Tencent Holdings Limited

Good day and a good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2024 fourth quarter and annual results announcement webinar. I'm Wendy Huang from 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 question, please press five on your telephone to raise your hand. If you are accessing from the Tencent meeting or Google 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 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 sources outside of Tencent. This presentation also contains some un-audited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance repelled in accordance with IFRS. For a detailed discussion of risk factors in the non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Now let me 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 provide an update on AI initiatives. Chief Strategy Officer James Mitchell will provide a business review and Chief Financial Officer John Lau will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony.

Thank you, Wendy. Good evening. Thank you everyone for joining us. In 2024, we reinforce the long-term franchise value of our key services. In Weixin, we strengthen our transaction capabilities with the launch of mini-shops and upgrades for Weixin Search. Video accounts' user time spent grew rapidly on enhanced documentation algorithms. Our evergreen game portfolio increased from 12 games in 2023 to 14 in 2024, and we nurtured new games with evergreen potential. Three of Tencent Video's drama series rank among the industry's top five in 2024, while Tencent Music extends its industry leadership with 121 million subscribers. Our marketing services revenue growth outperforms the industry as we upgrade our advertising technology platform and increase user traffic. In FinTech, we upgrade our risk control and optimize payment funding cost, strengthening our overall FinTech franchise and profitability. On AI, we advanced our capabilities, deployed AI for internal AI use cases, and prepare for breakout growth in consumer AI use cases. Financially, our revenue growth rate improved during 2024, hitting double digit growth in the fourth quarter. Our growth and operating profit grew faster than our revenues as we shifted towards high quality revenue streams. We are focuses on delivering shareholders return, paying out 32 billion Hong Kong dollars in cash dividends and repurchasing 112 billion Hong Kong dollars worth of our shares during the year. Looking at our financial numbers for the fourth quarter, total revenue was 172 billion RMB, up 11% year-on-year. Gross profit was 91 billion RMB, up 17% year-on-year. Non-IFRS operating profit was 59 billion RMB, up 21% year-on-year. And non-IFRS net profit attributable to equity holders was 55 billion RMB, up 30% year-on-year. Now I will hand over to Martin.

Thank you, Pony, and good evening, good morning to everybody. In my section, I will talk about our initiatives in terms of investing in AI for growth. And I will summarize our AI initiatives and how we're investing in AI as both a growth multiplier for our existing businesses and as a new growth driver. And these include the progress we've made with our self-developed Huanyuan Foundation model, our multi-model strategy to provide the best AI experience to users, the integration of AI into our enterprise-facing services, how we're unlocking the growth potential of existing businesses with AI, and finally, our stepped-up investment into AI for the future. Moving on to the first topic, our AI initiatives really trace back to 2016 when we first established our AI lab. Since 2023, early part of that, we have been investing heavily in our proprietary Kunyuan Foundation model, which forms an important technology foundation for our consumer and enterprise-facing businesses and will serve as a growth multiplier for us in the long run. Our investments in the Hunyuan enable us to develop end-to-end foundation model capabilities in terms of infrastructure, algorithm, training, alignment, and data management, and also to tailor solutions for the different needs of internal and external use cases. In terms of milestones, we are an early adopter of new techniques in core LLM, including the mixture of expert architecture in March 2024, the heterogeneous MOE-based Huanyuan Turbo in September 2024, and the hybrid Mamba transformer MOE-based Turbo S model in February 2025. Unlike conventional transformer models that face limitation in context length, our current Turbo S LLM increases the efficiency in handling long sequence through MAM-BAM optimization. We also released our Huanyuan T1 deep thinking model in February, 2025, which is amongst the first long chain of thought models in China, delivering performance comparable to top tier models. In addition to LLMs, we've released multi-modal Huanyuan Foundation models with capabilities that span across image, video, and 3D generation. Huanyuan's image generation models achieved the highest score from FLAC eval in December of last year. In video generation, our model excels in video output quality and ranked first on Hugging Face in December of last year. And our 3D generation model was the industry's first open source model supporting text and image to 3D generation. In addition to that, we also contribute to the open source community actively and have open source a series of advanced models in the Huanyuan family for 3D generation, video generation, live language, and image generation. Several of these models have gained great popularity among developers worldwide. Now going to our consumer-facing AI products, we adopt a multi-model strategy to provide the best AI experience to our users so we can leverage all available models to serve different user needs. We need this because different AI models are optimized for different capabilities, performance metrics, and use cases. And a combination of various models can handle complex tasks better than a single model. Our experience in software businesses such as online games also demonstrates that there are synergies in being a developer and an operator. By investing in our own foundation models, we're able to fully leverage our proprietary data to tailor solutions to meet customized internal and customer needs. while at the same time, making use of external models allowed us to benefit from innovations across the industry. On the product front, our AI native application Yuanbao provides access to multiple models, including chain of thought reasoning models, such as Huanyuan T1 and DeepSeek R1, and fast thinking model Huanyuan Turbo S, with the option of integrating web search results. Yuanbao's search results can directly access high quality proprietary content from Tencent ecosystem, such as official accounts and video accounts. By leveraging Huan Yuan's multimodal capabilities, Yuanbao can process prompts in images, voice, and documents, in addition to text. Our cloud infrastructure supports stable and uncapped access to leading models. From February to March, Yuanbao's DAU increased 20-fold to become the third highest AI native mobile application in China by DAU. In addition to that, we have also started testing AI features in Weixin to enhance user experience, such as for search, language input, and content generation. and we will be adding more AI features in Weixin going forward. Now, moving on to the enterprise-facing side, we have been accelerating AI integration into our cloud business across our infrastructure, platform, and software as a service solutions. Through our infrastructure as a service eye solutions, enterprise customers can achieve high performance AI training and inference capabilities at scale. And developers can access and deploy mainstream foundation models. For platform as a service pass, our Thai platform supports model fine tuning and inference demands with flexibility. will provide powerful solutions supporting enterprise customers in customizing AI assistance using their own proprietary data and developers in generating mini programs and mobile applications through natural language prompts. Our SaaS products increasingly benefit from AI-powered tools. Real-time transcription and meeting summarization functions In Tencent, meeting gained significant popularity, resulting in monthly active users for these AI functions doubling year-on-year to 15 million. Tencent Docs also enhanced user productivity and content generation and processing. In 2024, our AI cloud revenue approximately doubled year-on-year. Increased allocation of GPUs for internal use cases, initially for ad tech and foundation model training, and more recently on AI inference for Yuanbao and Weixin has limited our provision of GPUs to external clients and thus constrained our cloud services revenue growth. For external workloads, we have prioritized available GPUs toward high value use cases and clients. Since the fourth quarter of 2024, we have stepped up our purchase of GPUs. And as we deploy these GPUs, we expect to accelerate the revenue growth of our overall cloud services. Now, moving on to our existing businesses, we believe our investment in AI has already been generating positive returns for us And I will give you three examples on how AI is empowering our existing products and businesses and generating return. For advertising, we enhanced our advertising system with neural network AI capabilities since 2015. We rebuilt ad tech platform using large model capabilities since 2020, enabling long sequence user behavior analysis across multiple properties, which resulted in increased user engagement and higher click-through rates. Since 2023, we have been adding large language model capabilities to facilitate more efficient approvals of ad content, to better understand merchandise categories and users' commercial intent for more precise ad targeting, and to provide generative AI tools for advertisers to streamline the ad create process. Leveraging AI-powered ad targeting capabilities and generative AI ad creative solutions Our marketing services business is already a clear beneficiary of AI integration with revenue growth of 20% in 2024 amid challenging macro environment. In games, we adopted machine learning technology in our PVP games since 2017. We leveraged AI in games to optimize matching experience, improve game balance, and facilitate AI coaching for new players, empowering our evergreen games strategy. Our games business is now integrating large language model capabilities, enhanced 3D content production efficiency, and to empower in-game chatbots. For our video and music services, we're leveraging AI to improve productivity in animation, live action video, and music content creation. Our content recommendation algorithms are powered by AI and are proven effective in boosting content discovery. These initiatives enable us to better unlock the potential of our great content platforms. And finally, as the capabilities and benefits of AI become clearer, we have stepped up our AI investments to meet our internal business needs, train foundation models, and support searching demand for inference we're experiencing from our users. To consolidate our resources around this all important AI effort, we have reorganized our AI teams to sharpen focus on both fast product innovation and deep model research. Matching our stepped-up execution momentum and decision-making velocity, we increased annual CapEx more than threefold to $10.7 billion in 2024, equivalent to approximately 12% of our revenue, with a notable uplift in the fourth quarter of the year as we bought more GPUs for both inference needs as well as for our cloud services. We intend to further increase our capital expenditures in 2025 and expect our CapEx to account for low teens percentage of our revenue. In terms of R&D, we will continue to invest in our own models and to accelerate the development AI applications of each of our business groups. We're also investing in marketing to build user awareness and promote the adoption of new AI products such as Yuanbao. We believe these investments will generate good economic returns over time, but we also have the capacity to intention to continue returning capital to shareholders. And we intend to buy back at least 80 billion Hong Kong dollars worth of our stock in 2025.