TENCENT ANNOUNCES 2022 THIRD QUARTER RESULTS

HONG KONG, Nov. 16, 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 third quarter ("3Q2022") ended September 30, 2022.

3Q2022 Key Highlights

Revenues: -2% YoY, non-IFRS^[1] profit attributable to equity holders of the Company: +2% YoY

• Total revenues were RMB140.1 billion (USD19.7 billion^[2]), a decrease of 2% over the third 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 RMB40.9 billion (USD5.8 billion), largely stable YoY. Operating margin was stable at 29%.
  - Profit for the period was RMB33.4 billion (USD4.7 billion), an increase of 3% YoY. Net margin increased to 24% from 23% last year.
  - Profit attributable to equity holders of the Company for the quarter was RMB32.3 billion (USD4.5 billion), an increase of 2% YoY.
  - Basic earnings per share were RMB3.381. Diluted earnings per share were RMB3.306.
• On an IFRS basis:
  - Operating profit was RMB51.6 billion (USD7.3 billion), a decrease of 3% YoY. Operating margin was stable at 37%.
  - Profit for the period was RMB38.8 billion (USD5.5 billion), a decrease of 3% YoY. Net margin was stable at 28%.
  - Profit attributable to equity holders of the Company for the quarter was RMB39.9 billion (USD5.6 billion), an increase of 1% YoY.
  - Basic earnings per share were RMB4.187. Diluted earnings per share were RMB4.104.
• Total cash were RMB315.6 billion (USD44.5 billion) at the end of the period.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "During the third quarter, we started to benefit from the adjustments that we have made to reposition ourselves for a new industry paradigm. We activated in-feed advertisements in Video Accounts, achieved breakthroughs in international games publishing, and executed cost efficiency initiatives which re-focused us on core activities and controlled our cost growth. As a result, we achieved year-over-year growth in non-IFRS earnings after four quarters of decline. Leveraging our extensive user reach and products such as Mini Programs and Tencent Meeting, we served society in critical use cases and assisted digitalisation of offline industries. Our resilient businesses, diversified cash flows, sizeable cash balance and substantial investment portfolio enable us to invest in strategic growth areas and innovation, while at the same time returning capital to shareholders. We will distribute the large majority of our Meituan shareholding, which has generated significant returns, both strategically and financially."

3Q2022 Financial Review

Revenues from VAS^[3] decreased by 3% to RMB72.7 billion for the third quarter of 2022 on a year-on-year basis. International Games revenues increased by 3% to RMB11.7 billion, or 1% in constant currency terms, amid the ongoing industry normalisation post-COVID. During the quarter, we saw robust growth from VALORANT, the successful launch of Tower of Fantasy, and an expanded game portfolio at Miniclip, versus decreased revenue from PUBG Mobile. Domestic Games revenues decreased by 7% to RMB31.2 billion, as transitional industry challenges resulted in lower paying user counts. By title, we saw decreased revenues from Honour of Kings and Peacekeeper Elite influenced by the Minor protection measures which took effect from September 2021 onward, versus incremental revenues from recently launched League of Legends: Wild Rift, Return to Empire, and League of Legends Esports Manager. Social Networks revenues decreased by 2% to RMB29.8 billion, reflecting increased revenues from our Video Accounts live streaming service and music subscription service, versus decreased revenues from music- and games-related live streaming services and our video subscription service.

Revenues from Online Advertising decreased by 5% to RMB21.5 billion for the third quarter of 2022 on a year-on-year basis. The rate of year-on-year decline narrowed from the previous quarter, driven by the improvement of games, eCommerce and FMCG categories, as well as the lapping of certain industry-specific headwinds from 2021. Social and Others Advertising revenues decreased by 1% to RMB18.9 billion, reflecting continued weakness in certain ad categories, offset by strong demand for our Video Accounts in-feed ads. Media Advertising revenues decreased by 26% to RMB2.6 billion, reflecting lower advertising revenue from Tencent Video, primarily due to fewer releases of popular drama series, and to comparison versus Tokyo Olympic Games in the same period last year.

Revenues from FinTech and Business Services grew by 4% to RMB44.8 billion for the third quarter of 2022 on a year-on-year basis. FinTech Services revenue growth was higher than the previous quarter, benefitting from the recovery of online and offline commercial payment activities. Business Services revenues decreased slightly year-on-year, reflecting our continued efforts to scale back loss-making activities.

Other Key Financial Information for 3Q2022

EBITDA was RMB43.1 billion, up 1% YoY. Adjusted EBITDA was RMB48.6 billion, down 1% YoY.

Capital expenditures were RMB2.4 billion, down 66% YoY.

Free cash flow was RMB27.6 billion, up 15% YoY.

As at September 30, 2022, net debt position totalled RMB27.3 billion. Fair value of our shareholdings^[4] in listed investee companies (excluding subsidiaries) totalled RMB532.5 billion (USD75.0 billion) and the carrying value of unlisted investee companies was RMB339.5 billion (USD47.8 billion). During the third quarter, the Company repurchased approximately 42.8 million shares on the Hong Kong Stock Exchange for an aggregate consideration of approximately RMB11.8 billion.

Operating Metrics

Business Review and Outlook

Communication and Social

We leveraged the extensive reach of Weixin and the ease of use of Mini Programs to assist the real economy. Within Mini Programs, we accommodated more commerce and municipal service use cases. Mini Programs' DAU surpassed 600 million, representing an increase of over 30% year-on-year. Mini Programs' daily activations grew even faster, by over 50% year-on-year. We deepened the adoption of Mini Programs in key commerce categories such as food and beverage, apparel, and department stores, where offline merchants and brands are increasingly integrating their membership and loyalty programs, and building multi-channel retailing with Mini Programs. The Health Code Mini Programs helped users verify their health and travel status with over 320 billion visits year-to-date^[5].

For QQ, we collaborated with brands, such as Gucci and KFC, to launch their virtual spaces within Super QQ Show, where they can provide immersive interactions for users. We enabled users to showcase and share their personalised party rooms with the broader community.

Digital Content

Our fee-based VAS subscriptions decreased by 3% year-on-year to 229 million. For Tencent Video, subscriptions declined moderately to 120 million due to content scheduling delays, while ARPU increased due to our initiative in adjusting membership pricing. We released popular self-commissioned drama series such as Love Like The Galaxy, which ranked first by video views across all online platforms in China^[6].

Domestic Games

With the implementation of our world-leading Minor^[7] protection program, we have become fully compliant with China regulations, and fostered a healthier industry environment. Time spent from Minors decreased by 92% year-on-year, and constituted 0.7% of our Domestic Games' total time spent in July 2022. We demonstrated resilience in our adult user base and user engagement, as the industry lapped the impact of Minor protection measures implemented in September 2021. For September 2022, our combined PC and mobile games DAU of adult users increased by a double-digit percentage year-on-year growth rate, while total time spent on our PC and mobile games by adult users increased by a single-digit percentage year-on-year growth rate.

We are successfully extending the longevity of our leading game franchises, such as CrossFire. We published the original CrossFire PC game 14 years ago. As a result of our innovation in areas such as its player versus environment mode and ranked mode, CrossFire remains the leading FPS game on PC in China, achieving a high single-digit percentage year-on-year growth in its grossing receipts in the first nine months of this year. In 2015, we published CrossFire Mobile, developed by TiMi Studio Group, which significantly expanded the franchise's overall player base in China, and which currently remains one of the top 10 mobile games by time spent and grossing receipts in China^[8], even after we launched a number of other successful FPS games.

International Games

In games development, we are extending the success of our market-leading internally developed franchises. Riot Games applied its experience as the industry pioneer in eSports to drive VALORANT Champions tournament as the most watched eSports event in the tactical shooter genre^[9], expanding VALORANT's fanbase and achieving record-high grossing receipts for the game during the third quarter of 2022. In October 2022, Supercell released the biggest-ever content update for Clash of Clans, boosting user engagement and in-game consumption. Clash of Clans has generally ranked as the top mobile strategy game internationally by annual grossing receipts since its launch in 2012, and maintained the number one position year-to-date in 2022^[10]. 

In games publishing, we achieved breakthroughs with the successful release of two new titles, showcasing the capabilities of our global brand Level Infinite in localised content marketing and user community management. Tower of Fantasy, an open world MMORPG we released in August 2022, was the second highest-ranked among MMORPG by DAU internationally in the quarter^[11]. Tower of Fantasy achieved commercial success in the most competitive markets, ranking first by grossing receipts among MMORPG in Japan and second in the United States^[11]. On 4 November, 2022, we launched GODDESS OF VICTORY: NIKKE, a sci-fi RPG shooter with anime graphics, which ranked first by grossing receipts internationally across all mobile games^[12]. GODDESS OF VICTORY: NIKKE was developed by Shift Up, a Korean studio in which we are an investor, and demonstrates our ability to support small sized creative teams via our publishing expertise and resources.

Online Advertising

For Video Accounts, we saw robust advertising demand for in-feed advertisements, particularly from the FMCG category. Advertising in Video Accounts is complementary and incremental to our existing advertising revenue. Excluding Video Accounts, Weixin's advertising revenue grew year-on-year, with rapid growth from Mini Programs.

FinTech

Our commercial payment volume posted double-digit year-on-year growth during the third quarter of 2022, with notable expansion in categories such as groceries, dining services and transportation.

Cloud and Other Business Services

As we scaled back loss-making activities and focused on internally developed products, revenue declined slightly year-on-year, but gross profit increased significantly year-on-year. We are actively assisting non-Internet industries to embrace digital transformation, boosting our revenue contributions from historically offline industries. For example, Tencent Cloud Enterprise enables customers such as banks and municipalities that prefer to host data on private clouds to integrate and deploy our public cloud products within their private clouds, meeting their needs for security and compliance. Public sector organisations, such as hospitals and schools, are increasingly using our key SaaS tools, facilitating efficient collaboration and online education.

For other detailed disclosure, please refer to our website https://www.tencent.com/en-us/investors.html, 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. 

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 investment-related 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.