2018 Second Quarter and Interim Results Presentation. Aug 15, 2018

Transcription

1 2018 Second Quarter and Interim Results Presentation Aug 15, 2018

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 2Q

3 Overview Strategic Highlights Business Review Financials Q&A

4 Financial Highlights in billion RMB 2Q2018 2Q2017 YoY 1Q2018 QoQ Total Revenue % Value Added Services % % Social Networks % % Online Games % % Online Advertising % % Media % % Social and Others % % Others % % Gross Profit % % Operating Profit % % Net Profit to Shareholders % % Non-GAAP* Operating Profit % % Operating Margin 30.2% 35.4% -5.2 ppt 34.4% -4.2 ppt Net Profit to Shareholders % % * Please refer to slide 20 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 1,058m QQ & Qzone QQ smart devices MAU of 709m (1) Qzone smart devices MAU of 543m Online Games Communications & Social Utilities Media Fintech Video #1 by mobile DAU and subscriptions News #1 portfolio of news services by MAU Music #1 music services platform Literature #1 online content library and publishing platform Mobile Payment #1 by MAU and DAU 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 30 June Includes users who logged in and sent a message or participated in certain activities such as QQ Moments, games, Interest Tribes, live broadcast, online music & literature 5

6 Overview Strategic Highlights Business Review Financials Q&A

7 Strategic Highlights User Engagement Deepened Across Platforms Weixin Tencent Video Media Feeds Solid growth YoY in users, time spent and activities Communication: DAU and per user messages increased Moments and Mini Games drove up time spent per user per day Adoption of Mini Programs and growth of Weixin Pay help Weixin diversify into more vertical use cases Consumption continues to ramp up, driven by premium IP and original content Mobile DAU up 24% YoY Mobile daily video views up 53% YoY Total user time spent on mobile app up 39% YoY Better algorithm and enhanced content offering enabled us to increase hit rates of our recommended feeds stream within our large DAU products In particular, for KanDian and Mobile QQ Browser: Total daily page views up 55% YoY Total daily short video views up more than 3 times YoY 7

8 Weixin Mini Programs + + Weixin Pay Ads Tencent Cloud Development interface using Mini Programs language Weixin Pay, Tencent Cloud and advertising capabilities to support Mini Programs Platform proposition: An innovative and fast-growing developer platform within Weixin, facilitating discovery and consumption of services and products Powerful features; easy programming Scan and execute with QR codes, connecting offline services to online engagement Supported by Weixin Pay, as well as advertising and cloud capabilities Rapid adoption: A growing community of developers and system integrators developing Mini Programs DAU grew to 200m, benefitting from an expanding range of services, Mini Games and tools Social sharing facilitates user acquisition; Mini Games accelerate adoption Generate traffic and download for corresponding native mobile apps 8

9 Weixin Mini Programs Expanding Penetration Across Multiple Use Cases To public transport companies: high processing efficiency, reduce cost, feed usage data to assist transport planning Public transport operators in over 90 cities have adopted Smart Transit QR Code, while some have their own Mini Programs to serve commuters Transport To merchants: shorten check-out time, take online orders, product recommendations and promotions in connection with Official Accounts, ongoing interaction with customers Scan-to-buy is increasingly adopted in shopping malls, supermarkets and convenience stores, supporting retailers moving Retail to mobile To restaurants: increase operational efficiency, reduce labor cost, reward loyal customers via e- coupons and loyalty program Widely adopted in fast food chains and cafes across China Restaurant Mini Games To game developers: expand user reach, targets short engagement time, additional revenue sources Ads revenue up 5 times QoQ 9

10 Overview Strategic Highlights Business Review Financials Q&A

11 Business Review 22% 24% 18% 21% 17% 15% 18% 15% 12% 14% 10% 19% 7% 19% 5% 18% 15% 4% 19% 42% 46% 5% 4% 19% 12% 17% 42% 45% 48% 53% 53% 54% 59% 56% 24% 23% 23% 23% 25% 24% 24% 24% 25% 23% 17% 19% 41% 37% 24% 23% 14% 19% 39% 34% 25% 23% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Social Networks Online Games Online Advertising Others 11

12 Value Added Services +14% YoY -10% QoQ % % % % Q17 2Q18 1Q18 2Q18 Social Networks Online Games (in billions, RMB) Social Networks Total VAS subscriptions up 30% YoY to 154 million, driven by video subscriber acquisition via self-produced original content Video subscription revenue doubled and music live broadcast services increased monetization, driving YoY revenue growth Reduced sales from game-related items offset growth in digital content services, resulting in QoQ revenue decline Online Games Revenue growth decelerated to 6% YoY, and quarterly revenue decreased 12% during weak season. Nonmonetization of popular tactical tournament games in China was the main reason behind YoY and QoQ slowdown DAU of smart phone games grew double-digit percentage YoY AoV and PUBG MOBILE built up substantial user bases in overseas market with increasing monetization 12

13 Social Networks Weixin Pay WeiShi Mobile payment MAU exceeded 800 million Average daily transaction volume up over 40% YoY Commercial payment transactions accounted for over half of total transaction volume for the first time, in which offline commercial payment volume increased 280% YoY Expanding use cases in China and overseas markets Mini video content platform, providing quality content for users direct access in our large DAU products Daily video views saw strong growth across media feed verticals within Mobile QQ and WeiShi app Appealing content, such as popular IP, to generate higher user traffic Added innovative features, e.g., AIbased beautifying tools, online voting function to deepen celebrity-fans interaction 13

14 14 Digital Content - Video 74 million subscriptions, up 121% YoY; #1 in China Among non-game apps, ranked #1 in China and #2 in Global ios Top Grossing Charts Exclusive Content in Key Verticals Drama: Legend of Fuyao, a top China Literature IP, is #1 exclusive drama series by VV in 1H18 Variety Show: Produce 101 achieved phenomenal success; #1 online variety show by VV Chinese Anime: strong IPs expanded audience and potential subscriber base, helping category traffic to more than double YoY; #1 industry wide by VV Legend of Fuyao Produce 101 Land of Warriors Subscription gift card Creative Promotional Initiatives Social referral: users can gift subscription cards or day-trial services via red envelopes to Weixin and QQ friends Cross promotion: a) bundling subscriptions with partners membership packages; b) subscribers can purchase China Literature content at discount

15 Smart Phone Games 2Q18: RMB17.6 billion revenue, up 19% YoY, down 19% QoQ Revenue declined sequentially due to Users shifted time to non-monetized tactical tournament games 5 out of 7 new games launched after mid-may Existing games prioritized operation and user engagement over monetization in 2Q In China, DAU and time spent both gained market share YoY and QoQ Initiatives to drive future growth Overseas Expansion AOV 13 million DAU across 85 markets Monetization via skins and avatars; grossing in 1H18 over USD 200 million PUBG MOBILE 14 million DAU in over 100 markets* Monetization via seasonal pass and skins; grossing in July over USD 20 million Existing Games HoK launched survival play mode and plan to release new items in dancing motions PUBG titles pursing approval for monetization New Games in High ARPU Categories MT4 consistently ranked #2 in China s ios Top Grossing Chart since late July launch Saint Seiya ranked #4 in China s ios Top Grossing Chart since early Aug launch * Excluding Japan, Korea, Taiwan 15

16 PC Client Games 2Q18: RMB12.9 billion revenue, down 5% YoY and down 8% QoQ Core users stay loyal to key titles DnF: launched 10 th anniversary in-game marketing activities in June and released popular items during Labour Day holidays. Paying users and ARPU grew YoY LoL: highly popular mid-season invitational (MSI) event held in Paris; DAU increased QoQ, benefitting from Chinese team winning Introduce overseas console blockbusters to Chinese PC game players Fortnite: open-beta testing scheduled for mid-august; 10 million pre-registrations in China Rocket League: innovative gameplay with over 45 million registered users worldwide Fortnite Rocket League 16

17 Online Advertising +39% YoY +32% QoQ % % % % 9.4 2Q17 2Q18 1Q18 2Q18 Media Social and Others (in billions, RMB) Media Video ad revenue grew YoY, mainly due to sponsorship advertising revenue generated from popular programs, e.g. Produce 101 and Legend of Fuyao. News ad revenue declined single-digit percentage YoY, against high base in 2Q17; sequentially, inventories increased after completion of ad system revamp Media ad revenue increased sequentially due to positive seasonality Social and Others Revenue increased YoY mainly due to Weixin: 2 nd feed ad per user day in Moments and new Mini Programs ads Mobile Ad Network: robust growth in impressions and demand from advertisers QQ KanDian: increased ad impressions from news feed traffic growth Revenue increased sequentially due to positive seasonal demand and more ad inventories 17

18 Overview Strategic Highlights Business Review Financials Q&A

19 Income Statement in million RMB 2Q2018 2Q2017 YoY 1Q2018 QoQ Revenues 73,675 56, % 73,528 - COPS (39,229) (28,300) +39% (36,486) +8% Gross profit 34,446 28, % 37,042-7% Interest income 1, % 1,065 +1% Other gains, net 2,506 5,125-51% 7,585-67% Operating expenses (16,217) (11,830) +37% (15,000) +8% Operating profit 21,807 22,560-3% 30,692-29% Finance costs, net (1,151) (834) +38% (654) +76% Share of profit/ (loss) of associates & JV 1, N.A. (319) N.A. Income tax expense (3,602) (3,970) -9% (5,746) -37% Net profit 18,580 18,254 +2% 23,973-22% Net profit to shareholders 17,867 18,231-2% 23,290-23% Diluted EPS in RMB % % Non-GAAP: Net profit to shareholders 19,716 16, % 18,313 +8% Diluted EPS in RMB % % 19

20 Non-GAAP Adjustments in million RMB GAAP 2Q2018 SBC Net (gains)/ losses from investee companies* Amortisation of intangible assets Impairment provision** Non-GAAP 2Q2018 YoY change QoQ change Operating profit 21,807 1,798 (4,010) 99 2,564 22, % -12% Net profit 18,580 2,562 (4,033) 813 2,577 20, % +7% Net profit to shareholders 17,867 2,478 (3,986) 779 2,578 19, % +8% Operating margin 29.6% 30.2% -5.2 ppt -4.2 ppt Net margin 25.2% 27.8% -1.3 ppt +1.8 ppt * Including (gains) /losses on deemed disposals, disposals of investee companies and businesses, and fair value changes arising from investments ** Impairment provision for associates, joint ventures, AFS and intangible assets arising from acquisitions 20

21 Segment Gross Margin VAS (%) Online Advertising (%) Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Others (%) Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 21

22 Operating Expenses S&M (in billion RMB) % YoY % QoQ 6.4 2Q17 2Q18 1Q18 2Q18 R&D (in billion RMB) % YoY +14% QoQ 2Q17 2Q18 1Q18 2Q18 G&A excl. R&D (in billion RMB) % YoY -7% QoQ 2Q17 2Q18 1Q18 2Q18 22

23 Margin Ratios GAAP Gross Margin (%) Non-GAAP Operating Margin (%) Non-GAAP Net Margin (%) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 23

24 CAPEX, Free Cash Flow in million RMB 2Q2018 2Q2017 YoY 1Q2018 QoQ Operating CAPEX 6,590 2, % 3, % Non-operating CAPEX % 2,441-80% Total CAPEX 7,085 3, % 6, % Operating Cash Flow 21,578 20,468 +5% 19,825 +9% Less: CAPEX Paid 6,204 2, % 6,825-9% Free Cash Flow 15,374 17,511-12% 13, % Total Cash 134, ,859-3% 142,526-6% Less: Total Debt 169, , % 157,059 +8% Net Cash / (Net Debt) (35,301) 21,267 N.A. (14,533) N.A. Fair market value of our listed investee companies was approximately RMB billion* (USD 36.2 billion) as at June 30, 2018 * Excluding subsidiaries 24

25 Overview Strategic Highlights Business Review Financials Q&A

26 Tencent Holdings Ltd Second Quarter & Interim Results Presentation Thank you! 2 6