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pww.comTencent Holdings Limited, Q2 2018 Earnings Call, Aug 15, 2018 - SEHK:700

SEHK:700

** Summary of Executives' Speeches**

Huateng Ma (Chairman and CEO)

  • Key Points:
    • User Engagement: Continued growth in daily active users and time spent on Weixin, mobile games, and the video platform.
    • Investment: Significant growth in news feed, short video, and mini video products.
    • Financial Highlights:
      • Total revenue: RMB 73.7 billion, up 30% year-on-year.
      • Non-GAAP operating profit: CNY 22.3 billion, up 11% year-on-year, down 12% quarter-on-quarter.
      • Non-GAAP net profit attributable to shareholders: CNY 19.7 billion, up 20% year-on-year, up 8% quarter-on-quarter.
    • Platform Growth:
      • Combined MAU of Weixin and WeChat: 1.06 billion, up 9.9% year-on-year.
      • QQ Smart devices MAU: 709 million, up 7% year-on-year.
      • Strengthened leadership in mobile and PC games, increased market share in smartphone games.
      • Media business: Leadership in online video, news, music services, and literature.
      • Fintech: Deepened penetration in verticals like fast-food chains and supermarkets.
      • Mobile utilities: Industry leader in mobile security, mobile browser, and Android app store in China.

Chi Ping Lau (President)

  • Key Points:
    • User Engagement Trends:
      • Increasing engagement in social, games, and video platforms.
      • Solid growth in Weixin users, time spent, and activities.
      • Strong growth in long-form video consumption and media feeds.
    • Mini Programs:
      • Rapid adoption and expansion into various use cases, including transportation, smart retail, restaurants, and mini games.
      • Daily active users of Mini Programs: more than 200 million.
      • Examples of use cases:
        • Transportation: Tencent smart transit QR code in over 90 cities.
        • Smart Retail: Shorter checkout times, home delivery, and targeted promotions.
        • Restaurants: Preordering to increase efficiency and sales.
        • Mini Games: High adoption and advertising revenue growth.
    • Video and Media:
      • Long-form video content consumption increased, driven by original content.
      • Mobile DAU for video: up 24% year-on-year.
      • Media feeds: Higher hits due to better algorithms and content offerings.
      • WeiShi: Robust growth in mini video views and content curation.

James Mitchell (Chief Strategy Officer)

  • Key Points:
    • Revenue Breakdown:
      • VAS: 57% of total revenue, with online games contributing 34% and social networks 23%.
      • Online advertising: 19% of total revenue.
      • Other segment: 24% of total revenue, up 81% year-on-year.
    • Payment-Related Businesses:
      • Strong growth in offline commercial payment volume and related services.
      • Cloud services revenue doubled year-on-year.
    • Value-Added Services:
      • Social network revenue: CNY 16.9 billion, up 30% year-on-year, down 7% quarter-on-quarter.
      • Video subscription count more than doubled.
      • Online games revenue: CNY 25.2 billion, up 6% year-on-year, down 12% quarter-on-quarter.
      • Smartphone games revenue: CNY 17.6 billion, up 19% year-on-year, down 19% quarter-on-quarter.
    • Strategic Initiatives:
      • Expanding overseas: Success of Arena of Valor and PUBG MOBILE.
      • Boosting existing game performance and monetization.
      • Launching new games in high-ARPU categories.
    • Online Advertising:
      • Revenue: CNY 14.1 billion, up 39% year-on-year, up 32% quarter-on-quarter.
      • Media advertising revenue: CNY 4.7 billion, up 16% year-on-year, up 43% quarter-on-quarter.
      • Social and others advertising revenue: CNY 9.4 billion, up 55% year-on-year, up 27% quarter-on-quarter.

Shek Hon Lo (Chief Financial Officer)

  • Key Points:
    • Financial Performance:
      • Total revenue: CNY 73.7 billion, up 30% year-on-year, stable quarter-on-quarter.
      • Gross profit: CNY 34.4 billion, up 22% year-on-year, down 7% quarter-on-quarter.
      • Net profit attributable to shareholders: CNY 17.9 billion, down 2% year-on-year, down 23% quarter-on-quarter.
    • Non-GAAP Financials:
      • Operating profit: CNY 22.3 billion, up 11% year-on-year, down 12% quarter-on-quarter.
      • Net profit to shareholders: CNY 19.7 billion, up 20% year-on-year, up 8% quarter-on-quarter.
    • Segment Gross Margins:
      • Value Added Services: 59%, down 1.6 percentage points year-on-year, down 4.3 percentage points quarter-on-quarter.
      • Online advertising: 37.4%, stable year-on-year, up 6.2 percentage points quarter-on-quarter.
      • Others: 24.9%, up 2.5 percentage points year-on-year, stable quarter-on-quarter.
    • Operating Expenses:
      • Selling and marketing expenses: CNY 6.4 billion, up 74% year-on-year, up 14% quarter-on-quarter.
      • G&A expenses excluding R&D: CNY 4.1 billion, up 5% year-on-year, down 7% quarter-on-quarter.
      • R&D expenses: CNY 5.7 billion, up 35% year-on-year, up 14% quarter-on-quarter.
    • Key Metrics:

      • Total CapEx: CNY 7.1 billion, up 135% year-on-year, up 12% quarter-on-quarter.

      • Free cash flow: CNY 15.4 billion, down 12% year-on-year, up 18% quarter-on-quarter.

      • Net debt position: CNY 35.3 billion, up from CNY 14.5 billion last quarter.

      • Fair value of listed investee companies: CNY 248 billion, up from CNY 146 billion a year ago.