Tencent Announces 2016 First Quarter Results

HONG KONG, May 18, 2016 /PRNewswire/ -- Tencent Holdings Limited ("Tencent" or the "Company", SEHK 00700), a leading provider of Internet value added services in China, today announced the unaudited consolidated results for the first quarter of 2016 ended March 31, 2016 ("1Q2016").

Key Highlights:

• Total revenues were RMB31,995 million (USD4,952 million^[1]), an increase of 43% over the first quarter of 2015 ("YoY").
• Operating profit was RMB13,398 million (USD2,074 million), an increase of 43% YoY. Operating margin was 42%, the same as the first quarter of 2015.
• Profit for the period was RMB9,268 million (USD1,434 million), an increase of 34% YoY. Net margin decreased to 29% from 31% last year.
• Profit attributable to equity holders of the Company for the period was RMB9,183 million (USD1,421 million), an increase of 33% YoY.
• Basic earnings per share were RMB0.981. Diluted earnings per share were RMB0.970.
• On a non-GAAP basis^[2], excluding share-based compensation, net (gains)/losses from investee companies, amortization of intangible assets and impairment provision:
  • Operating profit was RMB13,484 million (USD2,087 million), an increase of 43% YoY. Operating margin was 42%, the same as the first quarter of 2015.
  • Profit for the period was RMB10,134 million (USD1,568 million), an increase of 39% YoY. Net margin decreased to 32% from 33% last year.
  • Profit attributable to equity holders of the Company for the period was RMB10,032 million (USD1,553 million), an increase of 39% YoY.
  • Basic earnings per share were RMB1.072. Diluted earnings per share were RMB1.059.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "We delivered a strong set of financial results for the first quarter of 2016, and made progress in further building up our social, games and media platforms. Our smart phone games achieved healthy user and revenue growth, thanks to our expanding portfolio of popular titles, operational expertise, and extensive user reach. A rich catalogue of premium content and an improving copyright protection environment in China facilitated robust growth in our digital content businesses. For advertising, we are refining our targeting tools and creating new ad formats to enhance returns for advertisers, thereby putting us in a solid position to capture the sizable market opportunity over the longer run. Our payment service adoption and payment volume saw healthy growth as we connect our users to an expanding range of online and offline services."

1Q2016 Financial Review

Value Added Services ("VAS"). Revenues from our VAS business increased by 34% to RMB24,964 million for the first quarter of 2016 on a YoY basis. Online games revenues grew by 28% YoY to RMB17,085 million. The increase mainly reflected contributions from new smart phone games such as CrossFire Mobile, Honor of Kings, The Legend of MIR 2 and Naruto Mobile, as well as revenue growth from PC client games, mainly driven by our key titles and newly launched games in the second half of 2015. Social networks revenues increased by 48% YoY to RMB7,879 million. The increase primarily reflected higher subscription revenues from digital content subscription services and QQ Membership, as well as revenue growth from virtual item sales.

Online advertising. Revenues from our online advertising business increased by 73% to RMB4,701 million for the first quarter of 2016 on a YoY basis. Performance-based advertising revenues increased by 90% YoY to RMB2,532 million, primarily driven by growth in advertising revenues from Mobile Qzone, Tencent News, Weixin Moments and Weixin Official Accounts. Brand display advertising revenues grew by 56% YoY to RMB2,169 million, mainly reflecting revenue growth from Tencent News and Tencent Video.

Other Key Financial Information for 1Q2016

Share-based compensation was RMB707 million, up 19% YoY.
EBITDA was RMB14,329 million, up 44% YoY. Adjusted EBITDA was RMB15,004 million, up 43% YoY.

Capital expenditure was RMB4,105 million, up 208% YoY.
Free cash flow was RMB13,927 million, up 67% YoY.

As at March 31, 2016, Net cash position totaled RMB27,429 million, up 8% YoY. Fair value of our stakes in listed investee companies (both associates and available-for-sale financial assets) totalled RMB82 billion as at March 31, 2016.

Business Review and Outlook

Operating information

• Monthly active user accounts ("MAU") of QQ was 877 million, an increase of 5% YoY.
• Smart device MAU of QQ was 658 million, an increase of 9% YoY.
• Peak concurrent user accounts ("PCU") of QQ (for the quarter) was 260 million, an increase of 14% YoY.
• Combined MAU of Weixin and WeChat were 762 million, an increase of 39% YoY.
• MAU of Qzone was 648 million, a decrease of 3% YoY.
• Smart device MAU of Qzone was 588 million, an increase of 4% YoY.
• Fee-based VAS registered subscriptions were 108 million, an increase of 33% YoY.

Key Platforms

• For QQ, smart device MAU increased by 9% YoY to 658 million at the end of the quarter, while overall PCU increased by 14% YoY to 260 million. Mobile QQ usage benefited from enhanced features in areas such as video messaging and virtual gift exchanging. User activity in Interest Tribes, our interest-based communities embedded in QQ, benefited from enriched content discovery features, such as targeted feed-displays.
• For Qzone, smart device MAU increased by 4% YoY to 588 million at the end of the quarter. User activity benefited from enhanced features in areas such as photo editing and video viewing.
• For Weixin and WeChat together, MAU reached 762 million at the end of the quarter, representing YoY growth of 39%. User metrics growth benefited from the popularity of red envelope activities during the Lunar New Year holidays in early 2016, and increased original content published on Official Accounts. The volume of commercial payments via Weixin Pay, such as payments for eCommerce and O2O service transactions, grew significantly, accompanying an increasing volume of C2C payment transactions.

In April 2016, we launched Enterprise Weixin, a stand-alone application which is tailored to communication scenarios at work and incorporates mobile office solutions such as calendar and company notice management.

VAS

In the first quarter of 2016, our social networks business sustained healthy revenue growth as we improved virtual item sales, added premium content to our digital content subscription services, and enhanced mobile privileges for QQ Membership subscription services.

In online games, we extended our market leadership in China.

• For PC client games, we saw increased contributions from key titles and new games launched in the second half of 2015, supported by promotional initiatives such as expansion packs and eSports tournaments.
• For smart phone games, we cultivated eSports user activity via leveraging QQ, Weixin, Tencent Video and Tencent News, and expanded our mid-core game portfolio.

Looking ahead, we aim to strengthen our smart phone game portfolio via leveraging proven PC game IPs, such as Legend of the Swordman and Zhengtu, and via launching new genres, such as fishing games.

Online Advertising

Our online advertising business sustained rapid YoY growth in the first quarter of 2016, mainly driven by an enlarged advertiser base, higher traffic on our mobile platforms, and improved monetisation of advertising inventories. Approximately 80% of our total advertising revenues was generated on mobile platforms during the quarter.

Under our new exclusive partnership with NBA, online video views of NBA games grew significantly in China and became increasingly attractive to large-budget advertisers. We introduced self-service advertising tools to monetise Weixin Moments traffic generated in low-tier cities, catering particularly to long-tail advertisers.

Looking forward, we will continue growing and monetising advertising inventories on our media and social platforms. While we are optimistic about the long-term growth potential of our online advertising business, our brand advertising business could face near-term challenges due to the uncertainties of macroeconomic environment in China.

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. Every day, hundreds of millions of people communicate, share experiences, consume information and seek entertainment through our integrated platforms. Tencent's diversified services include QQ, Weixin/ WeChat for communications; Qzone for social networking; QQ Game Platform for online games; QQ.com and Tencent News for information and Tencent Video for video content.

Tencent was founded in Shenzhen in 1998 and went public on the Main Board of the Hong Kong Stock Exchange in 2004. The Company is one of the constituent stocks of the Hang Seng Index. Tencent seeks to evolve with the Internet by investing in innovation, providing a mutually beneficial environment for partners, and staying close to users.

Non-GAAP Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS, certain non-GAAP financial measures, including non-GAAP operating profit, non-GAAP operating margin, non-GAAP profit for the period, non-GAAP net margin, non-GAAP profit attributable to equity holders of the Company, non-GAAP basic EPS and non-GAAP diluted EPS, have been presented in this announcement. 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 realized 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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