Overview Strategic Highlights Business Review Financials Q&A

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2 Cautionary note This presentation may contain forward-looking statements relating to the forecasts, targets, outlook, estimates of financial performance, opportunities, challenges, business developments, business plans and growth strategies of Tencent Holdings Limited (the Company or Tencent ) and its group companies. These forward-looking statements are based on information currently available to Tencent and are stated here on the basis of the outlook at the time that this presentation was produced. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. The forward-looking statements are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. The forward-looking statements may prove to be incorrect and may not be realized in the future. Underlying the forward-looking statements are a large number of risks and uncertainties. Therefore you should not rely on any of these forward-looking statements. Please see our various other public disclosure documents for a detailed discussion of those risks and uncertainties. This presentation also contains some unaudited non-gaap financial measures which should be considered in addition to, but not as a substitute for, measures of the Company's financial performance prepared in accordance with IFRS. In addition, these non-gaap financial measures may be defined differently from similar terms used by other companies. The Company's management believes that the non-gaap financial measures provide investors with useful supplementary information to assess the performance of the Company s core operations by excluding certain non-cash items and certain impact of acquisitions. For further explanation of our non-gaap measures and reconciliations between our GAAP and non-gaap results, please refer to our earnings announcement. In addition, information relating to other companies and the market in general presented in these materials has been obtained from publicly available information and other sources. The accuracy and appropriateness of that information has not been verified by Tencent and cannot be guaranteed. The reporting currency of the company is Renminbi. For the purpose of this presentation, all figures quoted in US dollars are based on the exchange rate of US$1 to RMB for 4Q

3 Overview Strategic Highlights Business Review Financials Q&A

4 Financial Highlights in billion RMB 4Q2017 YoY QoQ FY2017 YoY Total Revenue % +2% % Value Added Services % -5% % Social Networks % +2% % Online Games % -9% % Online Advertising % +12% % Media % Stable % Social and Others % +19% % Others % +17% % Gross Profit % -1% % Operating Profit % +13% % Net Profit to Shareholders % +16% % Non-GAAP* Operating Profit % +1% % Operating Margin 33% -1 ppt Stable 34% -4 ppt Net Profit to Shareholders % +2% % * Please refer to slide 23 for details of non-gaap adjustments 4

5 Key Platforms Update Online Games Platform #1 on PC and smart phone in China #1 online games company globally by revenue Weixin & WeChat #1 smart phone community MAU at 989m QQ IM Total MAU of 783 m Smart devices MAU of 683m (1) Qzone Smart devices MAU of 554 m Online Games Social Communications Media Payment Video #1 by mobile DAU and subscriptions News #1 news services by MAU Music #1 streaming platform Literature #1 online content library and publishing platform with significant IPs Mobile Payment #1 by MAU Utilities App Store #1 by MAU Mobile Security #1 by MAU Mobile Browser #1 by MAU All above rankings refer to China market, unless otherwise stated. Company data as of 31 December Include smart device QQ users who logged in and sent a message or participated in certain activities such as Moments, Games, Interest Tribes, live broadcast, online music & literature 5

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7 Annual Strategic Highlights Social Weixin/WeChat combined MAU continued to grow and exceeded 1 billion in Lunar New Year Mini Programs gained popularity with enhanced features and Mini Games QQ deepened young users engagement via personalized news feed KanDian Social and Others advertising revenue up 65% YoY driven by strong growth in advertiser base Games On mobile, HoK achieved mass adoption in China and South East Asia; we increased market share in RPGs; we established leadership in strategy and racing genres On PC, operational expertise and content updates rejuvenated key titles, such as DnF Built foundation for survival shooting genre development; early success for PUBG mobile versions Media and Content Video monthly subscriptions exceeded 56 million, driven by exclusive drama series, movies and self-commissioned content Tencent Music Entertainment Group operates the top three music apps in China by DAU Tencent Open Media Platform centralized content library and facilitated curation for distribution across news, browser and social properties Ecosystem Payment: daily offline commercial payment volume more than doubled YoY Cloud: continued rapid growth, expanded customer base in finance and government AI: deployment in medical imaging/diagnosis and translation Smart retail: decentralized approach to empower retailers to acquire users and upgrade shopping experiences 7

8 Mobile Payment #1 by MAU and DAU Social: total transaction volume increased YoY; money transfer kept on growing but red envelope gifting volume decreased Commercial: daily offline transaction volume more than doubled YoY Continue to strengthen relationship with key channel partners; empower small merchants with technologies to enhance efficiency, such as business analytic tools Upsell Internet finance products leveraging our payment platforms: LiCaiTong s total AUM exceeded RMB300 billion as of January 2018 Weilidai managed over RMB100 billion outstanding loans as of year end

9 Mini Programs Expanding user base quickly: - Over 170m DAU - 580,000 Mini Programs available as of Jan 2018 Increased user engagement via: - Recently used Mini Programs on top of Weixin chat interface - Mini Games - Offline Mini Program QR Codes Expanding use cases: - Retail, ecommerce, lifestyle services, municipal services, Mini Games Complementary to apps: - A light feature integrated into Weixin interface, which facilitates discovery of the standalone apps and later download - Well-suited for offline-online integration, a subset of the most used app functions, and lowfrequency services 9

10 Smart Retail Facilitating Online-offline Integration Retailers Background Value Propositions Increasing online and offline integration in user behavior Widespread use of mobile payment offline Emergence of AI and big data technologies To consumers: Provide more personalized services Deliver seamless online and offline shopping experiences To retailers: Enable retailers to strengthen their online presence Improve efficiency of customer lifecycle management and personalized reach To Tencent: Expand payment, advertising and cloud businesses Enhance user targeting and product recommendation using offline data 10

11 Smart Retail Enhancing Customer Acquisition and Operational Efficiency Acquire and retain customers: Bring users to offline stores Engage offline users online Enhance customer conversion by personalized recommendation and marketing Targeted push via Weixin Official Accounts Find Mini Program store when visiting physical store Enhance shopping experience: Instant access to product information Efficient check-out Superior last-mile delivery More convenient after-sale customer services Scan product code in Weixin to add into cart and checkout online Increase operational efficiency: Upgrade IT infrastructure by cloud services Data analysis to optimize marketing and supply chain management Integrated CRM via Official Accounts, Mini Programs and eloyalty cards 11

12 2018 Increasing Investment for Building Future Value Long form and short form video content Tencent Video Subsidies for merchants and users Weixin Pay Tencent Cloud Infrastructure, talent, pricing Talent for research and application Tencent AI Smart Retail Capital investment, talent for deployment 12

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14 Business Review 18% 18% 21% 17% 17% 12% 15% 15% 14% 18% 17% 19% 11% 18% 5% 4% 12% 17% 59% 56% 4% 19% 54% 5% 19% 53% 7% 15% 53% 10% 18% 48% 19% 45% 19% 42% 46% 42% 41% 37% 47% 41% 24% 23% 23% 23% 25% 24% 24% 24% 25% 23% 24% 23% 24% 24% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q Social Networks Online Games Online Advertising Others 14

15 Value Added Services +37% YoY -5% QoQ +43% YoY % +32% % % % +38% Q16 4Q17 3Q17 4Q Online Games Social Networks (in billion RMB) Social Networks Total VAS subscriptions grew by 22% YoY to 135 million, mainly driven by video and music services Exclusively licensed and self-commissioned content resulted in video subscriptions more than doubling YoY Video subscription and live broadcast drove YoY and QoQ revenue growth Online Games YoY increase was mainly driven by mobile games, whereas PC games were maturing PC games revenue declined QoQ due to smaller user base; mobile games revenue declined QoQ due to late launch of new titles, and decreased revenue from RPGs and shooting games 15

16 Social Networks Weixin QQ epass for local services Allow users to bind various identity cards to Weixin and handle the related payment and administrative work on mobile efficiently AI-enabled Features Launched AI-enabled features for users to create funny photo-, audio- and videobased messages Social security card Student campus card Driver s license Dance studio CNY-themed messages in form of photo/ audio/ video Book-Keeper Facilitates offline small business owners to track their in-store sales and better manage their operations KanDian Continued to enhance recommendation algorithm, increasing time spent and video views 16

17 PC Client Games FY17: RMB55.1 billion revenue, up 23% YoY 4Q17: RMB12.8 billion revenue, up 13% YoY, down 13% QoQ; Active users impacted by migration to mobile Monetization impacted by fewer item-sales marketing PC game revenue likely under continued pressure due to mobile shift Strengthen our position in a challenging market Focus on core gamers Popularize esports and increase audience engagement - LoL league audience timespent increased 43% YoY Promote breakout new games e.g. PUBG, Fortnite Discover innovative games to strengthen our platform e.g. Subnautica 2018 Pipeline focus on innovative gameplay PUBG Fortnite Rocket League FIFA Online 4 17

18 Smart Phone Games FY17: RMB62.9 billion revenue, 64% 4Q17: RMB16.9 billion revenue, up 59% YoY, down 7% QoQ CFM survival mode sharply expanded user base but no initial monetization Several RPG games entered post-launch user consolidation phase Released 5 mobile games in 4Q17, 3 in December 2018 Pipeline extending leadership in new genres QQ Speed Mobile 20 million DAU, ranks 2nd highest grossing game title at ios Demonstrated our capability from creating an IP to operating a highly popular PC game and extending leadership to mobile Launched 2 PUBG mobile games PUBG: Exciting Battleground achieves by far the highest DAU within genre PUBG: Full Ahead solid DAU Not yet focused on monetization 18

19 Online Advertising +49% YoY +12% QoQ +50% YoY % +68% Stable % % +65% Q16 4Q17 3Q17 4Q17 Social and Others Media (in billion RMB) Media Video revenue grew YoY and QoQ due to increased user traffic flowing from the self-commissioned variety shows and drama series News revenue decreased YoY and QoQ as we were still revamping the ad system Launched a unified ad placement platform for all news feed products Social and Others Higher ad demand YoY due to enhanced targeting and more advertisers from partner platforms; QoQ growth benefitted from ecommerce seasonality Increased ad impressions in Weixin Moments, Official Accounts and mobile ad network Testing CPC-based ads in Official Accounts, linking to Mini Programs * Based on previous classification, brand ad revenue was RMB 4.2 billion in 4Q17, up 33% YoY and 3% QoQ. Performance ad revenue was RMB8.2 billion, up 59% YoY and 17% QoQ. 19

20 Breakout Year for Tencent Video #1 in mobile DAU and subscriptions 137m Mobile DAU for 4Q17 +44% YoY RMB2.7b +68% YoY Advertising revenue for 4Q17 56m +121% YoY Subscriptions as at 4Q17 Monthly ARPU per subscription for 2017: RMB13.9 RMB2.2b +149% YoY Subscription revenue for 4Q17 Content Strategy Original content: strengthened owned IP portfolio cooperating with China Literature and Tencent Games; proven production capability Licensed content: accumulated a rich exclusive content library Continue to invest in high-quality content Platform Capability Large and highly engaged user base generated huge demand for consumption and sharing Well-established content scheduling system enhanced user retention Fast-growing fans-celebrity social community Doki fostered user interactions, extending engagement and time spent Industry Partnerships Made equity investments in top-tier content producers Expanded OTT business by cooperating with top TV set manufacturers 20

21 Overview Strategic Highlights Business Review Financials Q&A

22 Income Statement in million RMB 4Q2017 YoY QoQ FY2017 YoY Revenues 66, % +2% 237, % COPS (34,897) +72% +4% (120,835) +79% Gross profit 31, % -1% 116, % Interest income 1, % +14% 3, % Other gains, net 7, % +102% 20, % Operating expenses (14,833) +30% +7% (50,703) +47% Operating profit 25, % +13% 90, % Finance costs, net (859) +78% +64% (2,908) +49% Share of profit/losses of associates & JV (120) -77% -115% % Income tax expense (3,123) +30% -37% (15,744) +54% Net profit 21, % +20% 72, % Net profit to shareholders 20, % +16% 71, % Diluted EPS in RMB % +15% % Non-GAAP: Net profit to shareholders 17, % +2% 65, % Diluted EPS in RMB % +2% % 22

23 Non-GAAP Adjustments in million RMB GAAP 4Q2017 SBC Net (gains)/losses from investee companies* Amortisation of intangible assets Impairment provision** Non-GAAP 4Q2017 YoY change QoQ change Non-GAAP FY2017 YoY change Operating profit 25,724 1,874 (6,281) , % +1% 82, % Net profit 21,622 2,146 (6,229) , % +7% 66, % Net profit to shareholders 20,797 2,084 (6,189) , % +2% 65, % Operating margin 38.7% 32.9% -1.2 ppt Stable 34.5% -3.8 ppts Net margin 32.6% 27.7% Stable +1.4 ppt 27.9% -2.4 ppts * Including (gains) /losses on deemed disposals, disposals of investee companies and businesses, and fair value changes arising from investments. ** Impairment provision for associates, available-for-sale financial assets, and intangible assets arising from acquisitioin 23

24 Segment Gross Margin VAS (%) Online Advertising (%) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q Others (%) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q

25 Operating Expenses S&M (in billion RMB) % YoY +25% QoQ +45% YoY 4Q16 4Q17 3Q17 4Q R&D (in billion RMB) % YoY -1% QoQ +47% YoY 4Q16 4Q17 3Q17 4Q G&A excl. R&D (in billion RMB) % YoY -5% QoQ +47% YoY 4Q16 4Q17 3Q17 4Q

26 Margin Ratios GAAP Gross Margin (%) Non-GAAP Operating Margin (%) Non-GAAP Net Margin (%) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q

27 Earnings Per Share and Dividend in RMB 4Q2017 FY2017 GAAP YoY Non-GAAP YoY GAAP YoY Non-GAAP YoY Basic EPS % % % % Diluted EPS % % % % Subject to shareholders approval at the AGM to be held on 16 May 2018, proposed 2017 annual dividend of HKD 0.88 per share 27

28 CAPEX, FCF and Net Cash in million RMB 4Q2017 YoY QoQ FY2017 YoY Operating CAPEX 3, % +69% 10, % Non-operating CAPEX 1, % -7% 3,420-38% Total CAPEX 4, % +42% 13, % Operating Cash Flow 28, % -6% 106, % Less: CAPEX Paid 4, % 47% 12, % Free Cash Flow 24, % -12% 93, % Total Cash 148, % -2% 148, % Less: Total Debt 131, % - 131, % Net Cash 16,332-10% -13% 16,332-10% * Excluding subsidiaries Fair market value of our listed associates and Available-For-Sale financial assets was approximately RMB210.8 billion* as at December 31,

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30 Tencent Holdings Ltd Fourth Quarter and Annual Results Presentation Thank you! 3 0