TENCENT ANNOUNCES 2022 SECOND QUARTER AND INTERIM RESULTS

HONG KONG, Aug. 17, 2022 /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 second quarter ("2Q2022") and first half year of 2022 ("1H2022") ended June 30, 2022.

2Q2022 Key Highlights

Revenues: -3% YoY, non-IFRS^[1] profit attributable to equity holders of the Company: -17% YoY

• Total revenues were RMB134.0 billion (USD20.0 billion^[2]), a decrease of 3% over the second quarter of 2021 ("YoY").
• On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:
  - Operating profit was RMB36.7 billion (USD5.5 billion), a decrease of 14% YoY. Operating margin decreased to 27% from 31% last year.
  - Profit for the period was RMB29.0 billion (USD4.3 billion), a decrease of 18% YoY. Net margin decreased to 22% from 25% last year.
  - Profit attributable to equity holders of the Company for the quarter was RMB28.1 billion (USD4.2 billion), a decrease of 17% YoY.
  - Basic earnings per share were RMB2.949. Diluted earnings per share were RMB2.896.
• On an IFRS basis:
  - Operating profit was RMB30.1 billion (USD4.5 billion), a decrease of 43% YoY. Operating margin decreased to 22% from 38% last year.
  - Profit for the period was RMB19.2 billion (USD2.9 billion), a decrease of 55% YoY. Net margin decreased to 14% from 31% last year.
  - Profit attributable to equity holders of the Company for the quarter was RMB18.6 billion (USD2.8 billion), a decrease of 56% YoY.
  - Basic earnings per share were RMB1.951. Diluted earnings per share were RMB1.915.

1H2022 Key Highlights

Revenues: -1% YoY, non-IFRS profit attributable to equity holders of the Company: -20% YoY

• Total revenues were RMB269.5 billion (USD40.2 billion), a decrease of 1% over the first half year of 2021 ("YoY").
• On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:
  - Operating profit was RMB73.2 billion (USD10.9 billion), a decrease of 14% YoY. Operating margin decreased to 27% from 31% last year.
  - Profit for the period was RMB55.3 billion (USD8.2 billion), a decrease of 21% YoY. Net margin decreased to 21% from 25% last year.
  - Profit attributable to equity holders of the Company for the period was RMB53.7 billion (USD8.0 billion), a decrease of 20% YoY.
  - Basic earnings per share were RMB5.628. Diluted earnings per share were RMB5.516.
• On an IFRS basis:
  - Operating profit was RMB67.3 billion (USD10.0 billion), a decrease of 38% YoY. Operating margin decreased to 25% from 40% last year.
  - Profit for the period was RMB43.0 billion (USD6.4 billion), a decrease of 53% YoY. Net margin decreased to 16% from 34% last year.
  - Profit attributable to equity holders of the Company for the period was RMB42.0 billion (USD6.3 billion), a decrease of 53% YoY.
  - Basic earnings per share were RMB4.407. Diluted earnings per share were RMB4.320.
• Total cash were RMB315.9 billion (USD47.1 billion) at the end of the period.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "During the second quarter, we actively exited non-core businesses, tightened our marketing spending, and trimmed operating expenses, enabling us to sequentially increase our non-IFRS earnings, despite difficult revenue conditions. Looking forward, we will focus on enhancing the efficiency of our businesses and launching new revenue initiatives, including in-feed advertisements in our popular Video Accounts, while continuing to drive innovation through R&D. We generate approximately half of our revenues from FinTech and Business Services as well as Online Advertising that directly contribute to, and benefit from, overall economic activity, which should position us for revenue growth as China's economy expands."

2Q2022 Financial Review

Revenues from VAS^[3] were RMB71.7 billion for the second quarter of 2022, broadly stable compared to the second quarter of 2021. International Games revenues decreased by 1% to RMB10.7 billion, or broadly stable in constant currency terms, as the international game industry experienced a post-pandemic digestion period. By title, we saw decreased revenues from PUBG Mobile and Brawl Stars, a robust performance from VALORANT, and incremental revenues from newly launched V Rising. Domestic Games revenues decreased by 1% to RMB31.8 billion, as the domestic game industry experienced a similar digestion period due to transitional issues including relatively fewer big game releases, lower user spending, and the implementation of minor protection measures. By title, we saw decreased revenues from Honour of Kings, Moonlight Blade Mobile and League of Legends, and incremental revenues from recently launched games, such as League of Legends: Wild Rift, Return to Empire and Fight of The Golden Spatula. Social Networks revenues grew by 1% to RMB29.2 billion, reflecting increased revenues from our Video Accounts live streaming service and digital content subscription services, and decreased revenues from music- and games-related live streaming services.

Revenues from Online Advertising decreased by 18% to RMB18.6 billion for the second quarter of 2022 on a year-on-year basis, reflecting notable weakness in the Internet services, education and finance sectors, especially in April and May, partly offset by our consolidation of Sogou's advertising revenue. Social and Others Advertising revenues decreased by 17% to RMB16.1 billion as weak ad demand led to subdued bidding density and consequently lower eCPMs. Media Advertising revenues decreased by 25% to RMB2.5 billion, attributable to lower advertising revenues from Tencent Video and Tencent News.

Revenues from FinTech and Business Services grew by 1% to RMB42.2 billion for the second quarter of 2022 on a year-on-year basis. FinTech Services revenue growth was slower relative to prior quarters as COVID-19 resurgence temporarily impacted commercial payment activities in April and May. Business Services revenues decreased slightly year-on-year reflecting our proactive efforts to scale back loss-making activities.

Other Key Financial Information for 2Q2022

EBITDA was RMB38.6 billion, down 13% YoY. Adjusted EBITDA was RMB44.7 billion, down 11% YoY.

Capital expenditures were RMB3.0 billion, down 57% YoY.

Free cash flow was RMB22.5 billion, up 30% YoY.

As at June 30, 2022, net debt position totalled RMB20.4 billion. Fair value of our shareholdings^[4] in listed investee companies (excluding subsidiaries) totalled RMB601.9 billion (USD89.7 billion). During the second quarter, the Company repurchased approximately 9.7 million shares on the Hong Kong Stock Exchange for an aggregate consideration of approximately RMB3.1 billion.

Operating Metrics

Business Review and Outlook

Communication and Social

For Weixin, Video Accounts established substantial user engagement, with their total user time spent exceeding 80% of Moments'. Video Accounts' total video views grew over 200% year-on-year, video views based on AI recommendation increased by over 400% year-on-year, and daily active creators and daily video uploads in Video Accounts rose by over 100% year-on-year. During the second quarter of 2022, we hosted a series of popular live concerts that each attracted tens of millions of viewers.

For QQ, we enriched the interactive experience by introducing shared virtual spaces, where users can make friends and engage in community activities, as well as live audio chat using Super QQ Show avatars.

Digital Content

Our fee-based VAS subscriptions increased by 2% year-on-year to 235 million. For Tencent Video, subscriptions amounted to 122 million. Our self-commissioned drama series, A Dream of Splendor, ranked first by video views industry-wide^[5] in June 2022. According to QuestMobile, Tencent Video's mobile DAU was more than 20% higher than that of its closest peer in June 2022. For music, our subscriptions increased year-on-year to 83 million. In July 2022, TME sold over 6 million units of Jay Chou's digital album.

Domestic Games

The domestic game industry is facing transitional challenges including fewer big game releases, lower user spending and measures to protect minors. During this period, we prioritised developing technical capabilities and reinforcing our leadership in terms of player engagement. Honour of Kings and Peacekeeper Elite were the top two highest-ranked games by total time spent across the industry^[6], and each increased their total time spent by adult users year-on-year. In recent months, we released several new games which have achieved notable popularity, such as Fight of The Golden Spatula (ranked fourth by total time spent across all games^[6] in the second quarter of 2022) and Arena Breakout (ranked eighth by total time spent across all games in July 2022^[6]). 

International Games

The international games market is experiencing a post-pandemic digestion period as players resume offline activities. However, we believe we are making progress against our strategic initiatives. For example, in terms of game operations, Riot Games' VALORANT achieved record-high MAU and quarterly grossing receipts in the crowded tactical shooter category. In terms of investments, in July 2022, our European developer Miniclip acquired SYBO, the developer of the endless runner game Subway Surfers, which ranked first in the mobile game industry by cumulative downloads globally over the past decade^[7], increasing Miniclip's DAU by 30 million to 70 million. In terms of new games, V Rising, a Survival-Open World-Crafting game developed by our Swedish studio Stunlock, sold 2 million copies in its first month of Early Access.

Online Advertising

For Weixin Moments, we introduced a frame-breaking advertisement format, which is popular among brand advertisers. In July 2022, we began rolling out Video Accounts in-feed advertisements, which we believe represent a significant opportunity for expanding our market share and enhancing our profitability.   

FinTech

COVID-19 resurgence temporarily dampened commercial payment activities during the second quarter of 2022. Commercial payment volume slowed to low-single-digit year-on-year growth in April 2022, but resumed to high-teens year-on-year growth in June 2022.

Cloud and Other Business Services

We focused on quality revenue growth, prioritising internally-developed products while reducing loss-making activities. Business Services' gross margin expanded quarter-on-quarter as we improved revenue mix and reduced costs. For PaaS, TDSQL database revenue grew over 30% year-on-year and represented over 5% of our cloud revenue in the second quarter of 2022. Frost & Sullivan named TDSQL the leading distributed database product in China^[8], citing its scalability and support for industry solution services. For SaaS, Tencent Meeting launched a marketplace with plug-ins to enrich meeting experiences.

Appointment of Independent Non-Executive Director

We appointed Professor Zhang Xiulan as an independent Non-Executive Director (INED) and a member of the Corporate Governance Committee. She is currently a consultant at the University of California, San Francisco, and was previously the Dean at the School of Social Development and Public Policy, Beijing Normal University. Following Professor Zhang's appointment, the number of INEDs on our board will increase to 5 while the number of female directors will increase to 2, out of a total of 9 board members. The appointment will broaden our board's independence, gender diversity and areas of expertise.

For other detailed disclosure, please refer to our website https://www.tencent.com/en-us/investors.htmlhttp://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 communication and social services, Weixin and QQ, connect users with each other and with digital content and services, both online and offline, making their lives more convenient. Our targeted advertising service helps advertisers reach out to hundreds of millions of consumers in China. Our FinTech and business services support our partners' business growth and assist their digital upgrade.

Tencent invests heavily in talent and technological innovation, actively promoting the development of the Internet industry. Tencent was founded in Shenzhen, China, in 1998. Shares of Tencent (00700.HK) are listed on the Main Board of the Stock Exchange of Hong Kong.

Investor contact: IR@tencent.com

Media contact: GC@tencent.com 

Non-IFRS Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-IFRS 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-IFRS 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-IFRS financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-IFRS 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-IFRS adjustments include relevant non-IFRS adjustments for the Group's major associates based on available published financials of the relevant major 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, estimates of financial performance, 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 the future. Underlying these forward-looking statements are a lot of risks and uncertainties. In light of the risks and uncertainties, the inclusion of forward-looking statements in this press release should not be regarded as representations by the Board or the Company that the plans and objectives will be achieved, and investors should not place undue reliance on such statements.