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pww.comTencent Holdings Ltd., Q1 2013 Earnings Call, May 15, 2013 - SEHK:700

SEHK:700

** Summary of Executives' Speeches**

Pony Ma (Chairman and CEO)

  • Revenue Growth: Tencent reported a 40% year-on-year growth in revenues, driven by the company's community advantage, platform strength, and educational capabilities.
  • Investment Areas: The company invested in eCommerce, international marketing, mobile initiatives, and video content.
  • Financial Highlights:
    • Total revenue: RMB 13.5 billion (up 40% year-on-year, 11% quarter-on-quarter).
    • Non-GAAP operating profit: RMB 5.1 billion (up 24% year-on-year, 17% quarter-on-quarter).
    • Non-GAAP net profit: RMB 4.0 billion (up 23% year-on-year, down 1% quarter-on-quarter).
    • Net cash: RMB 32.7 billion (up 57% year-on-year, 20% quarter-on-quarter).
  • Platform Performance:
    • QQ IM monthly active users: 825 million (up 10% year-on-year).
    • Weixin and WeChat combined MAU: 194 million (up 228% year-on-year).
    • Qzone MAU: 611 million (up 6% year-on-year).
    • QQ Game Platform PCU: 9.2 million (up 5% year-on-year).

Martin Lau (President)

  • Revenue Base Broadening: Overall revenue grew by 40% year-on-year, with eCommerce transactions contributing significantly.
  • Revenue Segments:
    • Online games: 55% of total revenue (down from 57% year-on-year).
    • Social networks: 24% of total revenue (down from 29% year-on-year).
    • Online advertising: Stable at 6% of total revenue.
    • eCommerce transactions: 14% of total revenue (up from 8% year-on-year).
  • Value-Added Services (VAS):
    • Combined revenue from IVAS and MVAS: RMB 10.7 billion (up 29% year-on-year, 14% quarter-on-quarter).
    • Social networks revenue: RMB 3.2 billion (up 16% year-on-year, 2% quarter-on-quarter).
    • Online games revenue: RMB 7.5 billion (up 35% year-on-year, 19% quarter-on-quarter).
  • Mobile User Shift:
    • Increasing user access via mobile devices, with 70% of Qzone MAU using mobile.
    • VIP privileges on smartphones are under development.
  • Open Platform:
    • Cloud infrastructure for developers.
    • 180% increase in applications generating revenue.
    • Encouraging non-gaming applications.
    • Preparing to extend the PC-based open platform to mobile devices.
  • Online Games:
    • QQ Game Platform operates 178 games.
    • ACG combined PCU: 15.6 million (up 73% year-on-year).
    • MMOG combined PCU: 4.3 million (up 30% year-on-year).
    • New games: NBA 2K Online and War of Zombie.
    • Pipeline includes 6 games in closed beta.

James Mitchell (Chief Strategy Officer)

  • Online Advertising:
    • Revenue: RMB 850 million (up 57% year-on-year, down 10% quarter-on-quarter).
    • Display advertising: RMB 754 million (up 59% year-on-year, down 8% quarter-on-quarter).
    • Search advertising: RMB 96 million (up 48% year-on-year, down 23% quarter-on-quarter).
    • Challenges: Increased competition and user shift to mobile.
  • eCommerce Transactions:
    • Revenue: RMB 1.9 billion (up 154% year-on-year, 14% quarter-on-quarter).
    • Organic growth in eastern China and contributions from southern and northern China.
    • Expanded product range in home appliances.
    • Agency business grew rapidly year-on-year but dipped quarter-on-quarter due to adverse seasonality.
    • Selecting premium merchants for the B2C open platform.

John Lo (CFO)

  • Financial Performance:
    • Total revenue: RMB 13.55 billion (up 40% year-on-year, 11% quarter-on-quarter).
    • Operating profit: RMB 5.06 billion (up 37% year-on-year, 36% quarter-on-quarter).
    • Net profit: RMB 4.04 billion (up 37% year-on-year, 17% quarter-on-quarter).
  • Margins:
    • Gross margin: 56% (down 4 percentage points year-on-year, stable quarter-on-quarter).
    • VAS gross margin: 66% (stable year-on-year and quarter-on-quarter).
    • Online advertising gross margin: 41% (broadly stable year-on-year, down 8 percentage points quarter-on-quarter).
    • eCommerce transaction gross margin: 7% (up 4 percentage points year-on-year, down 2 percentage points quarter-on-quarter).
  • Expenses:
    • Selling and marketing expenses: RMB 962 million (up 105% year-on-year, down 12% quarter-on-quarter).
    • G&A expenses: RMB 2.2 billion (up 25% year-on-year, 3% quarter-on-quarter).
    • Research and development expenses: RMB 1.2 billion (up 28% year-on-year, 11% quarter-on-quarter).
  • Employee Count: Over 24,600 employees (up 29% year-on-year, 2% quarter-on-quarter).
  • Share Buybacks:
    • Repurchased 6.64 million shares for HKD 1.63 billion.
    • Total number of shares outstanding: 1.849 billion (reduced by 4.8 million).
  • CapEx and Cash Flow:

    • Total CapEx: RMB 1.04 billion (up 56% year-on-year, down 42% quarter-on-quarter).

    • Free cash flow: RMB 5.9 billion (up 49% year-on-year, 37% quarter-on-quarter).

    • Net cash: RMB 32.7 billion (up 57% year-on-year, 20% quarter-on-quarter).

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