Tencent Holdings Ltd., Q2 2012 Earnings Call, Aug 15, 2012 - SEHK:700

SEHK:700

** Summary of Executives' Statements**

Introduction and Forward-Looking Statements:
- Welcome and introduction to the call.
- Reminded participants about forward-looking statements and non-GAAP financial measures.
- Introduced the management team: Pony Ma (Chairman and CEO), Martin Lau (President), James Mitchell (Chief Strategy Officer), and John Lo (CFO).

Financial Performance and Key Platforms:
- Tencent continued to grow at a healthy pace despite a challenging macro environment.
- Emphasized the growth in key platforms, new product launches, and user engagement.
- Highlighted revenue growth in IVAS, MVAS, online advertising, and e-Commerce transactions.
- Discussed the growth in communication platforms, social networks, and mobile engagement.
- Mentioned the redesign of QQ.com and the integration of Microblog content.
- Noted the success of the QQ Game platform and the wireless portal.

Open Platform and Web/Social Games:
- Highlighted the importance of the open platform in Tencent's overall strategy.
- Explained the benefits for developers, including access to a large user base, social graphs, and cross-platform deployment.
- Discussed the financial contributions of the open platform, which represented over 25% of community and open platform revenue.
- Talked about the growth in web and social games, noting a 44% year-on-year revenue growth and a 30% market share.
- Mentioned successful in-house web games and partnerships with international developers like Zynga and PopCap.
e-Commerce Strategy:
- Viewed e-Commerce as a long-term investment.
- Discussed the organic growth in both agency and principal businesses.
- Emphasized the importance of integrating e-Commerce solutions into Tencent's network to cater to user needs.
- Mentioned the intention to invest USD 1 billion into e-Commerce over a long period.
- Focused on building infrastructure, user experience, and supplier networks.
Mobile Internet:
- Predicted that the mobile Internet will evolve similarly to the PC Internet, with large applications being client-based and smaller ones accessible via web browsers.
- Highlighted popular mobile applications like Weixin and mobile QQ.
- Emphasized the role of the mobile browser in capturing demand for long-tail content.

Business Review and Outlook:
- Discussed the healthy year-on-year revenue growth across all business lines.
- Noted that advertising contributed the most to the quarter-on-quarter revenue growth.
- Detailed the performance of IVAS, online games, and community and open platforms.
- Highlighted the success of advanced casual games and the growth in international game revenue.
- Discussed the revenue sharing scheme for third-party games on the open platform.
- Mentioned upcoming titles like Call of Duty Online and Blade & Soul.
- Explained the strong performance in online advertising, particularly in display and video advertising.
- Discussed the challenges and opportunities in the e-Commerce market, emphasizing the principal business and marketplace fees.

Financial Details:
- Reported total revenue of RMB 10.53 billion, up 56% year-on-year and 9% quarter-on-quarter.
- Discussed operating profit, net profit, and margin ratios.
- Explained the increase in costs, including sharing costs, staff costs, and bandwidth fees.
- Highlighted the growth in gross margins for online advertising and the stability in e-Commerce transaction margins.
- Discussed the increase in selling and marketing expenses and G&A expenses.
- Provided details on CapEx, free cash flow, and net cash.
- Addressed the decrease in net cash due to M&A activities and dividend payouts.