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pww.comTencent Holdings Ltd., Q1 2011 Earnings Call, May 11, 2011 - SEHK:700

SEHK:700

** Summary of Executive Statements**

Pony Ma (CEO)

  • Key Highlights:
    • Reported a record quarter for Q1 2011.
    • Positive seasonality from Chinese New Year and winter break boosted IVAS business, particularly online games.
    • Online advertising revenue saw a sequential decline due to typical slow-down in the first quarter.
    • Total revenue was RMB 6.3 billion, up 15% quarter-on-quarter and 50% year-on-year.
    • MVAS revenue was RMB 778 million, up 7% quarter-on-quarter and 26% year-on-year.
    • Online advertising revenue was RMB 281 million, down 28% quarter-on-quarter but up 37% year-on-year.
    • Gross profit was RMB 4.1 billion, up 12% quarter-on-quarter and 43% year-on-year.
    • Operating profit was RMB 3.4 billion, up 28% quarter-on-quarter and 58% year-on-year.
    • Net profit attributable to shareholders was RMB 2.9 billion, up 30% quarter-on-quarter and 61% year-on-year.
    • Introduced non-GAAP numbers to provide additional perspective on core operations.

Martin Lau (President)

  • IVAS Business:
    • IVAS business contributed 83% of total revenue.
    • Community VAS revenue was RMB 1.68 billion, up 5% quarter-on-quarter and 23% year-on-year.
    • Online games revenue was RMB 3.57 billion, up 28% quarter-on-quarter and 77% year-on-year.
    • Qzone active user accounts grew 3% to 505 million, but monthly subscriptions were flat due to the maturity of QQ Farm and QQ Ranch.
    • Pengyou active user accounts grew 20% to 101 million, maintaining its #1 position among university students and white-collar segments.
    • Microblog service registered user accounts exceeded 160 million in April, with plans for heavy investment and high-profile marketing activities.
    • QQ Membership monthly subscriptions increased due to enhanced functionalities and cross-promotions.
    • QQ Show monthly subscriptions were stable after special promotions during Chinese New Year.
    • Casual games and advanced casual games saw growth in PCU and ACU due to holiday promotions and new content.
    • Client-based MMOGs saw slight usage increases due to positive seasonality and new content.
    • Web games, particularly Qi Xiong Zheng Ba, saw increased monetization during Chinese New Year.
    • Wireless business revenue was RMB 778 million, up 7% quarter-on-quarter and 26% year-on-year, driven by bundled SMS subscriptions and 2.5G-based services.
    • Advertising business revenue was RMB 281 million, down 28% quarter-on-quarter but up 37% year-on-year, with a focus on content and bandwidth investments.

John Lo (CFO)

  • Financial Overview:

    • Unaudited consolidated total revenue was RMB 6.34 billion, up 50% year-on-year and 15% quarter-on-quarter.

    • Operating profit was RMB 3.39 billion, up 58% year-on-year and 28% quarter-on-quarter.

    • Net profit was RMB 2.88 billion, up 60% year-on-year and 30% quarter-on-quarter.

    • Profit attributable to shareholders was RMB 2.87 billion, up 61% year-on-year and 30% quarter-on-quarter.

    • Non-GAAP adjustments removed the financial impact of acquisitions and share-based compensation.

    • Non-GAAP operating profit was RMB 3.1 billion, up 11% quarter-on-quarter and 38% year-on-year.

    • Non-GAAP net profit was RMB 2.6 billion, up 10% quarter-on-quarter and 36% year-on-year.

    • Non-GAAP net profit attributable to shareholders was RMB 2.6 billion, up 10% quarter-on-quarter and 37% year-on-year.

    • Share-based compensation expense was flat at RMB 144 million, representing 2% of total revenue.

    • Net other gains were RMB 339 million, primarily due to a one-time gain from Riot Games.

    • IVAS gross margin decreased 1 percentage point to 67%.

    • MVAS gross margin was flat at 62%.

    • Online advertising gross margin decreased 5 percentage points to 58%.

    • Selling and marketing expenses were flat at RMB 300 million.

    • G&A expenses were RMB 897 million, up 7% quarter-on-quarter.

    • R&D expenses were RMB 513 million, up 8% quarter-on-quarter.

    • CapEx was RMB 721 million, up 30% quarter-on-quarter.

    • Net cash position increased to RMB 18.1 billion.

    • Total number of shares in issue was 1.837 billion.

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