TCEHY - Earnings call transcript Q2 2021 | Tencent Holdings Limited

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Operator

Good day, and thank you for standing by. Welcome to Tencent Holdings Limited 2021 Second Quarter Results Announcement Conference Call. At this time, all the participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd turn now to call And Ms. Instructions] like the to over [Operator the IR Huang Tencent Wendy from Team. you. Thank go Please ahead.

Wendy Huang

Thank you. results conference Good second call. XXXX evening, everyone. Welcome to our quarter

that would Before some unaudited from Information by but This contains underlined accordance about coming for, variety various is presentation be realized of and conditions company's to should presentation, in start in outside uncertainties number forward-looking we general and not we of remind not which market the IFRS. performance financial substitute to, financial the Tencent. of a you non-IFRS considered a reasons. may sources it a measures addition risks are that of the with prepared measures includes statements, also in as for like be future

of refer For IR the of non-IFRS factors risk disclosure our a documents and detailed to on measures, discussion our website. section please

the Now, team introduce on management tonight. let the call me

short Chairman Chief will and for financial Martin to we John Pony kick before discuss Ma, review; Lau, will will Our will conclude I with Lo, floor CEO, Officer, discussion open review; now the Strategy to and questions. Mitchell, turn Officer, overview; call the over business the will speak James President, Financial strategy Chief with a off Pony.

Pony Ma

Good game our healthy across while our growth from joining Wendy. us. Business enhanced achieved and and In benefited evening. advertising, for you, Thanks, everyone, international we businesses, Thank services the second our quarter, revenue Services growth. particularly

equity year-on-year Non-IFRS attributable RMBXX quarter-on-quarter. X% profit net stable RMBXX and quarter-on-quarter. billion, the RMBXXX year-on-year XX% up profit for to quarter. XX% was was RMBXX stable the go quarter-on-quarter. up Gross billion, was me XX% numbers X% Non-IFRS was through and up and and year-on-year Total profit let year-on-year billion, holders operating number headline up financial -- Now, billion, XX% revenue quarter-on-quarter.

was mobile utilities. we share services. activities, XXX devices X.XX view long-form gained WeChat we focus strategy music, And and in of as was and market services, to billion. Weixin James of MAU QQ including society our we businesses. first in MAU different and our Martin video, For literature, as generally games, Mobile well social payment, economy and believe across will key retain cloud place discuss position help Combined our million.

Now, will review. for to hand over I Martin the strategic

Martin Lau

and would social products, Thank us to with Since SaaS the for we like I and you across our you, outbreak to encouraging of accelerated Today, Pony, contributing user generating progress good for morning value to now. revenue seen are little everybody. industries. share evening and the of and communication digitization COVID-XX, very despite good productivity which demand have

innovation this believe to SaaS and process Weixin coverage we including and services digitization our and and direct Our namely with to cloud large-scale users; technologies capabilities industries with we via leveraging connection industries own deep keep vertical of in product Internet services different digitize, their of experience reliability; with our second, and robust ubiquitous key for as Tencent our WeCom, which proven the QQ, engagement helping communication by our performance growth consumers economy. suite, third, Docs, services, and and We'll contribute stakeholders. business partnerships. benefits years: solutions facilitates number deliver domains through Tencent a providing and building By industries product fourth, and critical communications, security; productivity operating and over our developed assisted advanced the the our AI, to real-time Meeting, this First, such

IT efficiency as their making to significantly enhance without lowered for For technology as significant we investments our leverage can adoption. have customer the engagement themselves barrier They products own. increase cost on SMEs, to well

their enhancements through collaboration and enterprises, efficiency. we and For increasing also real-time citizens with their connection public enable productivity direct services, when facilitate and workflows they improving

we individual and their reduce burden help convenience. For users, enhance traveling

We also sharing vital instant access enable to of information. and

operations a from large operations WeCom and real-time WeCom this the different WeCom and as efficiently. tools chats, for externally. offers mobile education increasingly business as better schools. consumers enabled domain be of a sector; the efficiency. improve facilitated management coordination efficient Mini efficient of brands even of of Enterprises preserved benefit own upgrading the the will direct All as software and staff's around cost how will parents, amount with and can digitized Examples been and WeCom's to use in customer enterprises app. between Weixin management sector; we management be teachers first regular increase operations include, collaboration relationship platform. we the can retailers communications help have and tickers enhancing teachers to the using massive can WeCom customers the teachers back with departure. deeply million parents tools WeCom CRM census improve for efficiency. Census, believe functionality, been digitization the Payments. parent's while with Seventh support can Programs, for where sales these resources accounts and and X communicate online and products; of interact within in enhance census schools tools private and a and and secured adopted education communications and one through It workforce. the to Weixin, submit and a China's end tools WeCom to In enterprises reliable management. brands National has enabling history. provide way, We retained WeCom enables for manage convenient frontline WeCom can connections on Weixin by is retailers day-to-day we to enabled and In their customer integrated public Weixin government, serve Going bureaus more after and enhance we single assist also Population management enterprises with in can and their on the data

partnerships. leveraging our self-developed vertical growth XX meeting and Tencent time of in and in rooms. XX used the Ethereal Meeting; increasing solutions, conferencing our large user Tencent has per most Tencent enhanced the in With To to Meeting noise achieved the meeting Meetings China. MAU systems our stand-alone their AI-based to cooperation in from June how operations sectors, December voice XXXX a assist standard up capabilities app Communications This Now, We're China We such equipment industry and requirements. expanding enables XXXX. digitization speech solution, with company. both for cloud Examples it's solutions spent and public compared wide existing example, with away partner We growth turning supports Tencent's capture in double-digit penetration efficient around quality by Audio. solutions from collaboration. solution our our launching vendors. education hardware rooms, Tencent upgraded medical of and range meters enrich supporting includes for for enterprises enterprises, sophisticated and as IT grid with Construction customized in illustrates China compatible state cancellation, with Meeting vast

secure, solutions, large-scale reliable China as and supported or high-performance For have which importing XXXX. for events known fair deliver we conferences, since the export among X Fair April we consecutive Canton

files floods processing, sectors Tencent such as success It China cloud-based also the productivity allows functionality unique as our data sharing experience In via used QQ. is increasing XXXX, collection, the is legal. sector, via initial of finance, This collection collaborated for Docs and well gaining for as Weixin Henan user Word in student media, it's Tencent rescue spreadsheet, with of July real-time track in collaborative now on slide data in applications. and Building and in education Tencent traditional reflects Docs service people leading deck suite volunteers tool Docs easy and it's sharing. and sharing. editing Finally, as popularity a helping

extreme operations edited over to with the such process, many over XXX,XXX to Docs and within that million hours, reliable Tencent infrastructure performance and times and support documents saved in life. X.X Our times deliver in XX situation an accessed

about I that, will business review. to James to with pass talk Now our

James Mitchell

Martin. you, Thank

For of the subsegment the and XX% quarter revenue. reached represented XXXX, and revenue, XX% second network total our was XX%, and was XX%. game Services Online VAS social Business year-on-year. our subsegment, XX% revenue grew our XX% which of FinTech within the advertising of

For value-added billion quarter, was and stable for XX% quarter-on-quarter. RMBXX services, the year-on-year segment revenue up

of X% sports, to animated and million. VAS moderate X% movies. subscriptions subsegment revenue XXX to billion, content series, content network Social RMBXX growth item grew XXX across subscriptions series, year-on-year increased Total subscriptions increased XX% and diversified year-on-year sales. Video reflecting in-game our to million, digital drama from benefiting

For driven effective by year-on-year example, for to the our willingness expanded animated Through increased subscribe as Season by series, increased marketing revenue subsegment audience Land XX% million, subscriptions bases. consumer of Warriors TME's wide to services. Battle as billion. well music Games XX% XX the RMBXX attracted to X and Music Heavens

China Clash growth year-on-year XX% Honor or as XX% growth terms. PUBG Dungeon and revenue ratios. higher revenue internationally. PC year-on-year RMBXX by paying games and and to primarily client from currency increased billion, international increased with to VAS XX% Kings X% revenue grew Mobile and Our Mobile softness Mobile in Fighter. driven in was RMBXX from by RMBXX user Revenue billion, ARPU games Moonlight constant Valorant and billion, offset international and to of Blade domestic Warframe game Clans of

as repeat create into by accounts and such helps year-on-year Turning points profit their deepening decentralized than also success Programs merchant groups, commerce visits live other engaging the can our enabling streaming relationships, their as own And Summarizing merchants connectivity. driving user acquire touch and their higher more accounts Pay. Programs. also shopping for their partners, as in own than Mini ecosystem convert additional deliver and how QR to them our visits businesses margins membership their can doubled powerful off-line rewards, distribute functionalities user GMV video and brands Mini and can They With we're to environment for users to for channels via Mini on codes Programs developing achieve Weixin Weixin; channels. Mini while content and Weixin off-line Weixin can transactions. customers Programs own drive single

We better editing For and encouraging QX, content capabilities generate chat. provide so in-app experiences production camera user-generated the video enhanced as to users and video video augmented appealing more the to we reality process, share automated in content.

value reinforced IP vs. we Tencent titles. Kong, user year-to-date. views released content. a Honor in spent. series the watched of Glory, create Mobile our series a Honor July, PUBG My You now to of into most features the drama adapted crossover movie, per video PUBG and by time design And we Are on leading Video series, games, combat the which Godzilla of of episode Mobile's to increasing Kings drama revamped We Turning collaborated also battlefield skins. with popular average Kings is

our We're Studio, major benefiting ninth anniversary, Japanese including turn-based presence Quest, DAU and Studio, the XX by the from a For narrative million benefiting Valorant. activities. with in released strategy developed from games first in tile-connecting Light anniversary newly Aurora in reputable it's it upgrade among Japan event extending of Scandinavia. was tactical scriptwriter. our and and popularity art achieved based X unique we active August. game genres. which has developing technology, by Clash emerging developed created version top became players Tourdog it's Night July storyline. Clash also developing a downloaded game Valorant Supercell the gameplay, in gameplay particular on by most in anime due our begun beta is China's April to IP, style users eSports content new July female testing Riot Clans, simulation a Alchemy is and games dating launched in the in game's Clash RPG by the Stars, competitive mobile monthly of it's on robust

first developed the on date, over by to of open has XX Lightspeed mobile. preregistrations game, it's & Quantum accumulated crafting ahead Our release Studios, China in world Undawn, survival million

stringent to can spending we we playing and enhance a time sought Peacekeeper skills. for XXXX on in to Honor first X X implement familiarity further our As under and, and teamwork, measures leadership, of healthy years, a have, of facility systems playing reduced software transactions and our minors' adult mandatory in step adult limits. game leader coding holidays, and/or time hour we we classification initially real industry, acquiring under time And for To provide game game skills industry, players introduced we've experiences healthy advocated and game-playing XXXX spending around with month, activity. platforms. games such this prevented players and on mastery, for toward the from game, regulating We down holidays. a cases, in-game in tightened third-party and foster moderation other system minors total the per the potentially per coordinated environment. on in some spend Elite day with accounts we strictest regulatory minors' We across the many further pioneered accounts researching a believe a and games represent as requirements, age-based future manage statutory games. China their and verification limit game In name In minors limits and in time beyond game helping parents industry-wide Earlier environment with misusing fully XX-year XX. for day olds in-game by game China, We're spending altogether. cracking in discussion hours also non-statutory aged Kings restricting appropriate

During game XX-year X.X%. olds quarter, grossing X.X% the olds accounted for under of XX-year China second for receipts under accounted and our

by to IDFA China expected. spend growth Online automobile our Moving Weixin. ad services appear RMBXX to manage billion has the China industry in screen Advertising; had year-on-year sectors total We advertisements. K-X changes Online to main consumer Apple's expanded base private Since their a operations weakness tuition quarter, of industry within decline and, education. advertiser XX% by to Internet in lesser less sharp was Conversely, enabling after-school second from outweighed in better merchants up been than regulation by and have launch as impacted Advertising and revenue enhancing staples, of the the solutions, overall in impact May, extent, widely services,

video During in solutions our Sports, Video, and Tencent video user content marketing other and and outperformed well of Games, XXXX across activity. management, terms as as QQ, we the provided Leveraging distribution platforms online in sharing Olympic views Weixin, News. Tencent strengths Tencent believe long-form integrated and social we in short-form Tokyo we

Our billion, Mini advertising Weixin revenue in RMBXX driven to others as year-on-year social primarily well particular, XX% properties, our mobile and as increased network. by Programs ad

of Programs landing conversion Mini For to Programs' Official in Moments doubled Ad ad thus, fees, rolled leads. to close increasing half to Mini revenue inside contributed higher growth. revenue. year-on-year, revenue adopted generating leading sales sales and following release accounts Official also revenue Moments advertising; in advertisers Mini of as Programs the inventories grew pages, the recognition of more notification GMV. in growth inventories Video and Accounts

Our weakness our as apps offset of media app. advertising on year-on-year, our our advertising revenue stable in monetization news increased music was

a e-RMB driven quarter-on-quarter RMBXX segment was billion, and digital WeBank the application. Looking the FinTech, the year-on-year payment also payment each Business interface in with supporting growth. mobile number in turn, low project we, participating generating acceptance very even by cases, opportunities of in believe growing using and and researching of digital our rapid Services; industry revenue resources certain the payment ecosystem FinTech new volume developing mobile services a by mainly yuan zero We our within benefit testing at The support enriching services seek where greater at PBOC's we're growth. valuable new Services consumers number charging to of rates help commitment payment XX% and was Business revenue our payment in consumer payments notably to rate. from SMEs take the transactions SMEs it's payment pilot X% Within play up as role payment such in as increased. SMEs and per and We're a and yuan year-on-year or and user growth engagement by

services growing AI increasing to and are terms Platform-as-a-Service first IDC, and Services; cloud Business services year-on-year an video security, and solutions ranked in as in a helped segment. such our revenue traditional in cloud For an we data according platform revenues. experienced China rapid Video adopting solution important We software at grew customers analytics. of industries. rapidly And our digitalization of public of number as rate we

unified CDN we infrastructure a RTX real-time messaging, called quarter, into the network. and integrated solution instant our communication, During

one-stop by for solutions. providing kit video and path a efficiency development software developers, enhances For audio RTX their

I'll and the For expands discuss Tencent increases opportunities financial cost John efficiency. review. With Cloud RTX cross-selling that, to pass to

John Lo

you, James. everyone. Hello, Thank

or profit quarter basis, was RMBXXX the tax expenses This RMBXXX expense year in share was we Share of gains due net quarter-on-quarter. shared ago. compared losses quarter up deemed Operating of non-IFRS to lower number partly rate XX% billion, down offset losses XX% of ForEx reflected increase gains XX% Q-on-Q offset effective as RMBXX.X to RMBX.X billion, increased disposal from was income the For This year-on-year against by tax community year-on-year Services year-on-year RMBXXX.X last the EPS was associates to a quarter-on-quarter. and year-on-year or losses second fair losses million associates, valuations was IFRS services; and recognized of particular, down higher of up RMBXX.X a in of RMBXX.X companies, profit billion Interest billion, our up of from certain amount and group or value Net well impairment up billion quarter-on-quarter. or result profit year FinTech by These to compared a second in on joint of certain quarter-on-quarter. two, certain RMBXXX ForEx disposal initiatives X% or was services, net non-IFRS finance ForEx quarter investments were and associates. profit of quarter-on-quarter. were of were investee XX% for XXX% local gains, partially indebtedness. losses ventures certain or down Diluted revenue attributable transportation, invested year-on-year X% versus resulted other quarter. value of interest quarter was net tax increased quarter-on-quarter. higher associates the year-on-year year-on-year Gross number The XXXX as year-on-year quarter-on-quarter. ago. was quarter. costs one; shareholders RMBXX.X fair sectors or X.X%. stable this companies. total gains The XX% X% up mainly non-IFRS or RMBX.X investees, million a down Net was in XX% buying of RMBX.X -- XX% X% billion, adjustments this certain up RMBX.XXX, billion, On XX% up million relating to decrease adjustments reflecting billion, X% included losses, The investees.

financials. Now, non-IFRS our I'll share

quarter, EPS RMBXX.X For was or RMBX.XXX, largely stable profit billion, year-on-year quarter-on-quarter. profit Diluted Net up was XX% quarter-on-quarter. or up XX% or was operating the year-on-year RMBXX after XX% quarter-on-quarter. second NCI billion, up year-on-year X% X%

sequential operating digital games, On reflected RMBXX and selling Both Services, mainly expenses; quarter-on-quarter with shift up mainly to spending the X.X from costs, gross the quarter-on-quarter. privileged Services year-on-year associated service. By and gross content revenue and gross quarter-on-quarter. games, up percentage on reflected Services on contributions due content carry spend costs. Business quarter-on-quarter. services points games PC or and was mainly of The inventories. and FinTech XX.X%, FinTech sequential Moving Gross relatively due year-on-year or for The X.X down XX.X%, points marketing higher-margin Online over and year-on-year percentage points higher Business gross improvement to lower PC within for to digital services was to content X.X of revenue from bandwidth margin and also subsidiaries to mix X.X XX% was XX%, lower and margin which percentage benefited increase percentage increased increased marketing decline points down X.X was for we margin; Business decrease quarter-on-quarter. The owned year. consolidated market was mix both higher server decline mix The XX% and from margins. shifts percentage lower-margin operated in year-on-year year-on-year mainly Gross year-on-year and with quarter-on-quarter. including past margin stable due year-on-year overall and margin points contribution points year-on-year Advertising X.X expenses were XX.X%, was subscriptions and increase VAS down increased year-on-year segment, was billion, margin up increase

expenses compared retail R&D, XX% revenues, of year-on-year revenues, of expenses RMBX.X or XX% billion, of of quarter the G&A up XXXX. stable billion, represented R&D were year-on-year year-on-year quarter-on-quarter RMBXX.X staff quarter-on-quarter. and was percentage Both X% R&D were up force. S&M revenues. a second increase excluding XX% reflected to or As X% expenses broadly quarter-on-quarter. expenses, XX%

XX,XXX by XX% increased or quarter-on-quarter. X% year-on-year XX% it or compensation, had employees, share-based end approximately quarter XX% quarter-on-quarter. Excluding At year-on-year up we

the a take margin Let's and net look ratios. at operating

margin X.X margin XX.X%, net stable non-IFRS was points net percentage X.X quarter, points the down Non-IFRS year-on-year year-on-year percentage and For second quarter-on-quarter. percentage XX%, was largely X.X down operating or points quarter-on-quarter.

center the I or fair CapEx net the to metrics for down key dividends Finally, CapEx subsidiaries, billion second free time. RMBX.X a cash down at construction. second we Non-operating at M&A to XX% billion, the billion, quarter XX% year-on-year of quarter. flow Total companies, operating spending RMBX.X cash our year-on-year was billion, listed within RMBX.X RMBX.X due shall now the to of was billion, last you. XX% in approximately was RMBXX.X debt RMBXX the generation. The activities partly land Thank reflecting as quarter. and will of quarter amidst of pandemic decreased on flow cash billion was procurement open rights investee share We use offset down compared and year-on-year XXXX XX% advance which or outflow from by was mainly and or lower cash billion, the high quarter-on-quarter, shareholdings quarter-on-quarter. position excluding US$XXX the data Net the quarter, that XXXX RMBXX.X for CapEx trillion Free floor value XX% for and billion RMBX.XX net of for questions. end XX% financial base some

Wendy Huang

follow-up will the to one Operator, up from first one question. we We questions invite with question analyst take [ph]. each

Operator

first May ahead. go -- Hanjin we invite the sorry, Please from from Yap Citigroup. Alicia Thank from you. question

Alicia Yap

Hi, management. related for taking advertising. good the Thanks is question evening, My to questions. first my

overall adopting and about app cautious are there in this will half are some to that think overall lead on that the to But the help the year might this headwinds higher revenue meantime, Moments lead revenue ad spending. launch we limiting as given ad in Mini weakness should advertising macro also opportunity. Programs there pages, screen how of second which growth the advertiser this landing So more regulatory

Mini mentioned going with to technology think also these could is, that and these and expertise the to Moments all public How translate near-term of could develop we So, cloud-based about these to around opportunity? service longer-term complementary integration you. question, any Docs ecosystem? the solution. software you're deploying -- Programs quickly business your enterprises of and growth outlook, further the ad that your within more account the service, help also on video evolve you future revenue you're revenue ad very that Second SME, given the have and color and about should and this Thank Tencent any opportunity productivity

James Mitchell

around very So your couple adoption Programs question I long-term us a One and you well. ways. you the happy Taking we're takes enterprises the our number alluded in areas. in increasing strategic position on particularly Alicia, as which Mini summarized think being, with view, a first advertising, a of within puts fairly and of how evolving, helps it's Weixin, to, by of

advertising the a constitute it First, Programs than environment secondly, activity Accounts or Weixin environment, elsewhere. marketplace which akin more to means advertising Moments, search component, more performance themselves environment then media Official inventory. is advertising a Mini that and has of beneficial for Weixin And a rather Weixin within the within within

experience somewhat shift business network you that the secondly, accounts video toward from themselves, advertising CPMs improved higher-margin video properties. be due when our inventory from second term, both Then addition the of quarter and So Mini over longer within mix we from loads we're relative doubled mentioned a ad high-quality other such weeks. the the during monetize Weixin Olympics And quarter. see the recent the benefited services inventory, know first the lower-margin good than the in as from seeing of that is advertising to growth that spent. video advertising other can overall, we that that content ad the quarter the perspective, attractive, has quite growth our properties. and And an year-on-year in from to more which and accounts, margins Programs our DAU, gross second short the can time we to And revenue substantial,

are the growth over the term, So, the the experience than partly of in industry video the term, the inventory because slower our that is longer adoption will online second ad overall Mini drivers quarter of side in account a those structural the near and consumer the potentially X the creation. the the on expectation quarter, and third is reduction a impact In activity after-school lesser advertising advertising a well; supply tuition side. from by to overall in K-X quarter regulation on changes then effect services, the as extent, full advertising sharp very deceleration screen and so flash that's negative Programs

Martin Lau

of productivity in the And help U.S. as which can valuable product one actually we software door are customers. terms And actually time, the if a are each right, a the to look then when and a we to side; services point value think right, the of you be open immediately, that us the at immediate our I these us sell don't lot successful cloud got product lot as they'll U.S. this these to a result, at services, well. well commercial commercial ad we our market, customers, benefits. has these as as the help the services to overtime, directly have very monetize Now, more in But companies; of that's products the but believe overtime, in it they enterprise solutions, deployed category, of by

we counterpart of commercial will develop Microsoft also there Meeting, software. point the Tencent look kind monetization into And business Docs, And to For Tencent Google And And be use services is while time, further these the at want may an have WeCom, value-added value-added it's SaaS future, I some these customers of in a solutions time, you at don't Salesforce, Office. their we overtime, partly if example, Zoom. service ecosystem solution. looking who all Shopify. and services, own this certain the have think and for partly charge build And at to Docs models. it's and these

can as well. some be software enterprise on services derive will actually to SaaS our actually value provide customers, their there there and and other productivity we can from too who rely So the

in commercial time, all we to this at it's value perspective. a us would from values generate in as all, valuable believe help they point well. So very that Overtime, a of user service suite

Wendy Huang

to go let's the Operator, next question.

Operator

from Han comes Joon Kim Thank ask Macquarie. questions. The your next Please question you. Certainly. from

Han Joon Kim

your Thank management. you for Great. today time

around have a kind regulatory The first might market. been a of to were of in any that dovetails different [ph] Are tax you X from or benefiting the be been strategic years. might so out call and that really in that I priorities market industry might in things would treatment ago, forth? question of if few call X our or from developments initiatives over ebb away. think just is some out been think the those perpetual -- the few that that them; So that how there's peers want that can your into to to And of the you And I quarters great. way perpetual kind as slowing my or of a impact of envisioning perhaps which goes question, you particular has indicated months have be that lot the and some there second in

benefit us get you. that's your some idea for and treatment So and from I perpetual your impression still investing about whether that wanted you an the you been the the how tax on just Thank valid think of redeploy the ongoing for with should basis. into remain society, to conversations capital have regulators that

Martin Lau

which identify and of part of we're regulatory impact be action, advertiser buyer think group take across is to and we're sort impact big the quarter a quarter. seeing the a big I industry. a essentially probably platforms if due that's inventories entire our today around it's -- frame, and And tuition advertising the away of impacting there. our the on full impact quarter of after-school want actually this advertising the And next that you to on seeing going pretty

up with other fill we'll will impact to advertisers. be But be inventory an initially. overtime, able the there So

execution that's we be regulation to But and a of think Internet, It's bit a Internet that going direct industry the as happening in impact. terms So, U.S., quite of in so to that think expected more a size to But I an it's lot I not I there's I loose respect has And the I in questions regulation regulation should one, the more the think to on structural want over be systemic limited of been sort with well because we China. framework. China, that point is trend, it's number most regulations, global make just and ahead just right? is the the importance. answer the view, considering actually a think of might actually this the Europe. it's felt like

the coming. I to -- as and would identifying behavior. like misbehaviors of future, the fair establishing focused social more should and regulations emphasize expect in near in secondly, compliance, regulations, the rectifying industry Now very in on regulators also proper say the we responsibility well are regulators, terms future And they be as should and

the what would sustainable -- on importance -- government the Thirdly, long-term industry of the of to of go contribution competitiveness. I to industry. development Internet understanding the to the recognize foster a the from that does industry Internet social our the and economic actually wants side and The go is government also side global

And run. been the long been our also regulations. of environment trying fully well This we attitude embrace as basis, during been Fourthly, we ourselves be over would terms that foster And to in I fully all establish entire on is with compliant. philosophy. always always So industry compliant has environment always fully, us positioned relative the to say users. we and the to have create want that's felt is and felt we long-term new operating strategy that been of for are why we quite our going actually to value a we a regulation this quite And does this regulatory self-restrained has to have for And our wave want healthy this we monetization. want good embrace for environment. because it to

individual so we want platforms We also, have open to to support establish good. we our and tech emphasized entities. And all platforms enterprises for our emphasized that way, and social have the we responsibility run along use quite

pretty would given for we'll beneficiary that confident actually be say the these compliant. that. we a John? over are can we will long will factors, short-term and industry and of position uncertainties all growth, So be would it coming, be lot of And run, healthy there that are the there right, but new be I regulations a

John Lo

overtime software I categorization detailed rebate In enterprise. implementing been to has more of generally tax, reducing the by know, you think tax key relation

the key we XX% enterprise. lot. Beforehand, quite the qualified X last are reduced companies of group normally that in rate We we has had but by only tax software year Well, a for to which number were at about sure X for accrued it still preferential we when subsequent get can the year.

we when money. some as our of accrued accrued when also they which to remit withholding need opposed tax to profits peers We generated

effective for the you the as was of rate XXXX tax well. about was XX% can XX% about XXXX first see, As half and

year expect the tax the that at for level. be effective We similar will entire rate

withholding XXXX. that as On it, been lot valuation of value XXXX what the low If this all all noises book profits into is and the disposal, be investment. all, very the such would teens out All effective taking take on the mid-teens seemingly in or non-taxable have deemed low we adjustment on non-IFRS tax differential of as of rate face the for tax X%. gains around disposal rate is non-IFRS the tax other are account -- adjustments for tax approximately well, total would and a

Wendy Huang

to question. Operator, next let's move the

Operator

Thank you.

Our next your from Please Gary question. Stanley. comes ask question Morgan from Yu

Gary Yu

of we appreciate with any for market. on our ask I has on regulation. see regulator XX. the questions. you you. been management risk my So example, in some in on that's discussion years that in may the the regulator Thank thank and regulation. kind spent the try the to or to terms do we XX old on restriction measures gaming drastic for one follow-up Is of regulator, more Hi, the of to there kind have question impose fact time proactive the opportunity games? on conversation self-regulate talking I on teenagers, about of the of Based that So time the practices limit minors below for industry? on

Martin Lau

are issue very in in there focused across our now, too time James proactively of on. that pronouncements, games. I about. And minors the and right amount as each one in as a amount had a time number point the on this when we a measures is have an But still the games, that the they're money result, the the spend spending -- to as we if of industry, on the over they the issue, you which of of see regulators, that concerned total category. game. up is But and you area already that And think different put which can I talked most minors about latest on is at that think regulations at games. of amount minors time the this games think money lot spend Because key I On a are is much people have think time is of and concerns, look actually we around

the issue It it requiring well also to total consensus And a -- system actually but way requires games; So, time regulate if doable. requires regulation. across amount it the a a we as of that's that different can complicated find the regulator would it's if the to it it's spent practicality as the a perspective, requires actually industry, actually of police address problem. from

the regulator and up we will And think that felt most and achieved, thing one the on to industry, the is this gaming discuss. be So, to industry resolved. I it be to that the if can of criticism want take would we

Operator

you. Thank

comes question next from from Zhu Please question. Robin Our your ask Bernstein.

Robin Zhu

to guess Thanks, questions, question. opportunity of Thanks couple please. a the for management. I ask

just likely video there's Can will ecosystems the just -- the line is and, a happen or, subsequently, whether lot a first one on impacts opportunities it peers whether think The Tencent open the a of business talk is focus one first is, time or all, accounts. to opening you of other and between in the the there's happening, that might the bit The up? of -- happen for about -- reports been to little for this yourselves management impact that that the a about -- industry.

just I the content of accounts other depth and time thoughts mentioned video what you to Could monetization that video on? have prerequisites accounts Where on the in going been on what DAUs James point think happen? At and of creative spent out. you. and are monetization depth strategy some Thank for share so you development or here?

Martin Lau

Yes.

is priority fundamentally and I our the successful. ecosystem of SMEs ecosystem and of open, to our the helping and and think smaller terms be companies merchants is ecosystem In actually brands

you our open. a always -- if things look Users fundamentally are it's now, at are blocked. Links not copy-paste. can right lot of ecosystem Now,

our When putting way. principle rules it SMEs, allow is of untethered if and and and uphold the And vision. with tools, it's a we that the really ecosystem, an links that are the case, brands, actually Weixin that a have built have of presentation. built individuals, not we're in Some particularly right? different enhanced to and rich Now why directly users and we merchants to at with support in guidelines look of order ecosystem, principle their you engage lot always and operations this -- lot on

cases, and some individual complicated. there to platforms, Now, And lot very in cases, dominant of like merchants ours. arose. behind when They platforms Platforms have of platform not of large are millions more offer lot rules interact from the do behind these sort other merchants much services. different them, a In right? very with becomes are actually platforms. tens millions or actually of different of It have questions a

we users a the platforms counterfeit's deal will raised with our and rate questions can content as actually example, do piracy? when that resources charge but lot with such commercial with How lot other which policies, of complicated So, we other For subsidies. especially a completely take we offer platforms don't How brands, and deal right, of different? spent be any are do. merchants on do

for important are and reconcile not for our And resolved these merchants these So questions the users, it and and are very brands not then bad be it's bad our do handled for priority we complicated really will vision. and on be the questions overtime, felt be most need to we if our it how So platform. discussed that? will well,

very questions So we these in cautious handle a to want way.

we are in contributors. now, for positive would terms Video terms a on I number in Right was improving Video say focused Olympics very growing the of nicely time increasing has also content The Video and DAU quite per been as spent the Now Accounts capabilities -- content some Accounts; time, Accounts. well monetization in the DAU of such healthily as know will of our and monetization. industry not that not is ecosystem, increasing that well on enhancing content Monetization there a as is focus is now; now but high-quality as in we because well actually established including as our be at point core recommendation for for focus content, engine. mechanism the monetization our content

Operator

Daiwa Thank Markets. The ask Instructions] Capital question. next Please [Operator you. comes your from John from Choi question

John Choi

online on Good evening, have taking a your my I question question. for follow-up and games on management. Thank regulation. another you the then

follow-up into I year I guys on China have pretty was for a the market also understand be think with we should X%. delays. games, half we how few about about it you targeting that market? year do minors, tighter mentioned the a base. the But go particularly regulatory in second pipeline, depending high we And the this regulatory bit the growth, as online the gaming last could a but earlier the think more the on seems understand quick softer a that domestic games was So pipeline front. more do I environment the like on

your while with that the within slower more different standards? guys this business, regulations, impact are execute to you new how on should we try you compliant the our guys would meaning you. to opportunity of somewhat be we more comply business I have think, seeing businesses that Martin, you Thank growth mentioned regulatory as a

James Mitchell

then, not on again, our We're therefore, side, And pipeline, some positive did your users our smaller our China not the XX-years soft of aggregate is which John, perception. game game revenue. about comments think We aged and you so made outlook first around old generating which game from then. business of revenue and I of question is under, a on percentage X.X% quantify the impact revenue a in also recently, a positively quite with we've console-first first success fairly Unite. game a really time for tactical Korea healthy without seeing pipeline. robust our what And Pokémon with then for pipeline time the excited Japan And first China. the form and again, our game the good is actually of within traction, in RPG. arguably seen game We're we China, have we about think outside some China,

China a game uncertain both very I it's of an pieces. But we we environment. moving high-quality believe There's overall, and internationally. lots pipeline, So, think inside have

Martin Lau

long-term In are the be say terms actually on for for I adjustments of us, I there is needed other regulations, think, the the different strategy, short-term hand, But that very definitely will intact. would businesses.

and create our We process, And in that services way creating very industries, I value, in that monetize that and also think we self-restrained value. executed around a have services, then continue. always help social invest has strategy and that these user businesses we strategy in will

Operator

Thank you.

ask question next JPMorgan. Yao from question. Alex Please Our your comes from

Alex Yao

taking for you my Thank management question.

payment very responsibilities. is social long-term is the more some social responsibility. rate will suspension social is two take of question X for X minor And monetization to to initiative the for people -- First you cases. more response then In low old. years on announced impact quarter, financial initiatives guys number from to this increasing charge one you under the Number XX take

of of comments should you more responsibilities, we Martin's the areas direction expected future to regulation then margin and you. the on with about us or on thoughts take a I more more follow-up market. how impact structure? to your your areas social more on As around those you long-term you coming on Can secondly, the the directions And think and have Thank that regulatory share see measures? regulatory

Martin Lau

have provided Well, we on the question, already framework. last the

regulator entities will think coming from And segments be as few of coming a will different industries. quite well it the out. there think as be on I we all different

So that until provide they come a analysis we out. can't clinical of

on our impact the it's at if only our look of X.X% old, of under XX-year revenues. business; terms total you in Now the

sort So very it's little. of actually

our slow of the will benefits In growth within scope. terms by think that SME but of down large, it would I revenue be well and it

which to hopefully, losses strategic One narrow always has is a been overtime would This to would but of many significant, terms able our been businesses driven overall profit. consistent overall usually of I past over strategy And has profitable to continue term actually different now our are keep longer free stable, also say which quite a monetization overtime there intend would be monetization which our In And we'll of by and strategy we the loss-making actually this they impact, overtime, although means of the services, be mix margin overtime. components. some combination our some relatively then, profile would then, actually years, generate say, quite we that have businesses, will stable, actually monetized and side fluctuations. I have from is be profile, earnings be short-term could which restraint. by

emphasize it pool, the not of big -- will we which our IFRS a in in a SSB that terms of actually profit RMBXX be of impact have sort from billion, so it profit. pool. will profit want to pretty non-IFRS yes; non-IFRS again, I Oh funded Now investment

Operator

Please [indiscernible]. question. question next from your The comes Wu ask from Natalie

Unidentified Analyst

good Hi, question. taking Thanks for my evening.

actually your wondering, actually Financial very grew Business Services fast quarter. line Just FBS this

of led profile growth you. is if margin Thank just of cloud much Just business? -- cloud. future led wondering commercial of much is if also, FinTech see how similar the gross payment, by this is by we and wondering, And how line? the the with how And the should trend the

James Mitchell

that X So Infrastructure-as-a-Service Software-as-a-Service. infrastructure growth on both the gentle were not commercial and cloud, very rather, cloud into to on growth. for mentions, substantially yet, because Software-as-a-Service. then the stage the service where, focusing growth mix your shift Platform-as-a-Service optimization improved question, above-market there at margin cloud translated we more was it's towards rapid, the on margin That's Within John gross year-on-year. Platform-as-a-Service the and we're the because And the as very primary payment saw rapid Natalie, and margin from and contributors then a

focused and growing did gross on of Business improve digitize PaaS penetration notably industries and still the mix SaaS. margin for but on market maximizing shift our profit the we're to rather than So, helping client share, because and Services profitability, year-on-year

Operator

Thank you.

Garret from Please CITIC Our comes next ahead. Securities. go from Wang question

Garret Wang

the Hello, is team. there [indiscernible]. our In some reorganization that I first noticed management of half year,

Internet can through other is management upper Thank investment? it's and background, the of we more us our Metaverse? and team department. the of team PCG reaching limit? leading are the purpose management some since is And and content content the you. focusing [indiscernible] from the layout as besides reorganization now priority Some And IEG Resource business can Human the what [indiscernible] Under is you China some out the this strategy of work hints Literature demand on give that traffic our on field,

James Mitchell

you for the thank Yes, Garret. questions

the So believe immediate an to Metaverse-like on that great very the longer And games in topic existing number popular your us, opportunity. social progressively to including become potential interest be Metaverse that second term are social a created networks highly of are is nature, Metaverse, a pathways well question, overtime. to a new that than there's rather games we albeit can of as as more existing yet

have physical interacting also will and those in of beneficial is the of take purposes. users a companies think sets of experience Metaverse pursuing order network or each huge populate ability take terms in of We world as between assets in managing to with of a to and games, we're of all is which a digitize capabilities to including and to one communications social we're the people highly them then, faces to certain social real-world environment, objects handling there's games. at believe mountains that of assets and those the that seeking of expertise, And and attributes experience to online such numbers paths, users, digitize we Metaverse digital that akin be with skill them or of managing with online with human including to speed. terms handful high in globally terms and And other, networking, the which buildings provide for including companies also all Metaverse economies ability the that really akin or

the question. on that's second So

in In think to Kings literature, observation. digital that I And clearly we China. reinforce based that media that opportunities conclusion fact that when to synergies it comic is that's the the can the video and and forth. Kings underlying question, accretes so looking believe series continually there's film upstream -- that that's correct, your whether for interesting from and we very increasing of are and the in TV in Honor actually your opportunities in is whether first series, released see cartoons, formats And between popularity drama and you that's astute of of also Honor on different of game. whether content presence, an terms we the And for

IP, a And will different interpretations can which same underlying high-quality have media so you is the each self-reinforce they're other. of

the series, see with the wide [indiscernible] each the also of China can animated IP, of that drama so the and and appears one grow. respect games popularity series, the You Literature's seeding fact now IP iteration, mobile it in in the forth. the of for a And that range market and the IPs, to is deepen

we more So than and content of good of become that's by healthy trend, China. in really mindful think ensuring and what that drive products platform-centric very a to our a the we're position within that that by help very content-centric sort has historically been people moving change around opportunities in increasingly groups

Operator

from question ahead. William from Exane go Packer next Paribas. The comes Please BNP

William Packer

for thanks Hi my taking many management, questions.

of you for then thoughts you. communicated that secondly, you had you're you could share plans, you've XX% in return soon? perhaps reinvestment reinvestment last developed X% context guidance on -- further of to details the plans EPS the XXXX investment firstly, trend narrowing and factors. Can too you range of growth which your perhaps to is to on any growth? So non-GAAP or of you XXXX, if quarter, Thank And profit could scale provide regulatory I planning now it more both the wondered

James Mitchell

WeCom, is and not right don't look from Business the our enterprise means to growth video we really short of in in when meaning time, a whether very accelerated provide moving direction. for a Services what's enterprise. and and in in for initiatives, quarter seeing we at fact signaling because we're there degree fact of and measure us we sharply, Docs, So important our that this for our last that typically at growth confidence deceleration give we're delivering and user game revenue are the be reinvestments, perspective, our William, point so in more are that growth unfortunately could Tencent that business strong or of we the And I did as those Meeting our that on reinvestments guidance so in a Tencent think the

right game market, that time we're, game year-on-year, growth into moving first video, short investments for our game Weixin studios of for directions confidence on in that XX% moving the increases we're successfully moving Nintendo the right revenue for Switch our in grew fact in games. degree the time, give we're the first Japanese DAU direction. video the us For the And accounts, then content, and and the signal fact the penetrating opportunity, spent a international that in we time believe the the

shakes in that next quarters quarters, the or of huge number there's X of X from line in a perspective terms the So a next out where moving bottom parts.

within control. are them Some our of

of China, now. products enterprise firmly businesses we suite, of are are to them years outside we Office arguably you place more very we look and good if with less that the But Zoom is on Microsoft software building analogues our Shopify Some have X, short-term and at from those control. we're the our we're believe to what in parts, XX which focused moving And be. a focused on and are

at accounts, we look opportunity substantial you longer-term If at video our revenue growth scale. drive have an to advertising

than we business If global triple to from group. the aggressively a you business China-centric business opportunity our and game look market addressable for the therefore, at more primarily have our business, game to this truly reposition a

So X opportunity focus optimizing for that's longer-term X around really than that the or quarters. next our rather

Operator

you. Thank

from America go Eddie Bank Leung of next comes question ahead. Please Our Merrill Lynch. from

Eddie Leung

my evening. you for questions. taking Good Thank

on and regulation. question question is follow-up advertising first The a

be tightening media there We have -- policy. from of and data could various various ramp data data in privacy a connections

solutions platform. your potential Should could marketing on we impact wondering an a different James. what follow-up certain be secondly, to marketing less So expect question And on others? just the solutions the under impact have then than

You just overseas some mentioned opportunities. about, the of game for example,

opportunities as genes? PC and established We this in also Thanks. noticed So so at, And a such focus in you are -- development you that just mentioned, couple just of we we much right, actually wondering, how our to when are on along expand game console that actually is of going we is presence games as like other studios mobile games? U.S.; looking line? kind overseas,

James Mitchell

Yes, thank you.

have of negative because aggressive nearly Western any our meaningful around advertising purposes been use of not the fairly So as and known to the industry for we before which we I the for the on being we've have the the that your use relative consumer those data our first simply for targeting peers as all of advertising, into to. could in our the changes user there impact question we some thoughtful always on very local the about data data collection a would be high our would granularity in in think regulations targeting But of and well employ and purposes. ad assumption And the using access potentially to data I data I been that won't peers think targeting us that specificity of details to in or is of level, about we go terms here. judicious have terms target extent at substantial

question. first the on that's So

mobile. games On answer was specifically as PC it we're the the on latter. second is And mobile as I the games around globally question, well focused or console and on think whether

is successes of I if last international Valorant, biggest game. the is PC-first year game Games' at one in our look think a which Riot you

is that meanwhile, the convergent well xXX. a then back case tripling And and increasingly architecture further and mobile-first Epic's tools, multiple Nintendo Nintendo bit, then convergent would reasons. the of Pokémon simultaneously. a address as much very higher Xbox, game a our but game. Switch to the around And is few acquisitions, big been around or investee, Engine, on investments, process console that become studios of I Pulling our mobile number last or PC have China a a it a one time quarter would were made port the developing chipset think console PlayStation number perfusion case including order that TiMi decreasingly for the versa. and a it mobile great been historically a helping Unite, for of One game is architecture of Unreal was the which successes effort gone are a secondly, for we've when there's Switch to mobile game architecturally like One of a tripling studios of vice simplify and mobile software years of as And by, that design. work specializations, of increasingly at a have apart. of and the as but thirdly, specializations in Tencent, than of often is find same on that's required effectively console PC, Switch result, is of in with have little to headcount PC easier platforms within what outside And great

reasons, and for So I our think forward. addressing internationally, so we'll and mobile all together be going console doing of are we those increasingly PC

Operator

Thank you.

question next go from comes Our Chong Thomas Jefferies. from Please ahead.

Thomas Chong

Hi, My video online good for evening. taking management question the landscape. my about questions. first Thanks is

on about drama expect sense follow-up questions seeing previous the regulatory long and on shows the to environment come in my a out variety a that -- just more second side. about get we long-form to we is half? want the and gaming international And the question Just video. Are should in form is relaxing series second

we very quite that this a about or Should management want we well by going QX the have driven international contribution get forward. you. about some in-house as development sense on momentum front, us more Thank growth in games, color revenue that a to And long-term seen to can strong be M&A? our the just strategies KPI? Given expect international give gaming in as

James Mitchell

games So, why international I address question. don't the

grew out know, this; constant revenue year-on-year can we for you XX% disclosed think disclosed And game we terms. XX% that revenue the in actually of the segment revenue. back I and You also XQ games international currency

shifting to much more although creation much of strategy QQ it's historically terms content-first strategy, because outside of content and with very content-driven. content the it's a both creation, and distribution distribution increasingly platforms Weixin the versus think China; focused In in then China, overtime I purely on

by terms the we technology new or a although that of acquisitions growth and particular us the fill coming primarily where where lacked. In we it's think from, capability periodically revenue can then supplemented hole a previously existing bring studio, is

create Legends revenue looking Arena an outside the similar are Clans relatively Mobile, have is And at successful then, of is and and So games China now game one in more second or China, the second international released piece stage Clash in our we by piece, and is Royale outside world. China, one Supercell and component PUBG by China at of A that games of studios very with as at rest Valorant, we size second game such as big such the created such of to game. some as Valor, incubation Brawl big Riot in quarter of such smaller with then, other studios export on as of big Stars. and are their that League investee previously, Clash a outside our work

half that's first far concerned. in So the me, constraints content supplement video, celebration. there international our this of aware, I as mean with that probably online to you're July think regard I may some as Martin are X games was related year, as but to the

And appearing, this summer. it's that drama series have experienced drama successful more we already possible or more there so be series may

variety some the the therefore, flip shows second the show issues to in variety output I there's side, been the think with half some that there's year. dislocations of On and

primarily variety drama through primarily series historically, that monetize subscriptions. through shows aware probably You're tend advertising monetize to versus

is So subscription-driven video will our I increasingly going think and forward. that remain business true

Wendy Huang

call you, you. everyone. we Operator, now. the Thank Thank are closing

also out see press you website available soon. next our section and IR Thank If please check at this release of you visit to of company and information, be financial other the www.tencent.com. wish you webcast quarter. replay our The will

Operator

our Ladies today. conference participating. does for that and gentlemen, Thank for conclude you

disconnect. may You all

Tencent Holdings Limited (TCEHY) 18 Aug 212021 Q2 Earnings call transcript