Q1 2025 Tencent Holdings Ltd Earnings Call
Let me introduce the management team on a webinar Tonight.
Pony: Our chairman and CEO Pony malware kickoff with a short overview.
Speaker Change: <unk> Martin lore, and Chief strategy Officer jumps mutual where it provides a business review and Chief Financial Officer, John Lowe will conclude with financial discussion before we open the floor for questions I will now pass it to pony.
Speaker Change: Thank you Randy.
Pony: Good evening, everyone. Thank you everyone for joining us.
Speaker Change: During the first quarter of.
Speaker Change: 25, our high quality revenues change sustained solid growth trajectory.
Speaker Change: Capabilities already contribute tangibly.
Speaker Change: Two a business such as the performers advertising an evergreen game.
Speaker Change: We also stepped up our spending on new AI opportunities such as our application and AI in the region.
Speaker Change: We believe the operating leverage from our existing high quality revenue streams will help absorb.
Speaker Change: Additional costs associated with that is AI.
Speaker Change: AI related investments.
Speaker Change: And contribute to healthy financial performance to this investment.
Speaker Change: Base.
Speaker Change: We expect this.
Speaker Change: A statistic AI investment will create value for users and society and generate substantial incremental because for us over the longer term.
Speaker Change: Looking at our financial numbers for the first quarter total revenue was 180 billion <unk> up 13% year on year gross profit was 100 bid it up 20% year on year non <unk> operating profit was 69 at RMB up 18% year on year and non <unk>.
Speaker Change: Net profit attributable to equity holders was 61 billion RMB up 22% going yet.
Speaker Change: Okay.
Speaker Change: Now turning to our key services for communication and social networks, combined <unk> operation and recharge growth year on year and quarter on quarter to $1 fall period.
Speaker Change: For digital content.
Speaker Change: <unk> MTA both groups are glued sufficient year on year.
Speaker Change: <unk> silver to evergreens achieved record highs in gross receipt during the quarter and therefore for US has become the highest ranked mobile games <unk> be at least in China in the last three years.
Speaker Change: For cloud Tencent cloud audio and video solutions rank first.
Speaker Change: <unk> revenue for the seventh consecutive years in China.
Speaker Change: I'll now hand over to Martin for business between Thank you Pony and good evening and good morning to everybody.
Speaker Change: For the first quarter of 2025, our total revenue was up 13% year on year.
Speaker Change: <unk> represented 51% of our total revenue within which social networks Subsegment was 18% domestic games Subsegment was 24% and international games was 9% marketing services was 18% of total revenue and Fintech and.
Speaker Change: Business services was 30% of our total revenue.
Speaker Change: In terms of gross profit overall gross profit was up 20% year on year in the first quarter, surpassing 100 billion RMB for the first time in our history by segment Vas gross profit increased 22% year on year to $2 55 billion RMB representing 50.
Speaker Change: 5% of our total gross profit.
Speaker Change: Marketing services gross profit increased 22% year on year to 18 billion RMB contributing 18% of total gross profit.
Speaker Change: And Fintech and business services gross profit increased 16% year on year to 28 billion RMB contributing 27% of our total gross profit.
Speaker Change: If you look at our businesses, our existing businesses continue to generate operating leverage and our high quality revenue and growth model.
Speaker Change: This provides us the capacity to reinvest the leverage.
Speaker Change: For the exciting AI opportunity ahead of us.
Speaker Change: As we have highlighted in the prior quarter earnings call. We are stepping up investments in AI in the form of capital expenditures as well as operating expenses.
Speaker Change: Some of these gpus and AI investments already generate revenue for us.
Speaker Change: Such as improved at targeting which boosts at revenue improved content recommendation, which boost user time spent and thus add revenue.
Speaker Change: Usage of AI within Abbott Green games, which boosts user engagement and thus game revenue.
Speaker Change: And deployment of Gpus, and AI across our computing infrastructure, Apis and platform solutions, which generates cloud revenue.
Speaker Change: For our other GPU and AI investments, which are more long cycle in nature. There is a natural time lag between making the investments and those investments starting to generate significant revenue for us.
Speaker Change: During this time lag period, we expect the costs of those GPU in AI investments to offset our underlying operating leverage.
Housing in a temporary smaller gap between our revenue and operating profit growth rates than we have achieved in recent quarters.
Speaker Change: That said, we're confident that our stepped up investment in longer cycle AI projects will create substantial long term value for our users business and shareholders.
Speaker Change: Turning to our different business segments value added services revenue was 92 billion RMB up 17% year on year, social networks revenue was up 7% year on year to 33 billion RMB driven by increased revenue from App based game.
Speaker Change: Ms item sells.
Speaker Change: Music subscriptions and mini games platform service fees.
Speaker Change: Music subscription revenue increased 17% year on year as subscribers grew 8% year on year to $123 million and as a pool improved.
Speaker Change: <unk> strengthened our content offerings at food deepened collaborations with labels and artists and expanded Super VIP membership benefits with enhanced quality for speakers AI generated audio effect and offline even privileges.
Speaker Change: Long form video subscription revenue was flat year on year video subscribers grew 1% year on year to $117 million during a quarter off we created content lineup on a relative basis.
Speaker Change: Our self commissioned drama series Guardians of Dolphin was the most watched drama series across all long form video platforms in China during the quarter, demonstrating the ability for us to create great content.
Domestic games revenue grew by 24% year on year against a low base quarter of first quarter of 2024, mainly driven by growth from flagship games, notably honour of Kings.
Speaker Change: Peacekeeper elite and contributions from recently released games, notably DNS mobile and Delta Force.
Speaker Change: International games revenue increased by 23% year on year or 22% in constant currency terms driven by titles, including Raw stars Clash Royale and punchy mobile.
Speaker Change: Moving on to communications and social network.
Speaker Change: We implemented a series of upgrades to strengthen the <unk> content ecosystem.
Speaker Change: So video accounts with streamline the life streaming set of prices and enhanced recommendation algorithms in order to cultivate and promote more original content total user time spent grew rapidly year on year in the first quarter.
Speaker Change: For many shops will provide us more onboarding support for our merchants be graded traffic incentives and lower deposit requirements in order to enrich the range of brand products listings.
Speaker Change: Many shops GMB continued rapid year on year growth in the first quarter.
Speaker Change: Official accounts with simplified content creation by enabling influences and added uses the separate accounts and publish content via mobile devices in order to expand the creator community and encourage more user generated content.
Speaker Change: In addition, we're in the early stages rolling out AI features with inflation.
Speaker Change: Users can now add <unk> context for seamless interaction within <unk> chat, providing context aware responses and facilitating content discovery, while leveraging the <unk> ecosystem and the worldwide web.
Speaker Change: Which in search is now starting to include results powered by large language models, including the fast thinking model when you're in trouble as and the chain of thoughts reasoning of models when you're in tier one and deep seek our.
Speaker Change: We provide AI tools, so that content creators can generate images matching the text of the official accounts articles and generate video effects for BDO accounts videos utilizing preset templates.
Speaker Change: We reduced immunity programs development, one time via an AI coding assistant for creating AI programs.
Speaker Change: That supports natural language problems and image inputs.
James: Now with that I'll pass to James.
James: Thank you Martin and for our domestic game, so starting with our flagship evergreen games honour of Kings achieved record high quarterly gross receipts. This year of the snake themed outfits. Some promotional activities targeted specific user profiles increase the proportion of players who make purchases within the game.
Speaker Change: Peacekeeper elite grew its average gross receipts in the first quarter to the increasing popularity of his extraction shooter mode. Complementing the original Battle Royale mode, as well as new Tang dynasty themed setting and items.
Speaker Change: Several other evergreen games with varying Vince just also performed well for example, crossfire mobile ready for over nine years ago achieved record high gross receipts benefiting from an enhanced reward system and a new player versus environment mode. Crossfire mobile was the third biggest mobile game by crush receipts industrywide in China in the first.
Speaker Change: Quarter behind on the honour of Kings Peacekeeper elite.
Speaker Change: Valor in China released less than two years ago more than doubled its gross receipts in <unk> year on year into first quarter benefiting from two new agents and new weapons schemes father anticipates. The second most plate gaming Internet cafes in China behind only league of legends.
Speaker Change: And among new games Delta Force, which we launched in China last September grew its PC plus mobile user base to a post stock record level of 12 million peak <unk> in April.
Speaker Change: Also for US is now the sixth most popular mobile game <unk> industry wide and the highest <unk> new game released in the last three years industry wide.
Speaker Change: Among our international games pub T Mobile group gross receipts by a teens percentage year on year benefiting from Goldman Moon themed events and outfits and collaborations with brands, including gassy indicate upward demand stuff.
Speaker Change: A few T mobile us gross receipts grew year on year benefiting from top tier operator outfit, featuring a halo and wings and from secret cash new engagement system players undock rewards by completing tasks events.
Speaker Change: The Delta force outside China, It's PC version, which launched in December last year has been steadily growing its user base achieving a record level of concurrent users on steam in may this year.
Speaker Change: The mobile version of Delta for US is the second most downloaded mobile game in international markets. Since its launch on April 21st and we intend to launch a console brushing Delta force in the second half of this year.
Speaker Change: The marketing services revenue grew 20% year on year to 32 billion renminbi benefiting from higher user engagement ongoing upgrades to our AD platform and a strengthening transaction ecosystem with emulation.
Speaker Change: Marketing services revenue increased year on year across all major advertiser industry categories.
Speaker Change: On the AD Tech fronts, we upgraded our advertising platform with enhanced generative AI capabilities, such as add generation and video editing tools to accelerate that creation and digital human solutions to facilitate live streaming activities for content creators and merchants.
Speaker Change: We're using large language models to deepen our systems understanding of merchandise and of user interests across our apps and so deliver better route recommendations.
Speaker Change: By inventory video accounts marketing services revenue grew over 60% year on year as advertisers increasingly use of lifestyle marketing tools to boost content exposure promote livestreams drive sales conversion.
Speaker Change: Mini programs marketing services revenue increased notably year on year, capturing closed loop marketing demand from many dramas and mini games.
Speaker Change: Emulation, such revenue grew rapidly year on year benefiting from increases in commercial query volume the click through rate.
Speaker Change: Looking at Fintech and business services segment revenue was 55 billion renminbi up 5% year on year.
Speaker Change: Fintech services revenue grow by a low single digit percentage year on year benefiting from increases in consumer loan services and wealth management services activities at.
Speaker Change: Our total commercial payment volume has been choppy in recent quarters and declined slightly year on year in the first quarter, but improved in April to.
Speaker Change: To support our wealth management initiatives, we integrated <unk> and deep seek lodge language modal capabilities into our financial assistant Chatbot.
Speaker Change: Business services revenue returned to a teens year on year growth rate in the first quarter benefiting from higher cloud services revenue as well as increased technology service fees generated through pricing ecommerce transaction volumes.
Speaker Change: Business services gross margin rose year on year to improve.
Speaker Change: <unk>.
Leading internet platforms are increasingly adopting our audio and video solutions TD SQL database and general cloud infrastructure is there.
Speaker Change: Seek to better manage searches and that usage and enhance their overall operational efficiency.
Speaker Change: <unk> related revenue within Tencent cloud, we quickly year on year, driven by increased customer demand for Gpus Apis and platform solutions, although constrained by limited GPU availability.
Speaker Change: And with that I'll pass to John to discuss the financial review. Thank you James.
John Lowe: First quarter of 2025 total revenue was 180 billion renminbi up 13% year on year gross profit was 105 billion renminbi up 20% year on year operating profit was $57 6 billion renminbi up 10% year on year interest income was $3 7 billion.
Speaker Change: Be down 12% year on year due to lower interest yields.
Speaker Change: Finance costs were $3 9 billion renminbi up 37% year on year, primarily due to foreign exchange losses, this quarter compared to gains in the same quarter last year.
Speaker Change: Share of profit of <unk> <unk> JV was $4 6 billion renminbi compared to $2 2 billion renminbi in the same quarter last year.
Speaker Change: On a non <unk> basis share of profit was $7 6 billion renminbi up from $5 5 billion renminbi in the same quarter last year.
Speaker Change: Income tax expense declined by 3% year on year to $13 7 billion renminbi, mainly due to a high base from with floating tax provision in the same quarter last year domestic corporate income tax expense in the first quarter increased year on year.
Speaker Change: On a non <unk> basis diluted EPS was $6 five eight renminbi up 25% year on year outpacing non <unk> net profit growth due to reduced share count after our share buybacks.
Speaker Change: Our weighted average number of shares for calculating Q1, <unk> 25 diluted EPS decreased by 2% year on year.
Speaker Change: Our non <unk> financial figures operating profit was $69 3 billion renminbi up 18% year on year net profit attributable to equity holders was $61 3 billion renminbi up 22% year on year. The difference in year on year growth rate between operating profit and net profit was partially due to higher associate income.
Speaker Change: Moving on to gross margins overall gross margin was 56% up three percentage points year on year and by segment SaaS gross margin was 60% up two percentage points year on year, primarily driven by higher mix of high margin domestic gains revenue.
Speaker Change: Marketing services gross margin was 56% up one percentage point year on year supported by growth in high margin, we do accounts in ways in search revenues.
Fintech and business services gross margin was 50% up five percentage points year on year, mainly due to improved cost efficiency in a fintech crowd surfaces.
Speaker Change: On first quarter operating expenses, selling and marketing expenses were $7 9 billion renminbi up 4% year on year, reflecting higher promotional efforts to support the growth of our AI native applications.
Speaker Change: Partly offset by reduced AD spent on new game launches selling and marketing expenses represented 4% of revenues down from 5% in the same quarter last year.
Speaker Change: R&D expenses rose by 21% year on year to $18 9 billion renminbi, reflecting higher staff costs and increased investment to support our AI related efforts.
Speaker Change: G&A, excluding R&D expenses increased by 62% year on year to $14 7 billion renminbi.
Speaker Change: Primarily driven by one of <unk>, but then renminbi stock based compensation expense related to the restructuring of an existing commeasure arrangement at an overseas subsidiary.
Speaker Change: Which was not included in the calculation of our non <unk> operating profit and net profit.
Speaker Change: At quarter end, we had approximately 109000 employees up 4% year on year or down 1% quarter on quarter.
Speaker Change: Our non <unk> operating margin was 39% in Q1 up two percentage points year on year.
Speaker Change: To conclude I will highlight some key cash flow and balance sheet metrics.
Speaker Change: Operating Capex was $26 4 billion renminbi up almost 300% year on year, driven by increased investments in Gpus, and so that is to ramp up.
Speaker Change: AI capabilities.
Speaker Change: Nonoperating Capex was $1 1 billion renminbi down 86% from the high base in the same quarter last year due to acquisition of land use rights.
Speaker Change: Total Capex was 27, one factor than renminbi up 19, 1% year on year.
Speaker Change: Free cash flow was $47 1 billion renminbi down 9% year on year, primarily due to increased capex spending on Gpus in servers.
On a Q on Q basis free cash flow was up $9 five times from a low base in the previous quarter, reflecting seasonally higher games gross receipts and timing differences and settlement of certain accrued expenses.
Speaker Change: Net cash position was $90 2 billion renminbi up 17% quarter on quarter due to seasonally higher games gross receipts, partially offset by cash outflows related to capex investment activities as well as our share repurchases. Thank you. Thank you John we shall now open the floor for questions. If you like.
Speaker Change: Dialing in by phone. Please press <unk> to raise a question <unk> on mute yourself. If you are accessing from Tencent meeting or <unk> meeting application. Please click the Raytheon button at the bottom.
Speaker Change: As I take one main question up to one follow up question each time.
Joe: Joe will then take the first question from Jeffrey Thomas Chong Thomas Your line is open hi.
Speaker Change: Hi, Good evening, Thanks management for taking my questions and congratulations on a solid set of results my.
Joe: The first question is about.
Joe: I don't think AI can management comment about the outlook and the penetration of Racine versus peers in the market.
Joe: And that this trend can management also comment about our strategies.
AI business model I E appetizing.
Joe: <unk> GPU rental and subscriptions and my second question is about E. Commerce can management comment about the latest organizational and adjustment in E Commerce.
Joe: The latest cold glass in many shops, and what should we expect our strategies and PPI going forward and how should we think about the synergies with our ecosystem and differentiate from other live streaming platforms on top of that.
Joe: About our preparation for <unk>, okay great.
Joe: Thank you.
Joe: I think you asked many questions.
Joe: So I'll try to answer.
The first one more extensively I think the second one.
Joe: Answered pretty just slightly because I think other people may have the same question so on on.
Joe: AGM.
Joe: Hi.
A very hot concept right.
Joe: It's actually <unk> the AI can actually helped you to complete.
Joe: Very complicated.
Joe: Okay.
Joe: Tasks.
Joe: <unk>.
Joe: And many different steps as well as the use of tools and may be in connection with other.
Joe: <unk>.
Joe: So so if we look at that concept.
And then there is a general AGM, the AI, which everybody came to you essentially you create this agent and you go out to the world and try to come.
Joe: Complete tasks for.
Joe: Your user.
Joe: But at the same time there is also.
Joe: And AGM.
Joe: Sitting within the <unk> and the unique ecosystem operation and I think those are two different products.
Joe: On.
Joe: The general agent.
We are creating.
Joe: That capability within some of our AI and data products such as <unk>.
Joe: Excellent.
Joe: I'ma overtime as these.
Joe: Is.
Joe: <unk> continued to.
Joe: Evolve too.
Joe: Increase in terms of their case.
Joe: Capability. So in the very beginning dji is actually answer the questions.
Joe: Very quickly. So those are the sort of quick response, and then overtime.
Joe: Included.
Joe: They start including the train of thoughts.
Joe: Along thinking reasoning model.
Joe: Can answer complicated questions and over time, the capability can actually allow them to start doing more complicated task. So they start evolving to have AGM to capability.
Joe: And they will be interacting with all other apps and programs.
Joe: External Apis to help the users.
Joe: So that that would continue to evolve and it's not that much different from other.
<unk> AI is provided by our peers, but on the other hand within the <unk> ecosystem I think there is the opportunity for us to create a pretty unique.
Joe: AGM to AI that connects with the unique components of the <unk> ecosystem, including the social graph, including the communications and community capability, including the content ecosystem, such as our official accounts and video accounts and all the.
Joe: <unk>.
Joe: Millions of many programs that.
Joe: That exist within <unk>.
Joe: <unk>, which actually sort of gets into all kinds of information as well as transactional and operated capabilities across.
Joe: Many different verticals of applications. So I think that would be extremely unique compared to other more general <unk>.
Joe: And thats sort of a very differentiated product for us.
Joe: In terms of your question on AI business models, and I think if you look at advertising.
Joe: Directly augmented by AI, because AI can actually help to improve the targeting capability of our ads and we deliver that.
Joe: As a result, it translates directly into additional advertising revenue and I think that is a big opportunity that we are already.
Joe: We are realizing in our performance ads, but theres more opportunity.
Joe: Two.
Joe: Two.
Speaker Change: Develop over time now I think transaction is actually very closely tied to advertising I know when you have advertising that beats suture with direct transactions and advertising value actually goes up significantly and I think that's the way we are actually also.
Trying to increase our advertising revenue that's another component.
Speaker Change: Pillar of our advertising revenue growth driver.
Speaker Change: GPU rental is sort of directly related to cloud business.
Speaker Change: That's.
Speaker Change: More like a reselling business mostly.
Speaker Change: And.
Speaker Change: To a large extent right now we are.
Speaker Change: Putting it on a lower priority.
Speaker Change: Because especially when there is a.
Speaker Change: <unk> supplied of Gpus right, then then GPU rental as a lower priority for us.
Speaker Change: And subscriptions I think it's not the most likely business model for AI is in China right now everybody is actually providing.
As for free so that the subscription model, which exist outside of China, I think it's not yet at the mainstream.
Our business model for us.
Speaker Change: So AI in China.
Speaker Change: In terms of E Commerce, I think the latest organizational adjustments is a small one frankly because.
Speaker Change: Our <unk> e-commerce.
Speaker Change: <unk> was actually incubated within our open platform.
Speaker Change: Departments.
Speaker Change: And.
Speaker Change: Over time it has grown in size and now we're just.
Speaker Change: Making the formal change of separating the two so that.
Speaker Change: The E Commerce team has now become an independent department, but it's actually still managed by the same manager. So it's a it's not a big change and I don't think we should be reading too much into it.
Speaker Change: Thank you as a reminder, please limit yourself to one main question and one follow up question.
Speaker Change: We'll take the next question from adding Yao from Macquarie.
Speaker Change: Any on line should be open.
Speaker Change: Great. Thank you management. Thank you for taking my question I just wanted to.
Speaker Change: Check on our.
Speaker Change: Progress with that.
Yes.
Speaker Change: Integration integration ecosystem, just wondering if management can share some thoughts that like orange.
Speaker Change: How do we see that user behavioral trends after we've done such integration.
Speaker Change: What do we really start to expect to see synergy across different initiatives within the ecosystem, including <unk>.
Speaker Change: Many shops official accounts and so on.
Speaker Change: What are you kind of.
Movements for the next step how do we kind of expect to see.
Speaker Change: And a combination of.
Speaker Change: Both yes.
Speaker Change: Private domains and the public domains to be integrated into <unk>.
Speaker Change: Yes.
Speaker Change: P J itself. Thank you.
Speaker Change: So alicia to be honest right. Now this is still at a very early stage of development and I think we can see.
Speaker Change: Users.
Speaker Change: They use it they use it more we can see that users are using it to ask questions.
Speaker Change: Two to have some dialogues and also to have.
Speaker Change: Half content.
Direct it to the ground powers, so that banks can do summarization and help them to analyze.
Speaker Change: So these are the initial use cases that we're seeing.
Speaker Change: The users use.
Speaker Change: <unk> got about a likely to be sort of using it more.
Speaker Change: I think over time, absolutely we are going to.
Speaker Change: Provide more.
Speaker Change: Linkage.
Speaker Change: Of the equation ecosystem to the ground.
Speaker Change: Chad.
Speaker Change: Companion and.
Speaker Change: Hi.
Speaker Change: Yes, I think.
Speaker Change: Would you be doing different experiments and maybe in a couple of quarters.
Speaker Change: There'll be more for us to report on a systematic basis at this point in time is little bit too early to.
Speaker Change: Summarize everything in a systematic way for you.
Speaker Change: Great. Thank you so much and if I may just a quick follow up.
Speaker Change: As we see potentially more adoption and <unk>.
Speaker Change: Research picking up across both users and the enterprise side.
Speaker Change: What do we really plan to do in terms of managing I guess the balance between pace of investments versus the revenue runway, especially during that early stage.
Speaker Change: You.
Speaker Change: Well at this stage I think.
Speaker Change: We want to go full speed in terms of trying to generate demand.
Speaker Change: And.
Speaker Change: If frankly, there's too much demand.
Speaker Change: Our Gpus can handle then we would start thinking about sort of how do we pace. It will be a nice problem to have at this point in time, we're not there yet.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: When they would take the next question from William Packer from BNP.
Speaker Change: Your line is open.
Speaker Change: On.
Speaker Change: Ill mute yourself your line is open.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Thanks management for taking my questions and congratulations on the strong quarter.
Speaker Change: It was a very strong quarter for domestic guidance.
Would you help us think for even longer term.
Speaker Change: Medications for the growth algorithm.
Speaker Change: Segment should we think of the strong performance is a catch up demand for the weaker 2021 'twenty free period.
Speaker Change: If recent developments such as the concentration of consumer attention and spend on fleet on key global games with Tencent is overweight.
Speaker Change: Foster concert release cycles, with AI change things underpinning better structural growth.
Speaker Change: And as a follow up.
Speaker Change: There's been lots of noise globally.
Speaker Change: Recently around regulatory interventions changing a specific economics between app stores.
Speaker Change: Management commentary.
Speaker Change: Something Tencent have focused on in recent years.
Speaker Change: Where should we think of China on this journey and the splits of value between apps and App stores, especially in the video game segments. All that further shifts here is the value driver for Samsung. Thank you.
Speaker Change: Thank you William So on your question about domestic games.
Speaker Change: The first quarter, we did have the benefit of easy comparison against the first quarter of 2024, so that certainly.
Speaker Change: Played in our favor during the first quarter in a way that won't be true in every future quarter.
Speaker Change: But we do feel we have we do believe we have.
Speaker Change: Long runway for Rod domestic can indeed international game.
Speaker Change: Revenue growth looking forward.
There's many reasons, but just to pick on.
Speaker Change: Three for now festival and we talked extensively this time last year about some of the changes we were making to how we envisage.
Speaker Change: Therefore, how we operate and therefore who operates.
Speaker Change: Biggest domestic games.
Speaker Change: You can see that we've made those changes.
Speaker Change: That bearing the fruit that we hoped they would back and we see them bearing.
Speaker Change: Our free going forward.
Speaker Change: Our second.
Speaker Change: Drive or enabler of that long runway.
Speaker Change: Utilization of AI, which we think is particularly beneficial to the.
Speaker Change: The big competitive multiplayer games have talked about extensively and that represent the majority of our domestic game revenue.
Speaker Change: The case because.
Speaker Change: While there's many ways that we can and we're starting to deploy AI within games.
Speaker Change: One of the most interesting include using AI to help.
Speaker Change: <unk>, new players to help a company existing players to help prevent and a teaching and hacking and so forth and all of those are particularly important within <unk>.
Speaker Change: Competitive multiplayer games.
Speaker Change: And then third.
Speaker Change: Our game teams have.
Speaker Change: Really strive to align themselves with where the game audience or the future game audience is moving toward in China.
Speaker Change: And.
Speaker Change: Historically the proportion of.
Speaker Change: Game activity in China that is first person action games is much smaller than in the rest of the world and we have taken the view that China would catch up.
Speaker Change: If you look at the slide talking about domestic games for us this quarter.
Speaker Change: You can see that most of the games we highlighted.
Speaker Change: Games that are leaders within that first person action.
Speaker Change: Vertical within within China, because 10 centers is the leader in that vertical within China and the uses R&D moving towards those first person action games, such as Peacekeeper elite.
Speaker Change: Such as Crossfire mobile such as call of duty mobile such as valor.
Speaker Change: Such as Delta for us and each of those games.
Speaker Change: It's growing at faster or slower rates, but but in aggregate.
Speaker Change: Because all of them are growing and then some of them such as <unk> Delta force growing very quickly. The overall category is seeing very healthy growth in that spot.
Underpinned.
Speaker Change: Domestic game revenue growth this quarter, but also provides us with.
Speaker Change: Our long term run rate for domestic game revenue growth.
Speaker Change: Then moving on to.
Speaker Change: The App stores it is indeed a time.
Speaker Change: No change in terms of the.
Speaker Change: Mix, which previously.
Speaker Change:
Speaker Change: On fatty Penalising digital content creators in particular game companies.
Speaker Change: Our free ride to sort of physical product providers and in our view.
Speaker Change: Company that operates in App store, but it's also a digital content provider.
Speaker Change: Rewarding the app stores and.
Speaker Change: That change has been underway in China.
Speaker Change: Several years now the digital content creators, including ourselves are getting our fair share of the end user spend that change has been much slower.
Speaker Change: What happened at all in that Western World until very recently.
Speaker Change: But you know there are now a number of <unk>.
Speaker Change: Legal cases underway there are now a number of regulatory interventions and we do believe that.
Speaker Change: Wow.
Speaker Change: It's difficult to forecast what happens this week what happens next week over the longer term there will be a reset toward a more equitable relationship whereby the.
Speaker Change: The digital content providers are able to retain more of the value that they create.
Speaker Change: Oppose to effectively subsidizing.
Speaker Change: Our system.
Speaker Change: Benefits.
Speaker Change: E Commerce and other companies.
Speaker Change: On paying anything into the whole app store ecosystem. So anyway, we think thats the direction of travel both in China, where it's more evident but also in the rest of the world, where we think it will become more evident over time. Thank you.
Speaker Change: Thank you.
Speaker Change: Take the next question from Alicia Yap property group.
Alicia Yap: Hi, Thank you good evening management congrats on the strong results. Thanks for taking my questions.
Speaker Change: Number one I wanted to ask can management share with us.
Speaker Change: Past two or three months.
Some of the notable user behavior changes that Tencent is able to offset a P.
Speaker Change: Post a deeper integration itself AI into battery yourself your business applications. For example, like in terms of like how you're saying yourselves and ball whether these AI innovation.
Notice of ball Bonder business partner, and how Tencent aspects some of the analyses that you actually observe could help the company in fact, improving the use of value and also future monetization potential.
Speaker Change: And then just a follow up on gaming is that I know in addition to some of the bigger games that rich's been benefiting from the AI integration with some of the smaller title.
Speaker Change: Sophie integrating these AI in the coming.
Speaker Change: For us that we could see improving monetization or revival of user engagement on some of the new games. Thank you.
Speaker Change: Well actually I think we.
Speaker Change: Covered your question earlier, which is it's probably too early to sort of.
Speaker Change: Two.
Speaker Change: Conducted systematic analysis of the behavioral change of users at this stage I think what we're trying to create functionalities and user experiences that leverage AI.
Speaker Change: And try to see what may or may not stick with the users.
Speaker Change: No.
Speaker Change: As I said.
Speaker Change: Users, so I'd like to ask questions like to interact with the AI.
Speaker Change: With further.
Speaker Change: The.
Speaker Change: Follow up questions.
Speaker Change: And when we put in.
Speaker Change: Various functionalities such as.
Speaker Change: Allowing.
Speaker Change: <unk>.
Speaker Change: Photos to be annualized in sort of new people use. It. So there are a lot of functionalities, which right now.
<unk> put in and we're starting to get.
Speaker Change: To see people like them, a lot or not using it that much.
Speaker Change: So it's a discovery process.
Speaker Change: But as a whole right here, we can see users are using.
Speaker Change: And interacting with our AI agents are more and more as sort of new continued to develop affinity as they continue to.
Speaker Change: Figure out what what value add the agents can do for them. So.
Speaker Change: <unk>.
Speaker Change: Overall usage is actually increasing.
Speaker Change: And on your second question.
Speaker Change: A little bit in response to William's question about how we're deploying what.
Speaker Change: Shall we say is a game AI into a big competitive games.
Speaker Change: <unk>.
Speaker Change: We're at a very early stage of that to claimants and so we think the biggest opportunity for us is continuing down that road now.
Speaker Change: At the same time.
Speaker Change: There's a sort of separate opportunity to deploy more.
Speaker Change: More generally Fai.
Speaker Change: Into more content driven games.
By doing so perhaps one would be able to facilitate initially.
Speaker Change: Foster creation of content by the game studio itself and.
Speaker Change: Then over time.
Speaker Change: Degree of.
Speaker Change: User generated content to varying quality of experiences announcement and the.
Speaker Change: Dynamic he created content by the game itself is spinning up new environments, if the players choose.
Speaker Change: Choose to venture off.
Speaker Change: The <unk>.
Speaker Change: Preset map.
Speaker Change: But all of that is.
Speaker Change: <unk>.
Speaker Change: To be explored in the years ahead and as of right now.
Speaker Change: They get more tangible opportunity is around.
Speaker Change: Utilizing what we'll call game artificial intelligence within the big competitive multiplayer games. Thank you.
Speaker Change: Okay.
The next question from Kenneth Wong from UBS.
Speaker Change: Hi, Good evening management, Thanks for taking my question.
Speaker Change: My first question is on the high end GPU recently.
Speaker Change: We introduced the licensing requirement for the high end GPU.
Speaker Change: We understand that all parties to use these GPU internally.
Speaker Change: Could management share your perspective on the situation and how would it impact any.
Speaker Change: Our capital expenditure AI development.
Speaker Change: Product launches.
Speaker Change: And I have a follow up on the macro situation.
Speaker Change: Press release indicate that our consumer loans.
Speaker Change: Appearance at year on year revenue grow more.
Speaker Change: More conservative have closed last year.
Speaker Change: Considering the still uncertain macro environment can management share some insight on won't be airports.
Speaker Change: Ground, both on the customer side as far as on the Advertiser side.
Speaker Change: Sure.
Well.
Speaker Change: On the GPU fronts.
Speaker Change: Actually a very dynamic situation right. So.
Speaker Change: Sure.
Speaker Change: Since the last.
Speaker Change: Earnings call, we have seen in <unk> 'twenty.
Speaker Change: And then after that there was the <unk>.
Speaker Change: Yes.
Speaker Change: New guidelines that just came.
Speaker Change: And overnight.
Speaker Change: So it's a very dynamic situation and we just have to manage the situation.
Speaker Change: On one end sort of in a completely compliant way.
Speaker Change: And on the other end, we tried to figure out the right solution for us too.
Speaker Change: Make sure that our AI strategy can still be executed so the good thing that.
Speaker Change: We are.
Speaker Change: And is that number one I think.
Speaker Change: We have a pretty strong stockpile of.
Speaker Change: The chips that we acquired previously.
Speaker Change: Previously and that would be.
Speaker Change: They are useful for us in executing our AI strategy.
Speaker Change: If you look at the allocation of the usage of these chips, obviously there'll be used for.
Speaker Change: The applications that will generate.
Speaker Change: Immediate return for Us. So for example in the advertising business as well as content recommendation.
Speaker Change: Right now, we actually would be using a lot of these gpus to generate results and generate return for us.
Speaker Change: Secondly in terms of the training off.
Speaker Change: Our large language models they will be.
Speaker Change: <unk>.
Speaker Change: The next priority.
Speaker Change: And.
Speaker Change: Yes.
Speaker Change: The trading actually requires a high end chips.
Speaker Change: And.
Speaker Change: The good thing on that front is that over the past.
Speaker Change: A few months or I know we.
Speaker Change: You start to move off the <unk>.
Speaker Change: The concept or the.
Speaker Change: The belief.
Speaker Change: Off of.
Speaker Change: <unk>.
Speaker Change: So.
Speaker Change: American Tech companies, which which they call it the scaling law, which requires continuous expansion of the training cluster and now we can see.
Speaker Change: Even with a smaller cluster you can actually achieve very good trading results.
Speaker Change: And there's a lot of potential that we can get on the post training side, which do not necessarily need very large clusters.
Speaker Change: So.
Speaker Change: That actually help us too.
Speaker Change: To look at R. R.
Speaker Change: <unk> inventory off of high end chips, and say, we should have enough high end chips to continue our training of models for <unk>.
Speaker Change: Few more generations going forward.
Speaker Change: And then the larger need for Gpus.
Speaker Change: I actually sort of a round of influences and especially sort of when you see a growth in demand for <unk>.
Speaker Change: Yes.
Speaker Change: On the user side as well as when we move into the.
Speaker Change: Chamber thoughts.
Speaker Change: Reasoning motto actually require many more tokens to answer a complicated question and.
Adrienne: So Adrienne <unk>.
Adrienne: Requires even more tokens then there's actually a lot of need on the infant side.
Speaker Change: On the infant side I think there's actually a lot of work that could be done for us to manage.
Speaker Change: The the need one is just sort of note leveraging software optimization I think there is still quite a bit of room for us to keep on improving the inference efficiency right. So if you can.
Speaker Change: In improve infancy figures you to ask them basically that means.
Speaker Change: Amount of Gpus get doubled in terms of capacity. So that's actually a very good way of investing our resources to improve on.
Speaker Change: The inference.
Speaker Change: Right.
Speaker Change: <unk> C and at the other approaches.
We can custom made different sizes of motto was especially some applications do not require very large model and we can we can.
Speaker Change: Taylor made models and steel model, so that they can be used for different use cases and that can actually save on.
Speaker Change: The entrance.
Speaker Change: Usage of Gpus, and finally, we actually sort of yield Kevin can potentially.
Speaker Change: Make the use of other chips.
Speaker Change: <unk> chips available in China or.
Speaker Change: We are available for us to be imported.
Speaker Change: As well as Asics and Gpus in some cases for smaller models Influencers. So I think there are a lot of ways through which we can.
Speaker Change: Fulfill the expanding and growing influence needs and we just need to sort of keep exploring these venues.
Speaker Change: Spent probably more time on the software side, rather than just brute force buying Gpus.
Speaker Change: And on your question.
Speaker Change: <unk>.
Speaker Change: Loan facilitation business and what we're observing on the ground so.
Speaker Change: What we have observed on the ground FCA as the credit quality for the loans that we facilitate through our platform has been gradually consistently improving.
Speaker Change: And we think that's partly Judah.
Speaker Change: Selection of borrowers and so forth, but it's partly also to you too.
Speaker Change: More macro development, which is that over the last several years.
Speaker Change: Seamless in China in aggregate at hilltop unusually large savings balance.
Speaker Change: What else equal one would rather be lending into.
Speaker Change: Consumer with unusually large savings in the consumer with usually limited savings. So we are enabling.
Speaker Change: The facilitated loan book in aggregate to grow in a very measured way.
Speaker Change: Looking forward, how fast can we grow that loan book.
Speaker Change: We estimate that.
Speaker Change: We benchmark the loan facilitated through up Fintech platform with the loan book.
Speaker Change: Largest.
Speaker Change: Companies.
Speaker Change: Then we are currently a fraction of that size.
Speaker Change: So while we'll continue to do this in a very measured fashion, we do think that.
Speaker Change: Long many yet runway for us to continue growing fees.
Speaker Change: High margin loan facilitation revenues. Thank you.
Speaker Change: Thank you we'll take the next question from.
John Choi: John Choi from Daiwa.
John Choi: Thanks for taking my question and congratulations on the strong set of results I wanted to ask a quick question on the comment on about reinvesting into AI. I think you guys mentioned earlier in your opening remarks smaller gap between revenue and operating profit can you kind of elaborate a bit more on just the magnitude.
John Choi: What kind of extensive period that we're talking about.
John Choi: Apart from Capex, what are the some of the expense items that we should be expecting and I have a quick follow up on the Fps.
John Choi: Domestic game. This is as you said on Delta Force did very well this quarter, but also across mobile.
John Choi: I just wanted to understand a risk.
John Choi: Seeing a structural involvement in this typical of first person shooter genre as you.
John Choi: I pointed out earlier.
John Choi: Across the board do we expect.
John Choi: Kind of evergreen status for multiple games within.
Speaker Change: This specific vertical thank you.
John Choi: Right those are interesting questions and.
John Choi: Try to answer both of them, but you can prompt me if I failed to answer one of them so on the.
John Choi: Gap between.
John Choi: Profit growth in our revenue growth.
John Choi: The narrowing of that cap the magnitude.
John Choi: The duration.
John Choi: Then.
John Choi: We're at.
John Choi: Unchartered territory, not only for <unk>, but for the whole world in terms of the deployment of artificial intelligence. So I don't have.
John Choi: Not necessarily a very high degree of confidence in these statements, but if you're thinking about measuring that duration than the past might be the best guide to the future and that <unk> has been through.
John Choi: Many time periods, where we have cultivated a new.
John Choi: <unk> product towards critical mass in substantial popularity ahead of monetizing that product and typically the duration of those gaps between.
John Choi: <unk> accounts of eight vessels.
John Choi: Monetization and revenue generation would be in the sort of wants to yeah.
John Choi: Time range. So obviously it will depend on what.
John Choi: Peer companies do and China, obviously, it will depend on.
John Choi: Consumer habits on advertiser habits, but I think thats, a reasonable timeframe to think about.
John Choi: In terms of magnitude.
John Choi: I won't go beyond what we said earlier.
John Choi: Which is referring to and narrowing so we don't expect the.
Douser between.
The growth in operating profit growth that we experienced this quarter to continue there'll be a narrowing but on the other hand.
We don't expect our operating leverage chip ton negative item.
John Choi: In terms of what costs other than Capex already depreciation.
John Choi: Cause that narrow ink then.
John Choi: Capex depreciation is by far the most important.
John Choi: We do have some incremental marketing expenses for you empower theyre not so much.
John Choi: With emulation.
John Choi: And then we referenced the fact that.
John Choi: Engineers with expertise in NII expensive, but that's more of a sort of mixed comment rather than in aggregate head count upon comments, we don't see.
Step up in head count will continue to manage head count closely but we observed that engine is with that AI expertise.
John Choi: Right well paid.
John Choi: So that's on your first set of questions on your second set of questions around.
John Choi: The popularity of.
John Choi: First person action games in China than I think.
John Choi: In a cube broad comments one is.
John Choi: As I mentioned.
John Choi: To a large extent this represents China.
John Choi: Gamer behavior converging with.
John Choi: Long standing game of behavior in the rest of the world.
John Choi: Rest of the world. The first person action genre is sort of super genre within games stay prudent drama series on television it represents 40% to 50% of.
John Choi: Game of time spent and.
John Choi: Gaming revenue generation in China, historically, it had been 10% to 20%.
John Choi: But what we see when we look at the different cohorts generations of gamers.
John Choi: Is that younger gamers in China disproportionately attracted to first person action games and.
John Choi: And our first person action games like Valla rent very directly appeal.
John Choi: Let's say that 20 to 30 year old demographic are doing particularly well. So that's one observation the second observation is that.
John Choi: While our new App first person action games.
John Choi: Doing well, so a number of incumbent games, including Peacekeeper elite.
John Choi: Court of <unk> mobile.
John Choi: Our crossfire mobile and I think that's.
John Choi: Reasons for that but one is that.
John Choi: You may remember a few years ago.
John Choi: The sort of unlock of the Battle Royale mode, which you know in the west resulted in fortnite, becoming quite popular.
Speaker Change: Judy Lassa and put people becoming popular.
John Choi: And so that was a sort of step up which meant that the overall sean or expanded.
John Choi: In China, we saw that step up from Battle Royale, and then more recently, we have seen another step up through the popularity of so-called extraction issued and so I mentioned that the increase.
John Choi: Increase in usage for Peacekeeper elite, which is the biggest first person action game in China has been.
Largely around the extraction shooter mode.
John Choi: If the Delta force most of the high retention users play extraction Schuitema mode.
John Choi: So we believe that every few years. There are these new modalities of game play within first person action that.
John Choi: But generally.
John Choi: <unk> audience more than they cannibalize an engineer that's what's underway today, so we're very happy with.
John Choi: Progress of feed a multiple of our first person action games in China.
John Choi: Thank you John.
Speaker Change: Take the next question from John <unk> from Nomura.
John Choi: Okay.
John: Good evening, Thanks management for taking my questions.
John: I have a few questions for access mezz and each quarter. We here, we hear management mentioned AI Pik as one of the drivers for your assets.
John: Wonder how much more room of growth will likely come from the deployment of AI.
John: AIA tank into our App business.
John: And separately what is the latest AD load and the ETF polyol DDR account ads.
John: And regarding leasing surge. So I just wonder what is the latest search query marquee sharepoint, all reaching such and how much of the revenue is now contribute it by we can search after you guys at the AI search feature into <unk> do you see a migration of use.
John: Our search activity from traditional edge to AI search thank you.
Speaker Change: Okay, I'll try to address some or all of those as best I can but in terms of.
Speaker Change: How much of the how much Budd.
Speaker Change: AI benefits can boost our advertising revenue, it's really up.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: It's really a sort of global industry question, if I knew the answer to that question then would.
It would be very helpful.
Speaker Change: Understanding matter in Google and a whole range of companies beyond 10, if.
Speaker Change: If I try to sort of simplify the framework then.
Speaker Change: Part not all but a big part of the uplift the AI is providing to advertising revenue today can be quantified in the form of the click through rates on ads and.
Speaker Change: Historically banner ads achieved roughly 0.1.
Speaker Change: Percent click through rate feed ads achieved roughly 1.0% click through rate with the benefit of AI, we have seen that the click through rate on certain AD inventories can improve toward three zero percent for example.
Speaker Change: And then the question is what's the upper limit on that click through rates and you know at this point no one knows the answer because it almost becomes philosophically if you had.
Speaker Change: Complete information or insight into consumer if you had the ability to.
Speaker Change: What the consumer wants to consume up given that prior behaviors should want.
Speaker Change: And then deliver on our targeted AD.
Speaker Change: So that consumer then it's very hard to say that the upper limit should be X percent, Rob and Y percent of course theres other ways that AI benefits advertising revenue, we can use AI to.
Speaker Change: Target more appealing content to the consumer which means they spend more time in the feed which means. They then view more ads, but I think that that AD click through rate is perhaps the most important.
Speaker Change: In terms of.
Speaker Change: The video accounts AD load, we have kept it fairly stable for the last eight weeks.
Speaker Change: Six months now and it stood around 3% to 4%.
Speaker Change: In terms of the video account.
Speaker Change: CPM it remains.
Speaker Change: Very very good number partly because of the high click through rates that we're achieving partly because there is advertiser competition to have access to the inventory that's available.
Speaker Change: In terms of the way.
Speaker Change: Question such.
Speaker Change: Query share we have we disclosed that number but it's on a.
Speaker Change: Good upward trend.
Speaker Change: And then in terms of.
How users are responding to.
Speaker Change: Q AI, such I think it's.
Speaker Change: One of my colleagues may have.
Speaker Change: More nuanced answer, but but it's early days and B I think the whole concept of AI, such as little bit slippery in Dutch.
Speaker Change: <unk> is one toward the boundary between consumer typing.
Speaker Change: Ah prompts into a pure play AI experienced versus typing a query into a search engine that it could be offset by the traditional algorithm could be onset.
Speaker Change: A notch on which model powered result.
Speaker Change: The two are sort of blending together and we think that.
Speaker Change: So relative newcomer new entrant into the search industry. That's good for us because it's a chance for us to.
Speaker Change: Bill would you use the share and I'll certainly build revenue share as well.
Speaker Change: Thank you.
Speaker Change: I'll take the next question from Alex Yao from JP Morgan.
Alex Yao: Thank you management for taking my question.
Speaker Change: So on a quarter.
Alex Yao: So the first question is.
Alex Yao: Advertising performance, which accelerated from 17% in Q4 to 20% in.
Alex Yao: Q1, so we want to understand to what extent is such a strong performance acceleration driven by.
Alex Yao: Macro recovery versus technology improvement versus inventory release.
Alex Yao: Based on the prior commentary I guess inventory release should be.
The smallest impact for one.
Alex Yao: So you're right.
Alex Yao: Accurately quantify them.
Alex Yao: The impairment is difficult would you be able to give us a rank of the.
Alex Yao: Impact on the revenue acceleration.
Alex Yao: And then another question is on the.
Alex Yao: A product formats. So you guys have been actively acquiring user adoption for your inbound for awhile.
Alex Yao: Can you share us with the user feedback.
Alex Yao: Our retention et cetera.
Alex Yao: Users who are actively using the <unk>.
Alex Yao: More importantly in terms of the product how do you see the future development of chat bot.
Speaker Change: Occasion is it likely the ultimate form of generative AI. Thank you.
Alex Yao: Okay, but why don't I.
Speaker Change: So the advertising question, but not the AI question.
Speaker Change: I think so I think on the advertising Alex Iowa, Okay. It.
Speaker Change: I wouldn't read too much into that.
Speaker Change: Quarter by quarter fluctuations in the advertising revenue growth rates, it's been within a band and frankly, the first quarter was at the upper end of that band and.
Speaker Change: Wouldn't even necessarily desire an acceleration for us it's more important to really.
Speaker Change: Preserving very long runway.
Speaker Change: Sustaining that band.
Speaker Change: Not quarters, but many years to come.
And it may be that if we see ourselves.
Speaker Change: Being too close to the top of the band then.
Speaker Change: We take more time in terms of increasing the AD load for our existing products or in terms of deploying ads against new AI products.
Speaker Change: And really focus on optimizing for user time spent user experience rather than trying to.
Speaker Change: Rather than trying to break out the top of the band, but then.
Speaker Change: The band.
Exists for a shorter period of time than we would like it to.
Speaker Change: So I think thats the broad general comment in terms of your question and sub question about the <unk>.
Speaker Change: Specific drivers for the fluctuation upward in the first quarter.
Speaker Change: Assessing not inventory because we haven't increased inventory at all.
Speaker Change: I don't know whether its macro not we probably need to wait and see what other companies are.
Speaker Change: Our report.
Speaker Change: And then the cadence of that.
Speaker Change: Tech improvements around AI.
Speaker Change: Not something that we try to sort of over the plan on a quarter to quarter basis. So again.
Speaker Change: I might just say that.
Speaker Change: This was a normal sort of fluctuation within a band to the upper end of the band and I wouldn't read anything, but I wouldn't read too much into it and I wouldn't over extrapolate it forward either.
Speaker Change: Organic growth of traffic.
Speaker Change: So that probably is a pretty important driver.
Speaker Change: Traffic growth in the AD tech improvements that why the band it's in the teens rather than the single digit positive single digit negative range.
Speaker Change: And then the fluctuations within that band.
Speaker Change: That's some quarterly noise associated with them, but the bigger picture as Martin pointed out is that we have traffic growth, particularly for.
Speaker Change: Most desirable advertising inventories, meaning.
Speaker Change: The video accounts mini programs official accounts and.
Speaker Change: And such.
Speaker Change: And we're deploying AD tech around deploying AI to improve the return to advertisers around those inventories.
Speaker Change: Yes, just to add to that revenue the way, we look at our advertising business.
Speaker Change: As a very long runway and all we do is try to sort of extend the runway rather than to sort of manage the growth rate on a quarter to quarter basis right. If we can actually keep on improving.
Speaker Change: Our at tag that extends the runway if we can keep on increasing the traffic and the <unk>.
Speaker Change: A lot of it is actually driven by AI as well right because when we have all these users coming into our video accounts.
Speaker Change: We still have a lot of people will come in.
Speaker Change: And then watch it for a very short period of time, and then leave you if we could actually figure out the right content to push through them through AI than.
Speaker Change: It can actually increase the use of time by a pretty significant level.
Speaker Change: Level right.
Speaker Change: When we have that we can.
Speaker Change: We cannot necessarily increase our AD load, we can just rely on the natural growth of the traffic and that would sort of being carried at the revenue growth.
Speaker Change: And that we can reserve.
Speaker Change: At load for.
Speaker Change: A later time.
Speaker Change: Runway extended again and at the same time, Ben I head of less advertising, we can actually make a product experience better and thats, another sort of competitive advantage and that forms a virtuous cycle. So I think that's the way we think about.
Speaker Change: Advertising business and overtime, if we can actually build.
Speaker Change: Stronger transaction ecosystem within our waste in.
Speaker Change: Ecosystem right, so more and more.
Speaker Change: Merchants can actually advertise and once the click through rate happen then.
Speaker Change: And it leads transaction very easily then.
Speaker Change: Basically the propensity for advertisers to spend with US would go up and the value of each plate would go up right. So there are a lot of these systemic things that we're doing in order to extend the runway of our advertising business, which we believe.
Speaker Change: Pick a.
Speaker Change: High level deal.
Speaker Change: There is a very long runway and we are continuously working to extend that.
Speaker Change: On on the AI I think.
Speaker Change: Right now we.
Speaker Change: Just within the past quarter, we have actually.
Speaker Change: <unk> grew our.
Speaker Change: User base by a lot.
Speaker Change: And.
Speaker Change: We spent a lot of time in making sure that we can retain them with which I think.
Speaker Change: We have.
Speaker Change: Proven ourselves to be able to retain the users.
And.
Speaker Change: Provide them with.
Speaker Change: Good.
Speaker Change: So that they keep coming back and they keep using you haven't bought.
Speaker Change: More.
Speaker Change: When you talk about the.
Speaker Change: Product.
Speaker Change: Form factor right now it really chat is the predominant one at this point in time, but then when we roll it out more functionality than the.
Speaker Change: User interface and the format maybe different.
Speaker Change: And then when you.
Speaker Change: Try to do.
Speaker Change: Execute.
Speaker Change: Complicated task for users then it may become a project rather than that Chad and.
Speaker Change: You may have to have that task stay there for a longer time, so we would be customizing the form factor the user experience. According to sort of what kind of financials analogies that we're providing but I think the next stage for you on <unk>.
Speaker Change: Is that.
Speaker Change: Whats the current stages that we are at scale.
Speaker Change: We are large enough number of users and we have got to a stage that we can actually retain these users. The second stage is that we still have a lot of functionalities that we can add.
Speaker Change: Help us to retain and activate users better and also to help us to attract new users. So that will be the next stage of development for our AI product and then the next thing right.
Speaker Change: Really to leverage our unique ecosystem.
Speaker Change: Be it social be content be it many programs in order for us to provide something thats very well differentiate it from the other.
Speaker Change: AI products and the AI chat bots in the market.
Speaker Change: And of course, while we do what is right. We will continue to upgrade our <unk> model. So that we can make the deal model strategy, even stronger. So I think these are the kinds of things that we'd be doing.
Speaker Change: What does it take the last question from me.
kwan: Kwan from Goldman Sachs.
Speaker Change: Thank you Wendy so thank you point, you Martin James and John One question two questions. One is on our Wechat E. Commerce strategy. Just wondering here what are the key kpis that we see and is there a plan or timeline for maybe shelf based offering versus today, which is nice dream search as the main format.
kwan: Second is on payment.
Speaker Change: As the management noted a slight decline in the payment volumes in <unk>, So I need more macro related or is it a payment strategy, which as you. Both mentioned some improvement in April thank you.
Speaker Change: In terms of E Commerce strategy I don't think we operated.
Speaker Change: Hi.
Speaker Change: Hi.
Speaker Change: Setting prescriptive Kpis. This is a very long term project with very long runway again.
Speaker Change: Keep on going back to the same term runway because we felt it's much more important for us to make sure that the business can keep growing for a very long time, rather than sort of Neil go for the sprint. So that all you have to kpis mentoring you'll need it so in terms of how we.
Speaker Change: <unk> built the runway.
Speaker Change: We have a number of initiatives that's going on the number one priority is really sort of improving the basic shopping experience for consumers such as we need to have higher quality products, we need to return policy, that's convenient for them we need to have.
Speaker Change: Good customer service.
Speaker Change: A process that we need to have good pricing for these consumers so.
Speaker Change: That's one number two is that we want to get more supplied.
Speaker Change: <unk> of good products right deal supply of good brands.
Speaker Change: And motivated merchants into our ecosystem, so that the supply side can keep improving.
Speaker Change: And the third one is really to get more traffic to the merchants.
Speaker Change: And.
Speaker Change: Provide more chances for consumers to interact with products and with the merchants right.
Speaker Change: And the first step is really growing traffic through live broadcast I think that's one way to which we can really convert more sales and it's actually Bel proven. So this is something which other platforms have already done and I think this is more like a no regret things that we can do but at the same time.
Speaker Change: Over time, we actually want to have something unique for the <unk> ecosystem right now, which is where we can connect.
Speaker Change: User has two products a fool.
Speaker Change: Sure.
Speaker Change: Many different modules within the <unk> ecosystem such as <unk>.
Speaker Change: Many programs and we know that there are a lot of users who are already buying products through unit immediate programs.
Speaker Change: We can actually convert some of these.
Speaker Change: These transactions too many shops and because of their better infrastructure of supporting E Commerce transactions.
Speaker Change: Media shops that we can actually magnify the.
Speaker Change: Transactions than it will be helpful for users it would be helpful for the merchants their social component is communication component that theres connection to moments there is connection to search on the social side.
Speaker Change: Yes.
Speaker Change: We set the gifting product is one functionality that we added and there'll be more to be added.
Speaker Change: And.
Speaker Change: Our connection to official accounts. So there are a lot of potential connections that we can add and over time. These connections would start delivering more transactions to the.
Speaker Change: To the merchants in a very unique way so that's sort of the kinds of things that we're doing in order to grow our.
Speaker Change: Many shop and <unk>.
Speaker Change: Commerce ecosystem over the long term.
Speaker Change: And I'm happy to say, even as it is.
Speaker Change: These are the things that we're doing.
Speaker Change: Uh huh.
Speaker Change: In the first inning.
Speaker Change: We continue to see very strong growth in our media shop.
Speaker Change: Transaction GMB.
Speaker Change: And on your question about commercial payment volume then.
Our market share.
Speaker Change: <unk> fluctuate.
Speaker Change: Ending on the level of subsidies, depending on how aggressive we are in accepting credit card funded transactions and so forth, but in reality we don't.
Speaker Change: And to make dramatic changes on a month to month basis.
Speaker Change: We didn't.
Speaker Change: Our level of.
Speaker Change: <unk> intensity moving from the first quarter to April and so I think the.
Speaker Change: The Big picture is that consumer spending has been.
Speaker Change: Fluctuating.
Speaker Change: In the last several quarters.
Speaker Change: The most recent data point is.
Speaker Change: Fluctuation upward and so it is possible that fluctuation output is reflective of overall consumer confidence and consumption activity.
Speaker Change: Stabilizing and we hope that overtime that stabilization becomes a.
Speaker Change: A sustained upturn but of course time will tell if I can answer it.
Speaker Change: Slightly.
Speaker Change: Adding more more color I think when we look at the first quarter, we see the number of transactions continue to go up but then the pricing actually go with satellite and our.
Speaker Change: <unk> is that it could be a little bit of the last leg of supply side competition.
Speaker Change: The.
Speaker Change: As the demand side start to warm up and I think the April trend somewhat confirms it.
Speaker Change: But thats.
Really before the tariff start kicking in right now so.
Speaker Change: Without the tariff I think we clearly see is that the.
Speaker Change: The consumption pattern has bottom out and start to slowly recover but now with sort of the <unk>.
Speaker Change: Interaction with the tariff.
Speaker Change: Just have to see.
Speaker Change: What will be happening in the next quarter I mean, it is very dynamic right. Now there is tariff, but then sort of what's the extent of tariff and that I think the government actions.
Speaker Change: Very supportive with stimulus and I think the Chinese governments do have a lot of room for rolling out more stimulus and now there is sort of a little bit of a true was on the tariff side. So.
Speaker Change: I think tariff and into play.
Speaker Change: That the impact of it on the economy and then.
Speaker Change: The <unk> direct effect.
Speaker Change: The stimulus will be.
The two factors to watch.
Speaker Change: We are now ending the weapon. Thank you all for joining our results today, if you wish to check out our press release and other financial information. Please visit the IR section of our company website at Www Dot <unk> Dot com a replay of this webinar, we always assume be available.
Speaker Change: And if you next quarter.
Speaker Change: Okay.
Speaker Change: [noise].