Group 1: Market Context - Chinese investors face challenges from geopolitical tensions, regulatory crackdowns, and COVID lockdowns, leading to low valuations for high-quality Chinese stocks compared to U.S. tech stocks [1] - Tencent's stock has significantly declined due to government regulations affecting big tech and gaming companies, with a recent drop of 10% following new gaming regulations [1][6] Group 2: New Regulations - Chinese authorities announced new rules for video game play, banning digital rewards for certain behaviors and prohibiting auctioning digital items and "lucky draw" features for minors [2][3] - The new regulations were unexpected, as investors believed that video game regulations had concluded after previous restrictions in 2021 [3] Group 3: Long-term Outlook - The new rules may address addictive behaviors and low-quality revenue, indicating a potential positive long-term impact on the gaming industry [4] - Chinese regulators approved 145 new games recently, suggesting a willingness to support the industry despite new restrictions [4][5] Group 4: Tencent's Resilience - Tencent's domestic gaming revenue was 32.7 billion yuan ($4.58 billion), accounting for only 21% of overall revenue, indicating a balanced business model [6][7] - Despite regulatory impacts, Tencent's domestic games revenue fell only 7% in Q3 2022 and has since bounced back to 5% growth [7] Group 5: Valuation and Investment Opportunity - Tencent's stock trades at approximately 13.4 times earnings, with a significant investment portfolio valued at over $113 billion, making it appear undervalued [8][9] - Stripping out investments, Tencent trades at around 8.5 times earnings, suggesting a strong investment opportunity amidst the fear-driven sell-off [9]

Core Viewpoint - Tencent's shares fell by 10.3% following the announcement of new proposed regulations by Chinese authorities aimed at limiting excessive online gaming and spending [1][2]. Group 1: Proposed Regulations - The National Press and Publication Administration of China has released a draft document seeking public comment on new restrictions for online gaming companies, including a ban on daily login rewards and lower recharging limits [2]. - The proposed regulations also include warnings for users displaying "irrational consumption behavior" and a requirement for game developers to avoid offering high-value or expensive virtual transactions [2]. Group 2: Impact on Tencent - Tencent has significant exposure to the gaming sector, with approximately 21% of its total revenue last quarter derived from domestic games, and around 9% from games outside of China [2]. - Despite the proposed regulations, Tencent's VP of Games, Vigo Zhang, stated that the new measures will not fundamentally alter the online gaming business model and operations, suggesting that the company believes it can adapt [3]. - The market reaction has been negative, with a notable decline in Tencent's stock price as investors react to the uncertainty surrounding the new rules [1][3]. Group 3: Future Outlook - The proposed rules are not finalized, and industry observers expect further clarification from Chinese authorities in the coming weeks, leaving the actual impact on Tencent's gaming business uncertain [3].

Core Viewpoint - Tencent's stock experienced a significant decline following the announcement of new regulations on online gaming by the Chinese government, which may impact its growth potential, particularly in the gaming segment that constitutes 21% of total revenues [8][10]. Financial Performance - In Q3 2023, Tencent reported a 10% year-over-year growth in total revenue, reaching 154.6 billion RMB, with online advertising growing by 20% and gross profits increasing by 23% [3][4]. - Operating profits surged by 36% year-over-year, reflecting a focus on operational efficiencies [3][4]. - The company ended the quarter with a solid balance sheet, including a net cash position of 36.4 million RMB and an investment portfolio valued at 113 billion USD [4][6]. Share Repurchase and Management Strategy - Tencent repurchased approximately 48 million shares for 14 billion RMB in the quarter, indicating a commitment to enhancing shareholder value [6]. - Management emphasized a strategy focused on "greater operating leverage" and high-quality revenue growth, while also exiting non-core businesses and reducing excessive operational spending [6]. Market Valuation - Following the recent stock decline, Tencent's valuation appears reasonable, trading at around 16 times this year's earnings estimates, although it is not as cheap as some peers like Alibaba [2][16]. - The potential for operating margin expansion is significant, with adjusted EBITDA margins currently at 34% [16][17]. Long-term Growth Potential - Despite the regulatory challenges in the gaming sector, Tencent's diverse portfolio, including Weixin (WeChat), is viewed as a key asset with substantial under-monetized advertising growth potential [12][17]. - The company is investing in expanding its gaming offerings, particularly in casual and competitive multiplayer games, which may help sustain long-term growth [9][10].

Core Viewpoint - The recent draft guidelines from the Beijing government aim to limit incentives that lead to excessive gaming and spending, resulting in significant stock declines for Tencent and NetEase [1][2]. Group 1: Market Reaction - Tencent's shares fell by up to 15.7%, reaching HK$263.60 ($33.74), before slightly recovering to a decline of approximately 12.7% at HK$274 ($35.07), marking its lowest level since late November 2023 [2]. - NetEase's stock experienced a sharper decline of 20% following the announcement of the new regulations [2]. Group 2: Regulatory Context - The National Press and Publication Administration's draft guidelines prohibit online game operators from using inducive rewards, which are believed to encourage consumers to spend more time and money on games [1]. - This regulatory move is part of a broader trend of ongoing measures targeting online gaming in China, reflecting authorities' concerns about video game addiction among youth [1].

Market Performance - US stock market closed mixed on Friday, with all three major indices recording their seventh consecutive week of gains, marking the longest weekly winning streak for the S&P 500 since 2017 and for the Dow Jones since 2019 [1] - The Dow Jones Industrial Average rose 2.93% this week, the S&P 500 increased by 2.49%, and the Nasdaq Composite gained 2.85% [1] - The S&P 500 is now less than 1.6% away from its all-time closing high of 4796.56 points set in January 2022, while the Nasdaq is 8% below its record closing high of 16057.44 points from November 2021 [1] Company Dynamics - Major tech companies in the US showed mixed performance, with Tesla up 0.98%, Meta Platforms up 0.53%, and Alibaba rising 2.76%, while Apple fell by 0.27% [1] - Pinduoduo's market capitalization reached $197.096 billion, making it the leading Chinese concept stock, with its cross-border e-commerce platform Temu experiencing rapid growth in various countries [2] - Alibaba announced a reduction in its stake in Xpeng Motors from 10.2% to 7.5%, while expressing confidence in Xpeng's future and emphasizing ongoing strategic cooperation [2] Upcoming Events - Several companies are set to release quarterly earnings next week, including 51Talk, Accenture, and FedEx, with key economic indicators such as US GDP and consumer confidence index also scheduled for release [1] Competitive Landscape - Meta Platforms plans to expand its Threads application into more European countries, facing competition from Musk's X, while navigating strict EU regulations on data privacy and security [3][4]

Good day and good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2023 Third Quarter 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 a question, please press five on your telephone to raise your hand. If you are accessing from the Tencent Meeting or VOO meeting applicat ...

Revenue and Profitability - Revenue for the three months ended September 30, 2023, was RMB 154,625 million, representing a 10% year-over-year increase from RMB 140,093 million[1]. - Gross profit for the same period was RMB 76,523 million, a 23% increase compared to RMB 61,983 million in the previous year[1]. - Operating profit decreased by 6% year-over-year to RMB 48,475 million from RMB 51,593 million[1]. - Revenue for Q3 2023 increased by 10% year-over-year to RMB 154.625 billion, compared to RMB 140.093 billion in Q3 2022[45]. - Gross profit for Q3 2023 was RMB 76.523 billion, up from RMB 61.983 billion in Q3 2022, reflecting a significant increase in profitability[44]. - The company's net profit attributable to equity holders for Q3 2023 decreased by 9% to RMB 36.2 billion, while the non-IFRS net profit increased by 39% to RMB 44.9 billion[25]. - The company's profit attributable to equity holders for the three months ended September 30, 2023, was RMB 36,182 million, a decrease of 6.4% from RMB 39,943 million in the same period of 2022[167]. - The profit attributable to equity holders for the nine months ended September 30, 2023, was RMB 88,191 million, an increase of 7.4% compared to RMB 81,975 million in the same period of 2022[167]. Expenses and Costs - The cost of revenue for value-added services decreased by 4% year-on-year to RMB 33.7 billion, attributed to reduced costs related to music and game live streaming services[21]. - General and administrative expenses for Q3 2023 were RMB 26.3 billion, remaining stable year-on-year[24]. - Sales and marketing expenses increased by 11% year-over-year to RMB 7.912 billion, reflecting heightened promotional activities in gaming and long-form video content[50]. - Financial costs surged by 43% to RMB 2.784 billion, primarily due to a decline in foreign exchange gains and increased interest expenses[51]. - Income tax expenses rose by 55% to RMB 11.008 billion, driven by an increase in pre-tax profits and higher tax provisions[52]. - Research and development expenses for the three months ended September 30, 2023, amounted to approximately RMB 16,454 million, compared to RMB 15,082 million for the same period in 2022, reflecting an increase of 9.1%[115]. Cash Flow and Financial Position - The company recorded a net cash position of RMB 36.431 billion as of September 30, 2023, compared to a net debt position of RMB 27.271 billion a year earlier[32]. - The company reported a net cash position of RMB 1,035.2 billion as of September 30, 2023, compared to RMB 1,012.1 billion at the end of 2022[80]. - For the nine months ended September 30, 2023, net cash flow from operating activities was RMB 168,008 million, an increase from RMB 110,488 million in the same period of 2022, representing a growth of 52.1%[88]. - Net cash flow used in investing activities for the same period was RMB (117,157) million, compared to RMB (86,533) million in 2022, indicating a 35.3% increase in cash outflow[88]. - The total cash and cash equivalents at the end of the period decreased to RMB 146,476 million from RMB 160,177 million, a decline of 8.6%[88]. - The company’s net cash position increased to RMB 36.4 billion as of September 30, 2023, up from RMB 17.7 billion as of June 30, 2023, driven by strong free cash flow[99]. Investments and Assets - The fair value of listed investments (excluding subsidiaries) was RMB 464.4 billion, while the book value of unlisted investments was RMB 347.2 billion[100]. - The company’s investments in listed companies amounted to RMB 161,155 million as of September 30, 2023, compared to RMB 159,861 million as of December 31, 2022[176]. - The total investments in non-listed companies reached RMB 200,124 million as of September 30, 2023, up from RMB 187,502 million in the previous year, indicating a growth of about 6.9%[197]. - The company made new investments and additional investments totaling approximately RMB 44.796 billion in financial assets measured at fair value through profit or loss for the nine months ended September 30, 2023[175]. Shareholder Returns and Equity - The company declared a final dividend of HKD 2.40 per share for the year ended December 31, 2022, totaling HKD 22.762 billion, compared to HKD 15.260 billion in 2022[168]. - The company’s diluted earnings per share for Q3 2023 was RMB 2.695, compared to RMB 3.875 for the same period last year[72]. - The company’s basic earnings per share for the nine months ended September 30, 2023, was RMB 9.312, an increase of 8.3% from RMB 8.595 in the same period of 2022[144]. - Total equity attributable to the company's equity holders increased to RMB 768,514 million as of September 30, 2023, compared to RMB 721,391 million at the end of 2022, reflecting a growth of approximately 6.5%[82]. Regulatory and Compliance - The company incurred a penalty of approximately RMB 2,990 million related to regulatory non-compliance in July 2023, which was accounted for in the financials for the three months ended September 30, 2023[114]. - The financial data presented is unaudited but has been reviewed by auditors, ensuring a level of reliability in the reported figures[92]. - The company adopted new accounting standards effective January 1, 2023, including IFRS 17 for insurance contracts and amendments to IAS 1 regarding accounting policy disclosures[94].

Financial Performance - For the second quarter of 2023, the company reported revenue of RMB 149.21 billion, an 11% increase year-over-year, while the gross profit reached RMB 70.84 billion, up 22%[6]. - The net profit attributable to equity holders for the second quarter was RMB 26.17 billion, reflecting a 41% year-over-year growth, with basic earnings per share at RMB 2.761, a 42% increase[13]. - The company achieved a total revenue of RMB 299.19 billion for the first half of 2023, an 11% increase compared to RMB 269.51 billion in the same period last year[9]. - The company reported a non-IFRS net profit attributable to equity holders of RMB 37.55 billion for the second quarter, a 33% increase year-over-year[13]. - The operating profit for Q2 2023 was RMB 40.3 billion, up from RMB 30.1 billion in Q2 2022[29]. - The company’s net profit attributable to equity holders increased by 1% quarter-over-quarter to RMB 26.2 billion in Q2 2023[41]. - The company reported a net profit of RMB 52,009 million for the six months ended June 30, 2023[87]. - The net profit for the same period was RMB 42,963 million, representing a net profit margin of 16%[61]. - The company reported a net loss of RMB 200 million in other income, primarily due to compliance-related costs, including a fine of approximately RMB 2.99 billion imposed by the People's Bank of China[38]. Revenue Streams - Monthly active accounts for WeChat and Weixin reached 1.327 billion, a 2% increase year-over-year, while QQ's mobile active accounts were 571 million, a slight increase of 0.4%[14]. - The advertising business experienced significant growth, driven by the application of machine learning capabilities and the commercialization of video accounts[15]. - Online advertising revenue grew by 34% year-on-year to RMB 25.0 billion, driven by strong demand for video ads and optimization of the machine learning advertising platform[33]. - Financial technology and enterprise services revenue rose by 15% year-on-year to RMB 48.6 billion, benefiting from increased commercial payment activities[33]. - International gaming revenue increased by 19% year-on-year to RMB 12.7 billion, with a 12% growth rate after excluding foreign exchange effects[33]. - The revenue from the online advertising business grew by 19% year-on-year to RMB 25 billion, benefiting from seasonal factors like the "618" shopping festival[45]. - The revenue from value-added services was RMB 74,211 million, up 3.3% year-over-year from RMB 71,683 million[77]. - The revenue from social networks for the six months ended June 30, 2023, was RMB 60,700 million, an increase from RMB 58,380 million in the same period of 2022, reflecting a growth of about 3.6%[151]. Cost and Expenses - The cost of revenue for Q2 2023 increased by 3% year-on-year to RMB 78.4 billion, with the cost as a percentage of total revenue decreasing from 57% to 53%[34]. - The cost of revenue in Q2 2023 decreased by 4% quarter-over-quarter to RMB 78.4 billion, resulting in a gross margin improvement from 45% to 47%[44]. - Sales and marketing expenses increased by 18% quarter-over-quarter to RMB 8.3 billion, reflecting increased promotional and advertising activities[46]. - The company reported a net financial cost of RMB 3.3 billion in Q2 2023, an increase of 82% year-over-year[38]. - Employee benefit expenses for the three and six months ended June 30, 2023, were RMB 26.770 billion and RMB 54.069 billion, a decrease from RMB 27.550 billion and RMB 56.779 billion in 2022[158]. - Research and development expenses for the three and six months ended June 30, 2023, were approximately RMB 16.010 billion and RMB 31.191 billion, compared to RMB 15.010 billion and RMB 30.393 billion for the same periods in 2022[160]. Cash Flow and Capital Expenditure - Free cash flow generated in Q2 2023 was RMB 29.9 billion, with net cash flow from operating activities at RMB 40.7 billion[70]. - The company’s capital expenditure in Q2 2023 was RMB 3.95 billion, reflecting ongoing investments in growth initiatives[48]. - Cash dividends paid during the period totaled RMB 20,586 million, while a physical dividend distribution amounted to RMB 32,169 million[90]. - The company repurchased shares amounting to RMB 15,091 million, up from RMB 5,577 million in the previous year, which is an increase of 170.5%[100]. - The total cash outflow related to leases for the six months ended June 30, 2023, was approximately RMB 2.982 billion, a decrease from RMB 3.359 billion for the same period in 2022[196]. Assets and Liabilities - Total assets as of June 30, 2023, amounted to RMB 1,537,503 million, a decrease from RMB 1,578,131 million at the end of 2022[80]. - Total liabilities decreased to RMB 696,687 million from RMB 795,271 million, a reduction of 12.4%[84]. - Current liabilities increased to RMB 348,864 million from RMB 434,204 million, a decrease of 19.7%[84]. - Long-term borrowings decreased to RMB 154,079 million from RMB 163,668 million, a decline of 5.8%[81]. - The company’s total equity attributable to equity holders was RMB 736,494 million as of June 30, 2023, compared to RMB 803,881 million at the end of the previous period[95]. Compliance and Regulatory Issues - The company incurred a fine of approximately RMB 2.99 billion for past regulatory non-compliance in providing payment services in mainland China, which was accrued within the six months ended June 30, 2023[48]. - The group has not experienced any significant changes in risk management policies as of June 30, 2023[119]. Future Outlook - The company plans to continue investing in new technologies and market expansion to drive future growth[54]. - Future guidance indicates a focus on maintaining growth momentum and exploring strategic acquisitions to strengthen market position[54].

[3 -> 11] Good day and good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2023 [11 -> 17] Second Quarter Results Announcement Webinar. I'm Wendy Huang from Tencent's IR team. At [17 -> 23] this time, all participants are in a listen-only mode. After the management's presentation, [23 -> 28] there will be a question and answer session. For participants who are dialing by phone, [28 -> 34] if you wish to ask a question, please press 5 on your telephone to raise your hand. If [34 -> 3 ...

Financial Performance - For the six months ended June 30, 2023, the company reported a net profit of RMB 28,987 million, compared to RMB 19,230 million for the same period in 2022, representing a year-on-year increase of approximately 50.5%[7]. - Total revenue for the six months ended June 30, 2023, was RMB 73,205 million, an increase from RMB 67,284 million in the same period of the previous year, reflecting a growth of approximately 8.6%[10]. - The gross profit for the six months ended June 30, 2023, was RMB 139,022 million, compared to RMB 114,941 million for the same period in 2022, reflecting a growth of about 21%[53]. - The company reported a diluted earnings per share of RMB 4.32 for the six months ended June 30, 2023, compared to RMB 5.52 for the same period in 2022, reflecting a decrease in profitability per share[9]. - The company’s profit attributable to equity holders for the three months ended June 30, 2023, was RMB 26,171 million, an increase of 40.6% from RMB 18,619 million in the same period of 2022[65]. - The basic earnings per share for the six months ended June 30, 2023, was RMB 5.486, up 24.5% from RMB 4.407 in the same period of 2022[65]. - Net profit attributable to equity holders increased by 41% year-on-year to RMB 26.2 billion in Q2 2023[140]. - The company recorded a net profit of RMB 27.023 billion for Q2 2023, compared to RMB 26.394 billion in Q1 2023[134]. Cash and Cash Equivalents - The company's cash and cash equivalents as of June 30, 2023, amounted to RMB 17.7 billion, down from RMB 31.5 billion as of March 31, 2023, primarily due to dividend payments and share buybacks[13]. - The group’s cash and cash equivalents as of June 30, 2023, were RMB 46,172 million, slightly up from RMB 45,467 million as of December 31, 2022[47]. - The company’s cash and cash equivalents decreased to RMB 246,101 million as of June 30, 2023, from RMB 310,209 million as of June 30, 2022[70]. Expenses and Costs - Employee benefit expenses for the six months ended June 30, 2023, were RMB 54.07 billion, a decrease from RMB 56.78 billion in the previous year, showing a reduction in labor costs[29]. - The total remuneration cost for the six months ended June 30, 2023, was RMB 54.069 billion, a decrease from RMB 56.779 billion for the same period in 2022[111]. - The revenue cost for Q2 2023 decreased by 4% quarter-on-quarter to RMB 78.4 billion, attributed to reduced content costs, fintech transaction costs, and bandwidth and server costs, partially offset by increased channel and distribution costs[126]. - Operating expenses decreased by 3% year-on-year to RMB 25.4 billion, mainly due to reduced employee costs[139]. - The cost of revenue for Q2 2023 was RMB 78.37 billion, representing 53% of total revenue, down from 57% in the same period last year[168]. Investments - The company incurred expenses related to SSV and CPP projects amounting to RMB 3.30 billion for the six months ended June 30, 2023, compared to RMB 2.14 billion for the same period in 2022, indicating an increase in investment in these areas[31]. - The group’s investment in associates increased due to additional investments in several new and existing associates primarily engaged in game development[42]. - The total equity investments in listed companies as of June 30, 2023, amounted to RMB 186,834 million, an increase from RMB 159,861 million as of December 31, 2022[74]. - Investments in listed companies as of June 30, 2023, amounted to RMB 12.957 billion, compared to RMB 12.443 billion as of December 31, 2022[98]. - Investments in unlisted companies increased to RMB 197.842 billion from RMB 187.502 billion year-on-year[98]. - The company made new and additional investments totaling approximately RMB 34.55 billion in financial investments and companies engaged in electronic payments and e-commerce[179]. Taxation - The corporate income tax rate applicable to the company in China is generally 25%, which has been factored into the tax provisions for the reporting periods[34]. - The group incurred a total tax expense of RMB 22,610 million for the six months ended June 30, 2023, compared to RMB 9,837 million for the same period in 2022, indicating a significant increase[64]. - Tax expenses rose by 144% year-on-year to RMB 11.1 billion due to increased pre-tax profits and tax provisions[139]. Shareholder Value - The company repurchased a total of 48,346,500 shares at a total cost of approximately HKD 16.9 billion during the six months ended June 30, 2023, aimed at enhancing long-term shareholder value[85]. - The fair value change of the payable dividend related to Meituan shares was approximately RMB 30 billion during the period from January 1, 2023, to the dividend distribution date[68]. Operational Efficiency - The adjusted EBITDA margin for the period was calculated based on adjusted EBITDA divided by revenue, indicating a focus on operational efficiency[4]. - The adjusted EBITDA for Q2 2023 was RMB 56.85 billion, with an adjusted EBITDA margin of 38%[190]. Market Performance - Revenue for Q2 2023 increased by 11% year-over-year to RMB 149.208 billion[167]. - The revenue from value-added services in Q2 2023 was RMB 74.21 billion, a 4% year-on-year increase, driven by contributions from games like "VALORANT" and "Triple Match 3D" with international game revenue growing 19% to RMB 12.7 billion[175]. - The revenue from online advertising in Q2 2023 increased by 34% to RMB 25 billion, supported by strong demand for video ads and optimization of the machine learning advertising platform[176]. - Financial technology and enterprise services revenue grew 15% year-on-year to RMB 48.64 billion, benefiting from increased offline and online commercial payment activities[176]. Other Notable Points - The company expressed gratitude to its employees and stakeholders for their continued support and confidence during challenging times[113]. - The number of registered accounts for value-added services increased by 2% year-on-year to 1.327 billion[147]. - The number of active accounts and user engagement metrics were not disclosed in the provided content but are critical for assessing future growth potential[92].