Tencent Holdings Limited

Today and a good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2025 first quarter announcement webinar. I'm Wendy Huang from Tencent IR team. At this time, all participants are in a listen-only mode. After management's presentation, there will be a question and answer session. For participants who dial in by phone, if you wish to ask a question, please press five on your telephone to raise your hand. If you are accessing from the Tencent meeting or Vue 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 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 prepared 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. 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 and Chief Strategy Officer James Mitchell will provide 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.

Thank you, Wendy. Good evening, everyone. Thank you everyone for joining us. During the first quarter of 2025, our high-quality revenue streams sustained their solid growth trajectory. AI capabilities already contribute tangibly to business such as the performance, advertising, and evergreen games. We also set up our spending on new AI opportunities such as Yuanbao application and AI in WeChat. We believe the operating leverage from our existing high quality revenue streams will help absorb the additional costs associated with this AI related investments and contribute to healthy financial performance during this investment phase. We expect this strategic AI investment will create value for users and society and generate substantial incremental returns for us over the longer term. Looking at our financial numbers for the first quarter, total revenue was 180 billion RMB, up 13% year-on-year. Gross profit was 100 billion RMB up 20% year-on-year. Non-IFRS operating profit was 69 billion RMB up 18% year-on-year. And non-IFRS net profit attributable to equity holders was 61 billion RMB up 22% year-on-year. Now turning to our key services. For communication and social networks, combined MAU of WeChat and WeChat Group year-on-year and quarter-on-quarter to 1.4 billion. For digital content, Tencent Video and TME both grew their subscription year on year. For games, several evergreens achieved a record high in gross receipt during the quarter. And Delta Force has become the highest ranked mobile games by DAU released in China in the last three years. For cloud, Tencent Cloud's audio and video solutions rank first by revenue for the seventh consecutive years in China. I will now hand over to Martin for business review.

Thank you, Pony, and good evening, good morning to everybody. For the first quarter of 2025, our total revenue was up 13% year on year. That represented 51% of our total revenue, within which social network subsegment was 18%, domestic games subsegment was 24%, and international games was 9%. Marketing services was 18% of total revenue and FinTech and business services was 30% of our total revenue. 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, vast gross profit increased 22% year-on-year to 55 billion RMB, representing 55% of our total gross profit. Marketing services gross profit increased 22% year-on-year to 18 billion RMB, contributing 18% of total gross profit. And fintech and business services gross profit increased 16% year-on-year to 28 billion RMB, contributing 27% of our total gross profit. If you look at our businesses, our existing businesses continue to generate operating leverage under our high quality revenue and growth model. This provides us the capacity to reinvest the leverage for the exciting AI opportunity ahead of us. 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. Some of these GPU and AI investments already generate revenue for us. such as improved ad targeting, which boosts ad revenue, improved content recommendation, which boosts user time spent and thus ad revenue, usage of AI within evergreen games, which boosts user engagement and thus gain revenue, and deployment of GPUs and AI across our computing infrastructure, APIs, and platform solutions, which generates cloud revenue. For our other GPU and AI investments, which are more long cycle in nature, there's a natural time lag between making the investments and those investments starting to generate significant revenue for us. During this time lag period, we expect the costs of those GPU and AI investments to offset our underlying operating leverage. resulting in a temporary smaller gap between our revenue and operating profit growth rates than we have achieved in recent quarters. 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. 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 games, item sales, music subscriptions, and mini games platform service fees. Music subscription revenue increased 17% year-on-year as subscribers grew 8% year-on-year to 123 million and as Apple improved. TME strengthened content offerings through deepened collaborations with labels and artists and expanded super VIP membership benefits with enhanced sound quality for speakers, AI-generated audio effects, and offline event privileges. Long-form video subscription revenue was flat year-on-year. Video subscribers grew 1% year-on-year to 117 million during a quarter of weekly content lineup on a relative basis. Our self-commissioned drama series, Guardians of Dafeng 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 the low base quarter of first quarter of 2024, mainly driven by growth from flagship games, notably Honor of Kings and Peacekeeper Elite, and contributions from recently released games, notably DNF Mobile and Delta Force. International games revenue increased by 23% year-on-year or 22% in constant currency terms, driven by titles including Brawl Stars, Clash Royale, and PUBG Mobile. Moving on to communications and social network, we implemented a series of upgrades to strengthen the Weixin content ecosystem. For video accounts, we streamlined the live streaming setup process 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. For mini-shops, we provided more onboarding support for merchants via greater traffic incentives and lower deposit requirements in order to enrich the range of branded products listings. Mini-shops at GMV continued rapid year-on-year growth in the first quarter. For official accounts, we simplified content creation by enabling influencers and other users to set up accounts and publish content via mobile devices in order to expand the creator community and encourage more user-generated content. In addition, we're in the early stages of rolling out AI features within Weixin. Users can now add Yuanbao as a Weixin context for seamless AI interaction within Weixin chat, providing context-aware responses and facilitating content discovery while leveraging the Weixin ecosystem and the worldwide web. Weixin Search is now starting to include results powered by large language models, including the fast-thinking model, Hunyuan Turbo S, and the chain of thought reasoning models, Hunyuan T1 and DeepSeek R1. We provide AI tools so that content creators can generate images matching the text of their official accounts articles and generate video effects for video accounts videos utilizing preset templates. We reduced the mini programs development time via an AI coding assistant for creating AI programs that supports natural language prompts and image inputs. Now with that, I'll pass to James.