Tencent : Announcement of the results for the three months ended 31 March 2019

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ANNOUNCEMENT OF THE RESULTS

FOR THE THREE MONTHS ENDED 31 MARCH 2019

The Board is pleased to announce the unaudited consolidated results of the Group for the three months ended 31 March 2019. These interim results have been reviewed by the Auditor in accordance with International Standard on Review Engagements 2410 "Review of interim financial information performed by the independent auditor of the entity" issued by the International Auditing and Assurance Standards Board, and by the Audit Committee.

FINANCIAL PERFORMANCE HIGHLIGHTS
			Unaudited
		Three m onths ended
	31	31	Year-	31	Quarter-
	March	March	on-year	December	on-quarter
	2019	2018	change	2018	change
	(RMB in millions, unless specified)
Revenues	85,465	73,528	16%	84,896	1%
Gross profit	39,820	37,042	7%	35,152	13%
Operating profit	36,742	30,692	20%	17,288	113%
Profit for the period	27,856	23,973	16%	14,026	99%
Profit attributable to equity
holders of the Company	27,210	23,290	17%	14,229	91%
Non-GAAP profit
attributable to equity
holders of the Company	20,930	18,313	14%	19,730	6%
EPS (RMB per share)
- basic	2.877	2.470	16%	1.505	91%
- diluted	2.844	2.435	17%	1.489	91%
Non-GAAP EPS
(RMB per share)
- basic	2.213	1.942	14%	2.087	6%
- diluted	2.187	1.915	14%	2.065	6%

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BUSINESS REVIEW AND OUTLOOK

1.Company Strategic Highlights

This quarter, we began to separately disclose "FinTech and Business Services" as a new segment in our financial reports. We believe the size and scale of these services, which generated RMB21.8 billion revenue in the quarter, reflect:

1the rapidly-emerging demand for such services as China's economy develops, as the need for digital payments and financial services extends, and as more enterprises seek to benefit from the opportunities offered by the "Industrial Internet";

1the synergies between these services and some of our existing consumer services (such as between our communications and social platforms and peer-to-peer payment services, or between our Mini Programs and WeChat Work services); and

1the substantial organic investments that we have made in these services, not only in recent periods, but also for many years past, which provide us with robust scale and rich experience of operating in these fields.

For example, in payments, we built the basic infrastructure for our PC payments service in 2005. We integrated our payments service with Weixin, and then launched the red envelope gifting function, which unleashed the power of social payment, in 2014. We began our offline merchant adoption campaign from 2016, and deepened merchant adoption via our easy-to-deploy QR Codes and Mini Programs solutions. Through these initiatives, we provided point-of-sales solutions to tens of millions of merchants spanning from flagship partners to long-tail merchants. These initiatives demanded that we develop and upgrade solutions serving consumers and merchants, while fulfilling regulatory and security needs, at a massive scale. Executing these initiatives enables the payment-related revenue we generate today, and supports the efficient distribution of financial services, such as personal wealth management and micro-loan products. With a strong focus on risk management, we have grown our FinTech business at a measured pace. The FinTech business also provides us with enterprise relationships and experience that are complementary to our emerging business service offerings.

In cloud, even before serving external customers, our cloud infrastructure was already at a substantial scale in order to meet our internal cloud requirement. Our cloud business started by serving the Internet sector where our established strengths lie, such as the games and video verticals, and then made breakthroughs in smart industries such as finance, retail, municipal services, tourism and healthcare. Our robust infrastructure and accumulated technological capabilities enabled us to support digital upgrades for our growing base of enterprise customers.

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This example of our decade-long investment in payments and cloud services illustrates how our strategy of allocating capital to a range of pre-revenue and investment-stage activities ultimately broadens our revenue streams and generates sustainable profit growth over the long term, from communications services to games, advertising, digital content services and now FinTech and Business Services. We continue to invest in emerging services and activities as, we believe, technology continues to provide new consumer and enterprise opportunities.

2.Company Financial Performance

In the first quarter of 2019

Revenue increased by 16% year-on-year, primarily driven by commercial payment services and other FinTech services, social advertising, and digital content services.

Non-GAAP operating profit increased by 13% year-on-year. Operating profit increased by 20% year-on-year.

Non-GAAP profit attributable to equity holders of the Company increased by 14% year-on-year. Profit attributable to equity holders of the Company increased by 17% year-on-year.

3.Company Business Highlights

Operating Information
	As at 31	As at 31	Year-	As at 31	Quarter-
	March	March on-year December	on-quarter
	2019	2018	change	2018	change
		(in millions, unless specified)
MAU of QQ	823.0	805.5	2.2%	807.1	2.0%
Smart device MAU of QQ	700.4	694.1	0.9%	699.8	0.1%
Combined MAU of Weixin
and WeChat	1,111.7	1,040.0	6.9%	1,097.6	1.3%
Smart device MAU of Qzone	571.9	550.0	4.0%	532.4	7.4%
Fee-based VAS registered
subscriptions	165.5	147.1	12.5%	160.3	3.2%

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Communications and Social

During the first quarter of 2019, combined MAU of Weixin and WeChat was 1,112 million, up 6.9% year-on-year. Smart device MAU of QQ slightly increased year-on-year and exceeded 700 million in the first quarter. Among which, young users became more engaged on the QQ platform and their MAU grew by a double-digit rate year-on-year.

China Internet users are increasingly utilizing Weixin's and QQ's in-app camera functions to record short videos, which they then share in one-to-one chats, group chats, and timeline formats. Users now upload hundreds of millions of videos each day to our communications and social platforms, which we believe are the leading venues in China for uploading and viewing such user-created videos.

We launched Mobile QQ Version 8.0 with engaging features such as QQ Mini Programs and KuoLie, which recommends new friends to young QQ users based on similar interests. In Weixin, we enabled users to share information, products and services for different vertical categories of Mini Programs within their chat groups, facilitating activities such as group buying for local communities, and the active user base for non-game Mini Programs continued to grow at a healthy rate.

Online Games

Cash receipts for our games business grew 10% year-on-year, while reported revenue decreased 1% year-on-year to RMB28.5 billion, with the difference between cash receipts and reported revenue trends flowing from our revenue deferral policy for items sold in our games. Cash receipts and reported revenue increased quarter-on-quarter, benefiting from favorable seasonality and content upgrades for key PC and mobile titles.

Smart phone games revenues (including smart phone games revenues attributable to our social networks business) amounted to RMB21.2 billion, down 2% year-on-year due to fewer new games releases, and up 11% quarter-on-quarter due to seasonal activities. In Mainland China, total DAU of our smart phone game portfolio increased year-on-year, while paying users grew quarter-on-quarter. Honour of Kings released a content update in January that enhanced user engagement, contributing to its year-on-year increase in paying users and revenue. Perfect World Mobile, a 3D MMORPG based on a long-standing PC IP, became one of the top grossing smart phone games in China soon after its launch and increased total DAU for our RPG portfolio. Because we released Perfect World Mobile late in the quarter, the game contributed substantially to cash receipts, but only modestly to reported revenue, in

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the first quarter, as we deferred the majority of the cash receipts for revenue recognition in subsequent periods. Internationally (excluding Mainland China), PUBG MOBILE has exceeded 100 million MAUs since February, according to App Annie. We released the new Royale Pass in March, driving the game's revenue growth.

In the second quarter of 2019, we have released and will release several mid to hard core games, including action, RPG and SLG titles, as well as our tactical tournament title, Peacekeeper Elite. The introduction of Season Passes in overseas games such as Fortnite and PUBG MOBILE has meaningfully contributed to their user engagement, paying ratios, and revenue generation, and we are in the early stages of experimenting with Season Passes in some of our key games in China, such as Cross Fire Mobile, Honour of Kings and QQ Speed Mobile.

Our PC client games revenues was RMB13.8 billion, down 2% year-on-year or up 24% quarter-on-quarter. During the first quarter, core user activity in key PC game titles remained at healthy levels. League of Legends user engagement grew after increasing its velocity of new skin introductions, and several recent skin releases have been particularly popular, driving a rebound in cash receipts. In late January, DnF released a major content update with a higher level cap, and its promotional packages for Chinese New Year increased its paying users quarter-on-quarter.

Digital Content

Our fee-based VAS subscriptions increased 13% year-on-year to 165.5 million, mainly attributable to video and music subscriptions. Tencent Video subscriptions increased 43% year-on-year to 89.0 million, driven by popular self-commissioned IP content, such as Candle in the Tomb Season 3; Heaven Sword, Dragon Sabre (based on the popular martial arts novel by Louis Cha); and The Land of Warriors Season 2. Tencent Video subscription counts were broadly stable sequentially due to delays in airing certain drama series, which might otherwise have contributed more to subscriber growth.

Daily video views for Tencent Video grew rapidly year-on-year due to the popularity of short videos distributed through the Tencent Video app. We produced appealing long-form video content leveraging our rich IP portfolio, such as Produce 101 Season 2, a variety show based on the popular Produce 101 format. To further engage with video viewers, WeiShi launched a new feature for Produce 101 Season 2, enabling users to vote for contestants and share related short videos with their Weixin and QQ friends.

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