priority at this point in time.

So just with regard to the invest portfolio. So we are.

Martin Lau: With regard to the investment portfolio, you know, we are quite active and agile on both additional investments, but also on divestments. You know, some of that activity is visible. A lot of it is not visible. You know, given what we view as our share price dislocation, our primary use of cash has been buying back our own shares, and you know, that remains the priority at this point in time.

Quite active and agile on bi.

Additional investments, but also on divestments and of some of that activity is visible a lot of it is not visible.

But given what we view as our share price dislocation.

Our primary use of cash has been buying back our own shares and that remains the priority at this point in time.

Ronald Keung: Thank you, Martin and James.

Ronald Keung: Thank you, Martin and James.

Thank you Martin and James.

Operator: Thank you all for joining the call today. We are now ending the webinar. 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.

Operator: Thank you all for joining the call today. We are now ending the webinar. 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.

Wendy Huang: Thank you all for joining the call today. We are now ending the webinar. 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.

Thank you all for joining the call today, we are now ending the webinar, if you wish to check out our press release and other financial information. Please visit.

To the IR section of our company website.

Www Dot <unk> dot com a replay of this webinar will also be available soon thank you and see you next quarter.