Tencent Announces 2017 First Quarter Results

SHENZHEN, China, May 17, 2017 /PRNewswire/ -- Tencent Holdings Limited ("Tencent" or the "Company", 00700.hk), a leading provider of Internet value added services in China, today announced the unaudited consolidated results for the first quarter of 2017 ended March 31, 2017 ("1Q2017").

Key Highlights:

• Total revenues were RMB49,552 million (USD7,182 million[1]), an increase of 55% over the first quarter of 2016 ("YoY").
• Operating profit was RMB19,272 million (USD2,793 million), an increase of 44% YoY. Operating margin decreased to 39% from 42% last year.
• Profit for the period was RMB14,548 million (USD2,109 million), an increase of 57% YoY. Net margin was 29%, the same as the first quarter of 2016.
• Profit attributable to equity holders of the Company for the period was RMB14,476 million (USD2,098 million), an increase of 58% YoY.
• Basic earnings per share were RMB1.540. Diluted earnings per share were RMB1.522.
• On a non-GAAP basis, excluding share-based compensation, net (gains)/losses from investee companies, amortisation of intangible assets and impairment provision:
• Operating profit was RMB18,520 million (USD2,684 million), an increase of 37% YoY. Operating margin decreased to 37% from 42% last year.
• Profit for the period was RMB14,372 million (USD2,083 million), an increase of 42% YoY. Net margin decreased to 29% from 32% last year.
• Profit attributable to equity holders of the Company for the period was RMB14,211 million (USD2,060 million), an increase of 42% YoY.
• Basic earnings per share were RMB1.512. Diluted earnings per share were RMB1.494.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "We delivered a strong set of operating and financial results for the first quarter of 2017. Financially, our smart phone games, payment related services, digital content subscriptions, PC games and social advertising businesses all contributed to our broad-based revenue growth. Operationally, our entertainment services benefited from the Chinese New Year holiday, and several of our products achieved notable growth during the quarter. These include our video platform which featured popular original content, as well as newer products such as our karaoke app WeSing, our photo editing app Pitu, and our mobile games such as Honour of Kings. We will continue to invest in new technologies, quality content and innovative products to bring increasingly better experiences to our users."

1Q2017 Financial Review

Value Added Services ("VAS"). Revenues increased by 41% to RMB35,108 million for 1Q2017 on a YoY basis. Online games revenues grew by 34% YoY to RMB22,811 million. The increase mainly reflected higher revenues from both smart phone games (such as Honour of Kings and Dragon Nest Mobile) and PC client games (such as LoL and DnF). Social networks revenues grew by 56% YoY to RMB12,297 million. The increase primarily reflected revenue growth from digital content services, including digital music, video, and literature services, and from virtual item sales.

Online advertising. Revenues increased by 47% to RMB6,888 million for 1Q2017 on a YoY basis. In light of the increasingly blurred boundaries between performance-based advertising and brand display advertising, and advertisers increasingly purchasing performance ads on traditionally brand-oriented inventories, we have reclassified online advertising revenues by advertising properties, rather than advertising pricing models.

Media advertising revenues (mainly including those generated from our news, video and music properties) increased by 20% YoY to RMB2,509 million, primarily reflecting growth in revenues from our mobile media platforms, Tencent News and Tencent Video. Social and others advertising revenues(mainly including those generated from our social properties, app store, browser and ad networks) grew by 67% YoY to RMB4,379 million, mainly driven by higher advertising revenues derived from Weixin Moments, Weixin Official Accounts, our app store, and our mobile browser.

Others. Revenues increased by 224% to RMB7,556 million for 1Q2017 on a YoY basis. The increase was primarily driven by higher revenues from our payment related and cloud services.

Other Key Financial Information for 1Q2017

Share-based compensation was RMB1,339 million, up 89% YoY.
EBITDA was RMB19,995 million, up 40% YoY. Adjusted EBITDA was RMB21,300 million, up 42% YoY.

Capital expenditure was RMB2,108 million, down 49% YoY. 
Free cash flow was RMB24,229 million, up 74% YoY.

As at March 31, 2017, Net cash position totaled RMB27,572 million. Fair value of our stakes in listed investee companies (both associates and available-for-sale financial assets) totalled RMB112 billion as at March 31, 2017.

Business Review and Outlook

Operating Information

• Monthly active user accounts ("MAU") of QQ was 861 million, a decrease of 2% YoY.
• Smart device MAU of QQ[2] was 678 million, the same as last year.
• Peak concurrent user accounts ("PCU") of QQ (for the quarter) was 266 million, an increase of 3% YoY.
• Combined MAU of Weixin and WeChat were 938 million, an increase of 23% YoY.
• MAU of Qzone was 632 million, a decrease of 3% YoY.
• Smart device MAU of Qzone[3] was 605 million, the same as last year.
• Fee-based VAS registered subscriptions were 119 million, an increase of 10% YoY.

Social and Communication

• QQ: Smart device MAU was broadly stable YoY, while PCU including PC and mobile increased by 3% to 266 million. As a new generation of users come online, we seek to address their needs by sharpening QQ's focus on young people. For example, we introduced Kandian, which recommends personalised content to young QQ users based on their interest graphs and big data analytics. We also enriched our QQ Smart Campus service, providing tools to support the administration of college student affairs, facilitate school-student communication, pay tuition fees and host job listings.
• Qzone: Smart device MAU was flat YoY. We continued to increase user engagement through refining functionalities in live broadcasting and search.
• Weixin and WeChat: MAU reached 938 million, representing YoY growth of 23%. We have been nurturing the adoption of Mini Programs by introducing more developer-friendly features such as DIY scannable code, embedded links in Weixin Official Accounts, and Mini Programs discoverable based on location. We launched the Weixin Index which enables users to analyse the popularity of keywords within Weixin Official Accounts.

Online Games

For PC client games, we achieved approximately RMB14.1 billion revenue and generated 24% YoY revenue growth, with increased contributions from key titles such as LoL, DnF, and FIFA Online 3, supported by seasonal expansion packs, promotional activities and eSports events. Paying users ratio increased on a YoY basis.

For smart phone games, we achieved approximately RMB12.9 billion revenue[4], representing 57% YoY growth, driven by existing and new games such as Honour of Kings, CF Mobile and Dragon Nest Mobile. 

Digital Content

Digital content revenue recorded rapid growth during the quarter, as users were increasingly willing to pay for content, and as the copyright environment continued to improve.

Our video subscriptions revenue more than tripled YoY, driven by in-house productions such as Candle in the Tomb, and licensed content such as Country Romance 9.

For the QQ Music streaming service, we upgraded the listening and sharing experience with enhanced features in user-generated playlists, search and our music video player. WeSing, our karaoke app, saw significant growth in active users and paying users, benefitting from upgraded features such as singing contests with friends and the addition of higher-grossing virtual gifting items.

For online literature, we maintained our position as the leading online content library and publishing platform, with healthy growth in the number of daily paying readers.

Online Advertising

During 1Q2017, our advertising business delivered robust expansion, with Tencent Video and Tencent News being the key contributors to YoY growth for our media advertising business; and Weixin properties for our social and others advertising business.

Our news services maintained industry leadership in terms of DAU, and our video business ranked first in China in terms of mobile video views.

We upgraded our neighbourhood LBS advertising in Weixin Moments, enabling advertisers to more precisely target customers within their vicinity, which is particularly attractive to advertisers such as wedding suppliers and home decoration vendors.

Others

We generated 224% YoY revenue growth, driven mainly by payment related services and cloud services.

For other detailed disclosure, please refer to our website www.tencent.com/ir, or follow us via Weixin Official Account (Weixin ID: Tencent_IR).

About Tencent

Tencent uses technology to enrich the lives of Internet users. Our social products Weixin and QQ link our users to a rich digital content catalogue including games, video, music and books. Our proprietary targeting technology helps advertisers reach out to hundreds of millions of consumers in China.  Our infrastructure services including payment, security, cloud and artificial intelligence create differentiated offerings and support our partners' business growth.  Tencent invests heavily in people and innovation, enabling us to evolve with the Internet.   

Tencent was founded in Shenzhen, China, in 1998.  Shares of Tencent (00700.hk) are traded on the Main Board of the Stock Exchange of Hong Kong. 

For investor and media enquiries, please contact:

Non-GAAP Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-GAAP financial measures (in terms of, operating profit, operating margin, profit for the period, net margin, profit attributable to equity holders of the Company, basic EPS and diluted EPS), have been presented in this press release. These unaudited non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of the Group'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 Group's core operations by excluding certain non-cash items and certain impact of M&A transactions. In addition, non-GAAP adjustments include relevant non-GAAP adjustments for the Group's material associates based on available published financials of the relevant material associates, or estimates made by the Company's management based on available information, certain expectations, assumptions and premises.

Forward-Looking Statements

This press release contains forward-looking statements relating to the business outlook, forecast business plans and growth strategies of the Company.  These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release.  They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control.  These forward-looking statements may prove to be incorrect and may not be realised in future.  Underlying the forward-looking statements is a large number of risks and uncertainties.  Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.

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