Tencent Holdings Limited

Good evening. Welcome to our third quarter 2020 results conference call. I'm Wenyi Huang from Tencent IR team. Before we start the presentation, we would like to remind you that it includes forward-looking statements which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the company's financial performance propelled in accordance with IFRS. Non-IFRS measures are intended to reflect our core earnings by excluding certain one-time and or non-cash items. For a detailed discussion of risk factors in non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me introduce the management team on the call tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President Martin Lau and Chief Strategy Officer James Mitchell will provide a business review Chief Financial Officer, John Low, will conclude with financial review before we open the floor for questions. I will now turn the call over to Pony.

Thank you, Wendy. Good evening. Thank you for joining us today. This quarter marked the second anniversary of our strategic organization upgrade, which was intended to enhance our strength in consumer internet and extend our presence to industrial industry internet. While the upgrade was designed to bear fruit over the long run, we are already seeing initial benefits in areas such as consolidating our advertising services, rejuvenating our product and content platforms, growing our cloud and SaaS businesses, and building an internal open source code base. In the face of public health, macroeconomic and geopolitical challenges, we will seek to sharpen our focus, innovate, and collaborate with our partners in order to better serve our users, customers, and the society at large. Now I will highlight the results we achieved in the third quarter of 2020. Total revenue was 125 billion RMB, up 29% year-on-year and 9% quarter-on-quarter. Gross profit was 57 billion RMB, up 33% year-on-year and 6% quarter-on-quarter. Our non-IFRS operating profit was 38 billion RMB, up 34% year-on-year and 1% quarter-on-quarter. Non-IFRS net profit attributable to equity holders was 32 billion RMB, up 32% year-on-year and 7% quarter-on-quarter. Moving to our online platforms, In social, combined MAU of WeChat and WeChat was 1.2 billion. Smart devices MAU of QQ was 617 million. In games, we expand our leadership via extensive popularity of established franchises and success of new releases in both China and international markets. In media, video and music subscriptions increased as we released the top tier content and added songs to the pay library. In fintech, commercial payment transactions maintained robust growth and our wealth management platform expanded its aggregated customer assets. In public cloud, we saw rising demand for PaaS solutions and upgraded our SaaS enterprise productivity toolkit to capture opportunities in emerging sectors. In utilities, we maintain our industry leadership in mobile security and mobile browser in China. I will invite Martin and James to discuss business with you.

Thank you, Pony. Good evening and good morning. For the third quarter of 2020, our total revenue grew 29% year-on-year. VAS represented 56% of our total revenue, within which social networks was 23% and online games was 33%. Online advertising was 17% of total revenue. FinTech and business services represented 26% of our total revenue. For value-added services, segment revenue was 70 billion RMB in the third quarter, up 38% year-on-year, and 7% quarter-on-quarter. Social networks revenue was 28 billion RMB, representing 29% year-on-year and 6% quarter-on-quarter growth, mainly driven by in-game item sales and live streaming services. Total vast subscriptions grew 25% year-on-year to 213 million, benefiting from digital content subscriptions. Total video subscriptions increased 20% year-on-year to 120 million, primarily due to our popular drama and animated series, such as Nothing But 30 and The Land of Warriors Season 3. We successfully converted trial users acquired during summer promotions to regular subscribers. Total music subscriptions grew 46% year-on-year to $52 million on an expended pay library and a higher retention rate. Online games revenue increased 45% year-on-year and 8% quarter-and-quarter to 41 billion RMB, driven by growth in paying users and Apple. Total smartphone games revenue grew 61% year-on-year to 39 billion RMB, benefiting from robust growth of existing titles as well as recognition of deferred revenue from the stayed-at-home period. Sequentially, revenue grew 9% but cash receipts slightly decreased as users returned to their offices and in-game activities normalized. PC client games revenue was stable year-on-year at 12 billion RMB as increased revenue from League of Legends globally and New Game Valorant in Western markets offset decreased revenue from Dungeon and Fighter in China. Revenue increased 7% quarter-on-quarter due to crossfire and full quarter contribution from Valorant. Now I talk more about our social networks. For Weixin, we're focused on delivering convenience and efficiency for users. To facilitate access to high-frequency services within the Weixin pay interface, we grouped the list of services into four key verticals, namely financial services, daily services, transportation and travel, as well as shopping and entertainment. For the travel and transportation vertical, we expanded geographic coverage of mobility services to 10 provinces and municipalities in China. Mobility services connect auto owners with car services such as car washes and car insurance, as well as general users with public transportation services, including transit codes and bus schedule checking. To enhance the efficiency of content and service delivery, we enable more cross-referencing within WayShin properties. For example, in the checkbox, users can press to search words and phrases that appear in messages, after which WayShin will provide related content and services for mini-programs, official accounts, moments, and other sources. In moments, we enable users to create hashtags in posts. Readers of the post who click these hashtags can then see related content from official accounts, video feeds, and H5 pages. Moving on to QQ. We keep on creating new experiences to strengthen stickiness of the youth community on the QQ platform. We enable more shared experiences among young users. For example, we allow them to watch Tencent video together while video chatting. to compete with friends in battle mode mini games, and to co-edit class work via Tencent Docs. We have been testing Mini World, a video and image feed service within QQ since April. Contributors within Mini World can create images and videos shared beyond their existing friend circle, and users can explore content through recommendations. MiniWorld resonates well with young audience and has enjoyed increasing popularity. These initiatives and growing adoption of real-time video chatting drove daily time spent per user within QQ up by a teens percentage year on year. Now turning to our gaming business. For smartphone games, we leverage our industry expertise, user insight, and execution to deliver engaging experiences to large-scale audiences, enhancing the vitality and longevity of our existing titles, including blockbusters, as well as the lesser-known games. We recently celebrated the fifth anniversary of Honor of Kings, which exceeded 100 million average DAU for the first 10 months of 2020. We have expanded Honor of Kings' user base through constant innovation user-centric operation, and robust technology infrastructure. We're realizing the potential of its IP by developing new games, animated series, and a live action drama series. Investors are quite familiar with titles such as Honor Kings and Peacekeeper Elite, but we apply similar capabilities to lesser known vertically specialized titles as well. For example, our self-developed game, Naruto Mobile, despite being released four years ago, has recently achieved all-time high in BAU and revenue, driven by operational enhancements we have made over the years, such as an improved PVP mode. Naruto Mobile is now one of the most popular and revenue-generated games in the fighting genre in China. With respect to PC games, we continue to view the sector fairly favorably. While the PC game market has not experienced the same revenue growth as the mobile game market, PC games are highly influential. There's plenty of room for IPM product innovation within the PC platform to drive direct revenue contributions or broader platform benefits. For example, League of Legends launched a major thematic event, Spirit Blossom Festival, in the quarter, coordinating the release of new champions, skins, and event paths, which was popular both with users as well as revenue generators. The recent League of Legends World Championship in Shanghai attracted a large and sizable global audience too. We adapted Crossfire into a highly rated drama series and released a tie-in new game mode and skins, reviving the game's popularity and monetization. In addition, new game Valorant has become a breakout hit in the tactical shooter genre in Western markets with a wide audience on Twitch. Besides sustaining and extending existing game success, we continue releasing impactful new games. Moonlight Blade Mobile, a self-developed game based on a renowned novel, became the most successful MMORPG launch in China this year by iOS Grossing. Need of Legends, Wild Rift. A mobile battle arena game based on LOL IP is currently among the most downloaded mobile games across its available markets in Asia. With that, I'll pass on to James to talk about the rest of the business review.