Detailed discussion of risk factors and non-IR measures, please refer to our disclosure document on the IR section of our website. Now let me introduce the management team on webinar tonight.
Our Chairman and CEO, Paul Nima, will kick off with a short overview.
and contribution from new games with evergreen potential. We upgrade our e-commerce strategy around mini shops.
and partners. Looking at our financial numbers for the quarter, total revenue was 167 billion RMB up 8% year-on-year and 4% quarter-on-quarter. Gross profit was 89 billion RMB up 16% year-on-year and
Mobile MAU of QQ, which is still increasing. 562 million.
For digital content, we reinforce our leadership in music and non-form video. I will now hand over to Martin and James for business preview.
Thank you, Pony, and good morning, good evening to everybody.
Our overall gross profit growth was 16% year-on-year in the third quarter. This gross profit increased 18% year-on-year to 16 billion RMB.
being 18% of total gross profit. And FinTech and business services gross profit are based on game item sales and mini games platform services.
which was offset partially by decreased revenue from.
subscription revenue increased 4% year-on-year. Video subscription
to 37 billion RMB, reflecting growth from Honor of Kings
for certain titles led to elongation of their revenue deferral period.
and solutions for use cases including foot ordering, electric vehicle charging, and options, content services, and payment capabilities. For consumers, when they have
to facilitate their store operation and management.
As a result of proactive adjustments that we made earlier this year, honour of keen spirits
You know, retail mobile group grocers reach robustly year-on-year, reflecting high
by gross receipts among all mobile games in the third quarter, while the fourth quarter
centric campaign mode and launch Delta Force in international markets in the coming months.
Among our international games, Time Megabox's event, and an IT collaboration with SpongeBob SquarePants. For Valorant, gross receipts increased over 30% year-on-year in the third quarter, benefiting from the launch of a console version and eSports-themed weapon items. We extended Valorant to PlayStation and Xbox in early August in North America, Europe, Japan, and Brazil, expanding the game's user base.
Turning to our next revenue segment, which we have renamed from online advertising to marketing services, to better represent the breadth of our promotional and marketing solutions. Our marketing
By property, video accounts marketing services revenue increased by over 60%.
Thank you.
revenue. We released Tencent Renew and Turbo, which utilizes a heterogeneous
a 19% year-on-year to 8.9% better than Renminbi, primarily due to higher...
and their profit was due to high and on average share of profit from Associates and JV.
for calculating diluted EPS decrease by 2.5% year-on-year. Moving on to gross margins.
1 percentage point year-on-year, primarily driven by growth in high-margin media accounts and relationships. This was a 9.4 billion renminbi up 19% year-on-year due to increase for most
to support new gains in domestic and international markets. Market expenses represent 6% of revenues compared to 5% in the same quarter last year. R&D expenses were $17.9 billion, up 9% year-on-year.
Non-IFRS operating margin was 37% up 3 percentage points year-on-year largely in line with gross margin expansion. To conclude, I will highlight some key cash flow and balance sheet metrics. Operating capex was 14.7 billion RMB up 122% year-on-year driven by investment in GPU servers. Non-operating capex was 2.4 billion RMB up 74% year-on-year driven by CRT.
As a result, Docapex was 17.1 billion RMB up 114% year-on-year. FreeCashPro was 58.5 billion RMB up 14% year-on-year, primarily due to higher gross receipts from gains. On a queue-on-queue basis, FreeCashPro increased by 45% driven by higher gains, gross receipts and timing difference in the settlement of certain account sales.
That cash position was $95.5 billion RMB, up 33% quarter-on-quarter, primarily driven by free cash flow generation, partially offset by cash use for offshore resources. Thank you. Thank you, John. We should now open the floor for questions. A question comes from Kenneth Wong from UBS. Hi, Good Evening Management. Thank you for taking my question. I have two questions. First is on mobile games.
This year, we have a few major hits in China's gaming market. In mobile, we have our hugely successful Dungeon and Fighter. In PC, Blacksmith Wukong, which we have an equity stake, has been a big hit. In mini-games, White Owl Survival, which started as our top mini-program, mini-games, and now being a top 10 grossing in China after turning into an app-based game. So in light of that, game management
share with us some implications and insights for the industry, and how would these events or major hit games actually shape our game strategy going forward? And my second question is on e-commerce. Notice that we upgrade into our WeChat mini-stores to enhance our e-commerce offering. Can management share more with us this initiative, including this positioning versus before, and how should we think about its potential? It is fair to say that
We shouldn't think about this ham from a live streaming e-commerce, but actually the whole e-commerce space as a much higher ham. And how should we think about it? Increasingly evident, whether that's a black Nick Vukong or a White House survival or the ongoing strength of a PUBG mobile. And I think
That is a structural trend, you know, facilitated by the fact that Chinese studios are operating in a large home market that adopts new trends, such as virtual item business models, such as mobile platform, relatively quickly. Also, they benefit from a very substantial engineering workforce. That means they can allocate substantial headcount to games, both developing and operating games.
the workforces are very willing to embrace new tools. This year, Unreal Engine 5, which powers BlackMirror to Wukong, has been a particularly notable example of the benefit of utilizing these new technologies. So what does that mean for a Tencent strategy
We believe that whether internationally or domestically, the scarce resource in the industry is really evergreen games. And on the one hand, the ability to release new games that becomes hits is increasingly challenging. On the other hand, for games that are hits, then with the right investment and care, the opportunity to render them evergreen is more attractive than it's ever been before.
And how do we turn that observation into a strategy? The strategy is to really play to different studios' strengths. Within Tencent, we have a number of very capable, proven studios. Many of them are particularly good at player-versus-player gameplay-based games, and they continue to double down on their strengths. Outside Tencent, there are studios that are particularly good at
content-based, story-driven games, such as Black Myth Wukong. There are studios that are particularly good at strategy games, such as Wide Out Survival. And, you know, for those studios, we seek to invest in them, which we've done with both, you know, to deepen and increase our investments and relationship with them, sometimes to publish their games.
And so we believe that that strategy is the right strategy, leveraging both in-house studios and investments and partnerships with external studios for each studio to focus on what it does best.
Merchandises.
The quality assurance on the products and they also enjoy better shopping experience such as order tracking, express return because, you know, now we know what kind of products have they bought and from which merchants they have bought. And for the merchants, they would actually enjoy better transaction support.
as we discussed, and more importantly, most importantly, access to new traffic and customers. This overall mini shop experience will be incorporated into the WeChat ecosystem, and as a result, it will actually enjoy new traffic streams, such as it will have magnified access
to our communication and social traffic such as chat, group chat and moments as well as our media properties such as official accounts, media programs, search, video accounts and overtime recommendation engine.
You know, the whole idea is that, you know, when we know what products are being sold by what merchants, then we are more comfortable in providing access to traffic to our consumers in the waste ecosystem. And that actually would create the flying view on the,
attraction for merchants. In terms of the potential, we are actually very excited about the long-term potential of this e-commerce ecosystem. The reference point, as you said, is like mini-programs. Within mini-programs, there are already a lot
transactions, they are primarily selling these products to customers which they have already known. So when merchants have got their physical shops, they would actually ask their customers to purchase through WeChat Pay. And with that, they would activate sometimes a mini program. And from their point onward, the customers actually want to revisit
the store, they can actually go back to the mini program and generate a transaction. But within these transactions, we actually don't know what's happening, what kind of products are being sold. And the merchants actually do not really have new ways of getting access to new customers.
But if they feature the product within the ways of mini shops, then they can actually get access to all the traffic that I mentioned within communications, social and within our media properties, including video accounts. So that's why we felt it's actually a better experience for merchants than the mini program infrastructure.
And another case and point I would point out is that if you look at video accounts, right, you know, before video accounts was introduced, assets
a good traffic support, then the video account traffic actually grew very significantly. And that's why we felt
Thank you, Wendy. Hi. Good evening, management.
Thank you for taking my question. Two questions. First is that related to Weixin search. You mentioned commercial queries and click-through rate grew year over year. Can management share some colors on which industry advertisers started to utilize more of the commercial keyword to drive the traffic lead? And other than, you know, the so-and-so feature within the Weixin app, is there any other entry point
the advertiser can leverage on the search query? And also, will your Yuanbao, the Gen AI checkbox, will that eventually embed with the commercial sponsor answer as well? Second question is related to international games. When you comment on elongating the deferred periods, is that only referred to certain big flagship titles that you have?
Can you remind us the range of the deferred pre-req for your international games? And also, judging from your comments about the decent growth receipt growth, it seems that international games revenue could see a more stable and more sustainable growth into next year or maybe the years after. Thank you. Thank you for the questions, Alicia. So on Weixin's search, then,
Some of the larger advertisers buying search keywords include advertisers in financial services, internet services, games, automobiles, local services, more recently luxury goods. In terms of other than the so-e-so feature within Weixin, are there other entry points? Then, yes, we have multiple entry points and we'll cultivate more, you know, whether that's within video accounts,
programs elsewhere. And some of those entry points are more in the nature of search boxes. Some are more response triggers in response to actions that the users have undertaken. And for example,
response to consumer intent. And that feed would then also be powered effectively by a search technology. In terms of whether Yuanbao will embed commercial search results, the answer is no.
You know, for the current time, we're focused on making Yuanbao be as appealing and attractive to users as it can be, and we're not focused on premature monetization. So that's on Weixin search. Moving to the international games, was the elongation for certain big flagship titles? Yes.
deferral period for international games. We have disclosed in the past that the deferral periods for domestic games are typically six to nine months. And for international games, the deferral periods are either similar or longer, and in some cases, substantially longer. And then in terms of the outlook, international games revenue growth, we are indeed constructive on the outlook.
given the business trends we're seeing from the existing games, given the deferred revenue backlog that's built up in the last few quarters from those existing games, and then given the potential upside from new game releases. Thank you. Thank you. Thank you, Alicia. We will take the next question from Goldman Sachs, Rona Kwan.
Thank you Poni, Martin, James, John and Wendy. I have two questions, kicking off with a macro kind of related question with the shift in more pro-growth domestic policies in September.
and while we also see a more complex geopolitical environment ahead, just how are we positioning our business and strategies in face of domestic, which is policy opportunities, while international environment is still evolving? And specifically on consumption, I just want to expand on how are we seeing any latest trends on marketing services, payment indicators,
with the recent singles day and you mentioned a decline in average order value per transaction per payment, so any thoughts on potential inflection points in terms of the ticket size trends that is important for consumption trends? Thank you. In terms of your first question, we do get
Encouraged by the.
although the timing may be uncertain, and especially it will take some time.
In the past few years, we have gone through a cycle of...
intentions of the regulators, you know, we are able to.
We focus ourselves on the right products and continue to create value.
Okay, so I think when we do these right things, no matter the macroeconomic environment right now, what we have seen is that there is an uptick in October
after the policy got announced in terms of transaction value. And that's actually against a backdrop of a gradual decrease of year-on-year growth rate through each month in the third quarter.
So, you know, if you look at the trend, it was like, you know, month on month, the EMEA growth rate has been declining through the third quarter until we hit October and there's an uptick. So, I think, you know, that's the latest trend that we see. We believe going forward, the economic recovery would take some time. But, you know, over the long run, we do believe it would definitely
be reaccelerating, because we felt there's a very strong resolution by the government to revive the economy. And at the same time, there's actually positive structural factors in the economy, including a very strong work ethics among workers in China, including a very deep engineering talent pool, including entrepreneurialism among companies of all sizes, small, medium and large companies.
And also there's a vast and comprehensive supply chain in China, you know, just to name a few. And that's why we felt, you know, over the longer run, you know, we are optimistic about the economic revival in the macroeconomic environment. Thank you. We will take the next question from
I'm back. Into the near term, wondering what will be the next steps and timeline for.
And so, against all these, like, you know, near-term involvement. And how will the within commerce grow the scale and gain share in the market?
to improve the basic infrastructure, which is building
And so there's also a lot of merchant tools that we need to provide. Merge. Utilities.
So I think that's essentially the focus. And what's the short-term target? I don't know.
have seen a good adoption of wage and pay within Taobao in October. Customers who are new to Taobao and who are therefore
particularly desirable customers. So, you know, we think that, you know, this is
Thank you. Thank you. We will take the next question from JP Morgan, Alex Liao. Hey, thank you guys for taking my question.
And then the second question is regarding the payment revenue decline in this quarter.
When we release PvP multiplayer games, we do tend
to sort of front load the user engagement, the user additions. The launch on mobile and PC and four games that are simultaneously launched
on mobile and PC. We can see from our investing companies and we can see now with Delta.
And I would say I think the implied question is like, you know, is there any issue with our payment trend? And I think the way we look at it is actually
She sort of has an impact on our overall payment volume. And the second thing is actually, when we look at our payment coverage, it doesn't represent all the retail purchases in China. It's actually gravitated towards smaller ticket everyday items.
And as a result, right, you know, we're much more focused on the number of transactions rather than the transaction volume or the revenue when we assess our payment franchise. And when we look at that number, right, you know, the number of transactions, it actually grew around 10% year on year, which gives us comfort that our payment franchise is actually still very strong. Thank you.
We will move to the next question from HSBC, Shatingdale. Thank you, management team, for the opportunity. The first question I wanted to ask is about outlook on earnings growth because we have seen close to two years of really strong margin expansion come through. Does Tencent have a more normalized earnings growth rate that the company targets in the medium term?
Alternatively, is there a certain ratio that tends to be between top line and earnings growth? Say, for example, an OGP growth at
of investments, investees and dividends. Thank you.
And so that's something we have achieved.
we hope we can actually achieve some operating leverage when we get from gross profit to operating profit.
announcements, so we are not in a position—
our shareholders, and we are in a good position to reach
if we want to distribute stock or if we do big divestments. And at the same time, if you look at CapEx, I believe we have a progressive CapEx plan, especially given that the development of a cloud business and the advanced AI, but at the same time is measured compared to
a lot of the U.S. companies. So with these three factors in play, then we believe we'll be generating significant free cash flow next year that we can engage in dividend and share buyback. Thank you very much. Thank you. We will take the next question from Daiwa Zhongchui.
Thank you very much for taking my question and congratulations on a strong set of results. I have a question on AI. I think management mentioned that VPU Power Services accounts for teams for your IAS business, but can you kind of elaborate a bit more how do we see the AI-related revenue contribution for the business service going forward? And my second question is, could we have more color about your management strategy for monetizing
by employing your Hoonion LMF for different business lines and how we are able to see it. Thank you.
user time and at the same time, you know, it's generating a higher incremental, you know, targeting rate, you know, response
Great. Generated by AI, but having said that, we think the amount
AI revenue is actually less than U.S. cloud companies.
ecosystem in the U.S. which, you know, everybody is actually trying to add AI to their functionality and thus charge their customers more. And that fast ecosystem is not really that vibrant in China.
enter throughout different products and services. You know, I think, you know, I talk about
The immediate scalable benefit is actually on the content.
the either the production process, right, so that they would gain efficiency, or in
Thank you.
good growth momentum. So I'm just wondering on a game map preference, about wealth management is experiencing positive growth,
I just want to get some colour with regards to our strategies in wealth management versus lending. Given that I think other think tank companies are also talking about macro-hard wins on the private business, do we expect our strategy is focused on wealth management going forward? And lastly, it's more about our investees. Any thoughts about unlocking the values of our investees or our feedback flow is already strong enough?
in returning value to shareholders. Thank you. Hi, Thomas. So on your first question around first-person shooter, first-person action games, we absolutely see that younger users in China disproportionately favor first-person action games versus older users. And there are certain first-person action games
such as, you know, Valorant and now Delta Force that are proving particularly appealing to that sort of 18 to 25 year old age cohort. And we think that's a structural trend. And if you look at Western game markets, then, you know, first person action is, you know, the sort of the super dominant genre. It's equivalent to, you know, drama series being the super dominant form of TV programming.
that within drama series, you have costume drama series, you have romance, you have police procedural. Each of them is as big or bigger than many standalone genres of TV programming, such as documentaries. And so in the same way with video games, first-person action is the dominant genre in the West, and it is the dominant genre now with younger players in China, and over time,
it will become the dominant genre for the China market as a whole, which is good for us because we're disproportionately successful in first-person action games. Now, as to whether new first-person action games like Delta Force are cannibalizing existing games, then the answer is no. And I think that that is
Because just as with drama series, you wouldn't expect a historical costume drama series to cannibalize a modern-day suspense drama series or a police procedural drama series, because there's so much difference between them in terms of user tastes. So with the first-person action games, there
differences within the genre that are too big for any single game to transcend. So one important and technical difference is long time to kill games versus short time to kill games. Another important technical difference is hero-based games versus class-based games. Another one is tactical games versus chaotic games. Another one, which is more obvious, is realistic graphics versus cartoony graphics. And so while we have a multitude of
successful first-person action games within Tencent in China, including Peacekeeper.
on 10-cent video, it doesn't cannibalize a police procedure at all.
to that we are getting more cautious recently in terms of.
On rare situations, you can sort of track that through.
net cash position, having progressively improved through this year.
related to the overall trends in the gaming market.
to the Honor of Kings team, which happened last year, late last year, and the adjustments that we have made to the Peacekeeper Elite team, which happened earlier this year. And we have actually talked about these adjustments quite a few times on our earnings call. And when you look at the adjustments, they have been actually quite productive in the sense that, you know,
Ernest King and, in particular, the Peacekeeper Elite had actually registered good growth in this year. The logic is really around our overall strategy on evergreen titles. There is a belief that games have
and sometimes if the games are not performing well, then there's nothing you can do about it. We do not believe that's the case. We believe that no one game has reached a certain scale and has become eligible for becoming an Evergreen title. And especially when a game has a very large user base, then it's not about the game itself. It's about the team and the ideas behind the development
the ideas behind the operations and community management. So that's why we make changes when games are not performing well and when we see a team that has run out of ideas, then we have to make some adjustments in order to restore the creativity, restore the activity, restore the innovation to the games.
And when those adjustments are done, then the games...
to become Evergreen titles. And that means we will have to.
meet the expectation of the gamers and become category leading.
and congratulations on a very solid quarter. So, I have two questions.
the drivers for 2025, the overall macro environment would obviously...
First of all, our advertising technology and our ability
but the advertising load is still dramatically lower than those of peers in the low single-digit range. Going forward, we believe that we can continue to outgrow the industry as we take the ad load higher without needing the e-commerce initiative to contribute. Once the ad load reaches, let's say,
two-thirds of where our peers are currently at, which, you know, with our peers in the mid-teens would be, you know, around 10% ad load versus the 3% or 4% that we're at today, then, you know, I think it is, you know, fair to infer that, you know, being able to really tap into closed-loop e-commerce advertising will be increasingly important. But as we look at our growth runway,
you know, that situation is still, you know, years away. And so, you know, we believe we'll continue to outgrow the overall ad market for a number of years based on ad tech enhancements, based on improving ad load in video accounts, based on growth of wage and search. And then in order to sustain that, you know, market share gain beyond that point, it will be increasingly beneficial
if we have cracked the code on closed-loop e-commerce activity with the mini-source that Martin talked about earlier? In terms of the cooperation with Taobao, I think the obvious thing is
that it's actually beneficial to the users, you know, because it's convenient for them to click. And there's actually benefit to us because, you know, we can actually have
bigger exposure of use case about payment service, and it's also beneficial to our partner, Taobao, which can allow them to convert their new users with high conversion rate and get more new users. But the less obvious is actually how much work that actually had gone into making that happen, because
The key thing is actually there's a lot of designs and agreement that we need to do in order to make sure that the user experience is actually well protected so that, for example, there's not going to be a lot of spamming of our users, right?
merchants who can share all kinds of different products. And if there's incentive to create a lot of standing, then that's a problem. So we actually need to design for that and also get our counterparty to agree to policing that. And for example, on compliance, we actually need to make sure that all the merchants are actually
you know, gone through a proper onboarding process in order to be compliant. And that's something which require work from our side and our counterparty in order to make it to work. And I think, you know, in the past, all these very complicated designs are very difficult to execute.
But with the new environment, with the more collaborative and open environment of the different platforms, these hard work has been done and as such, we can actually have these collaborations.
So, you know, when we look at other collaborations, I think, you know, we'll be very open-minded. But the bottom line is that it has to make sense and be very good and safe for our users and for our content partners in order for these collaborations to be done. Thank you. We are now ending the call. Thank you all for joining our results webinar.
If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.chensen.com. The replay of this webinar will also be available soon. Thank you and see you next quarter.