Tencent Holdings Limited

Good day and a good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2023 Second Quarter Results Announcement Webinar. I'm Wendy Huang from the 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 Woo 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 underlined by a number of risks and uncertainties, and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance propelled in accordance with IFRS. For a detailed discussion of risk factors and non-FIRS 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, Paul Niema, will kick off with a short overview. President Martin Lau and Chief Strategy Officer James Mitchell will provide a business review and update on our progress on some strategic growth drivers. Chief Financial Officer John Low will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony.

Okay, thank you, Wendy. Good evening. Thank you, everyone, for joining us. During the second quarter of 2023, we sustained a solid revenue growth rate, along with gravitation toward higher quality revenue streams with better margins. This transition, combined with the careful cost discipline developed in the previous years, resulting in profit growth exceeding revenue growth. We achieved a notably rapid growth in advertising revenue, benefiting from deploying machine learning on our advertising platform and from video accounts monetization. Now let me go through the headline financial numbers for the quarter. Total revenue was 149 billion RMB up 11% year-on-year or down 1% quarter-on-quarter. Close profit was 71 billion RMB up 22% year-on-year and 4% quarter-on-quarter. Non-IFRS operating profit was 50 billion RMB up 37% year-on-year and 4% quarter-on-quarter. Non-IFRS net profit attributable to equity holders was 38 billion RMB up 33% year-on-year and 15% quarter-on-quarter. Turning to our key services. For communications and social networks, combined MAU of WeChat and WeChat grows year on year and quarter on quarter to 1.3 billion with increased synergies among video accounts, mini programs and moments. For games, we released two high quality PC games in China. Our most important PC game launches since 2015. In generative AI, we are internally testing our own proprietary foundation model in different use cases and are providing Tencent Cloud model as a service solutions to facilitate efficient deployment of open source foundation models in multiple industry verticals. I will now hand over to Martin and James for business review. Thank you, Pony. And good evening and good morning to everybody.

For the second quarter of 2023, our total revenue was up 11% year-on-year. VAS represented 50% of our total revenue, within which social networks subsegment was 20%, domestic games subsegment was 21%, and international games was 9%. Online advertising was 17% of total revenue and FinTech and business services was 32%. Well, value-added services, the segment revenue was 74 billion RMB, up 4% year-on-year. Social networks revenue was up 2% year-on-year to 30 billion RMB, driven by increased revenue from minigames and music subscriptions, which is partially offset by lower revenue from music and games-related live streaming services. Long-form video subscription revenue decreased 2% year-on-year. Video subscriptions declined 5% year-on-year, but increased 2% quarter-and-quarter to 115 million, benefiting from our original animated series and drama series. We're consistently upgrading our content production capabilities For example, we're now applying Unreal Engine for producing animated content such as our series, The Land of Warriors, in order to streamline the workflow and enhance production capacity and efficiency. Music subscription revenue increased 37% year-on-year as both Apple and subscriptions grew at double-digit rates year-on-year. TME has enriched its subscription offerings in terms of membership privileges and content. And in June, our music subscriptions counts achieved a record high of 100 million. Domestic games revenue was stable year on year at 32 billion RMB, partly due to less commercial content scheduling for our biggest games after a very robust first quarter. Revenue from our relatively new and growing competitive esports games, Arena Breakout and Fight of the Golden Spatula increased. International games revenue increased 19% year-on-year or 12% in constant currency terms to 13 billion RMB, benefiting from the robust performance of Valorant, Nikkei and Triple Match 3D. Moving on to communications and social networks. Weixin total user time spent increased healthily in the second quarter, benefiting from greater engagement across video accounts, mini programs, and moments. Video accounts expanded its user base and deepened user engagement. Total time spent almost doubled year-on-year in the second quarter, driven by double-digit growth in DAU and much faster growth in terms of per-user time spent. Meanwhile, we achieved strong growth in user interactions such as likes and comments. We are strengthening our content ecosystem by facilitating a thriving creator community as daily active creators and daily video uploads sustained robust year-on-year growth in the second quarter. We're providing tools which help creators scale their video accounts presence while also contributing to our ad revenue growth. Building on deeper user engagement and a stronger content ecosystem, we're making significant progress in expanding monetization opportunities within video accounts. For advertising, we're in the early stages of establishing a significant revenue stream with high incremental margins. who believe there's still very substantial revenue potential to be realized going forward. Livestreaming e-commerce, which is still at early stage of development, achieved 150% year-on-year GMV growth in the second quarter, providing an opportunity for us to create a new high-margin commission-based revenue stream. During the quarter, we upgraded our consumer shopping experience and boosted repeat sales for merchants by sourcing more branded products, introducing shipping return insurance, and upgrading customer service functionalities. Turning to mini programs, we're now serving more than 1.1 billion users on a monthly basis, and their engagement grew significantly as time spent per DAU increased double-digit year-on-year in the second quarter. 4 million developers participate in our mini program ecosystem offering a breadth of mini programs ranging from public services and productivity tools to AI powered photo editors. Today, I would like to walk you through our recent success in mini games as a vertical use case example. Mini games engage over 400 million MAU and 300,000 game developers built upon the mini program framework. Both leading game companies and smaller studios actively develop and operate mini games, including casual games, card games, and many other types of games. In the second quarter, more than 100 mini games each achieved quarterly gross receipts of over 10 million RMB. The strong growth of mini games demonstrates our compelling value proposition for developers. Firstly, for developers with innovative game concepts, we help them to reduce entry barriers and launch costs. They can build user base through social sharing, pre-existing login, and instant play infrastructure offered by the Weixin ecosystem. Secondly, for developers with successful app games, we enable them to extend their reach to a new audience of non-app users by porting to minigames. Thirdly, developers can benefit from advancement in minigames infrastructure, leveraging our know-how and game technology. For example, our infrastructure can now support sophisticated genres such as shooters with fast loading and smooth gameplay. Minigames also provide Tencent with significant strategic value. First, through minigames, we host the largest casual game community in China with hundreds of millions of MAU, substantially exceeding the MAU of the largest app-based casual games in the market. Second, minigames allow us to expand our audience base and cultivate new gamers. Over 50% of minigames MAU do not play Tencent app games and half of minigames MAU are female. Finally, minigames provide us with game distribution and ad revenues characterized by high margins and platform economics as opposed to hit driven dynamics. From a reporting perspective, we report net platform fees to Tencent instead of gross user spend as revenue. and we allocate these fees to social networks sub-segment instead of games sub-segment. Therefore growth in third party mini games does not benefit our game segment revenue, but flows through to our vast segment in the form of high margin revenues. Developers can also buy advertising and contribute to our advertising revenue. With that, I'll now hand over to James to talk about the other business updates.