Tencent (TCEHY) Q4 2023 Earnings Call Transcript

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Tencent (TCEHY 1.96%)
Q4 2023 Earnings Call
Mar 20, 2024, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Wendy Huang

Good day and good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2023 fourth quarter and annual results announcement webinar. This is Wendy Huang from Tencent IR team.

At this time, all participants are in a listen-only mode. After the management’s presentation, there will be a question-and-answer session. [Operator instructions] And please be advised that today’s webinar is being recorded. Before we start the presentation, we would like to remind you that this includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons.

Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group’s financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Now, let me introduce the management team on the webinar tonight.

Our chairman and CEO, Pony Ma, will kick off with a short overview. President Martin Lau will discuss strategy review. Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lo will conclude with financial discussion before we open the floor for questions.

I will now pass it to Pony.

Pony MaChairman and Chief Executive Officer

Thank you, Wendy. Good evening. Thank you, everyone, for joining us. In 2023, we sharpened our strategic focus and achieved substantial progress in our major products following our high-quality revenue growth model.

Notably, video accounts total user time spent more than doubled as we enriched our short video content ecosystem. Our mini games platform increased gross receipts by over 50% year on year. Our number of major hit games in China, achieving both high DAU and substantial monetization, increased from six in 2022 to eight in 2023. And international games achieved double-digit revenue growth and rose to 30% of games revenue.

Tencent Video and Tencent Music extend their industry leadership with 117 million and 107 million paid subscribers, respectively. WeCom and Tencent Meeting strengthened their enterprise software leadership and increased monetization. And we also achieved significant technology breakthroughs. Our Tencent Hunyuan foundation model is now among the top tier of large language model in China, with notable strengths in advanced logical reasoning.

Our upgraded advertising AI model enabled us to deliver better ad targeting and higher revenue. We invested further in sustainable social value initiatives. Our digital philanthropy platform helped raise 3.8 billion RMB in public donations during 99 Giving Day campaign in 2023. Our New Cornerstone Investigator Program supported 104 scientists, contributing to fundamental science research.

Looking at our financial numbers for the quarter. Total revenue was 155 billion RMB, up 7% year on year and stable quarter on quarter. Gross profit was 78 billion RMB, up 25% year on year and 1% quarter on quarter. Non-IFRS operating profit was 49 billion RMB, up 35% year on year or down 5% quarter on quarter.

Non-IFRS net profit attributable to equity holders was 43 billion RMB, up 44% year on year or down 5% quarter on quarter. Now, I will hand it over to Martin for the strategy review.

Martin LauPresident

Thank you, Pony. Good evening and good morning to everybody. During the course of 2023, we have established a high-quality revenue growth model, which will support our continued economic value creation. This, together with our increased focus on capital allocation discipline, will further enhance shareholder value.

Starting with our financial performance. We have seen a healthy increase in revenue since the first quarter of 2023 by increasing high-quality revenue streams and reducing low-quality ones. Importantly, our gross profit growth has consistently surpassed revenue growth due to the margins of our incremental revenue being significantly higher than the 50% overall gross margins for the entire company. This incremental revenue is generated predominantly from our leading social and payment platforms, which have already been built and have their costs covered.

We now consider gross profit growth as a key proxy and, frankly, a better proxy than revenue growth for our organic growth given this shift in terms of the revenue mix. We further enhanced our operating profit growth from gross profit growth through operating leverage. First, we streamlined operations and prudently reduced aggressive marketing expenditures. We perceive these measures as a less recurring strategy.

Second, and more importantly, we’re committed to operational efficiency and disciplined resource allocation, which includes thoughtful staff distribution and effective marketing expense management. This approach ensures a focused organization and a lean cost structure moving forward. In the next few slides, I will provide more details on the drivers for our earnings growth going forward. Weixin provides the first set of examples of how we nurtured high-quality revenue streams.

The Weixin platform is delivering consistent growth in both DAU and daily time spent per user. New services within Weixin such as video accounts, mini games, and Weixin Search contributes to greater engagement and overall platform health while, at the same time, generating additional revenue at very high margins given they are offered on top of a relatively stable platform cost base. Going into each one of them. Firstly, for video accounts, total user time spent more than doubled in 2023, driven by strong growth in DAU and time spent per user.

Video accounts advertising revenue has substantially increased, thanks to the increased traffic and improved ad targeting, despite ad load was kept to much lower levels than industry peers, which then offers a better user experience overall. Secondly, mini games experienced a 50% increase in gross receipts in 2023, benefiting from more DAU and higher revenue per user. The growth in gross receipts drove an increase in high-margin platform fees for us. Weixin mini games are the clear industry leader with mini games user retention rate and time spent per user notably higher than in peer services as a result of Weixin’s platform stickiness, well-developed ecosystems such as social sharing and notification, and our game technology know-how.

Thirdly, Weixin Search now achieves over 100 million DAU, up over 20% year on year. And Weixin Search content QV grew over 30% year on year. Our search revenue grew multiple times year on year in 2023 as we ramped up monetization on these under-monetized assets. In addition, our fintech service provide a second set of examples of high-quality revenue streams.

We’ve spent many years building a solid base for fintech services in the form of our widely used payment services with our strict adherence to regulatory requirements and with careful risk management. In recent months, we completed a comprehensive self-inspection and corresponding ratification process, upgrading our operational compliance capability. We also strengthened our payment ecosystem by improving user security, refining mini program-based transaction tools, and enhancing cross-border payment experience. On top of this solid base, we’re providing additional products and services in collaboration with licensed financial institutions, which generates high incremental margins as these revenues are recorded on a net fee basis.

In wealth management, we generate low take rate but high margin fee income from a large and growing pool of aggregated customer assets by offering customers high-quality products and superb convenience. The products are primarily low risk money market funds and, to a lesser extent, fixed-income mutual funds. In consumer loans, our partnership with WeBank and other licensed banks facilitate us distributing small-sized cash loans and installment payment services, and we kept the default rate low by applying stringent tech-enabled risk management procedures. For both wealth management and consumer loans, we offer substantially better economics for consumers, partners, and ourselves versus stand-alone fintech businesses as we reduce customer acquisition costs and credit charges.

Now, moving on to games. Our domestic game business revenue has been soft during 2023, but we expect it to improve from the second quarter of 2024. The reason for slow growth in 2023 was that our two biggest games, Honor of Kings and Peacekeeper Elite, have maintained their leading positions in terms of DAU, but monetization has temporarily stagnated, which caused us to take remedial actions. For Peacekeeper Elite, we identified the need for more creative monetization strategies and have revamped the leadership of its monetization team.

We look forward to the game delivering more innovative and engaging experiences that would also help monetization. We’re optimistic that our new monetization team can deliver on this front given its sister product PUBG Mobile’s team has already delivered a notable rebound in its monetization internationally. For Honor of Kings, our monetization activities have been overly concentrated within this Chinese New Year period in 2023. We’re rolling out a more evenly distributed monetization strategy in the year of 2024, which we’d expect to benefit year-round revenue generation.

Looking beyond these two games, several of our recent releases have performed well in terms of DAU and are now converting that DAU success into monetization. Our number of major hit games in China increased from six in ’22 to eight in ’23. We define major hit games as games exceeding average quarterly DAU of 5 million for mobile and 2 million for PC and, at the same time, generating over 4 billion RMB annual gross receipts. We view these thresholds as indicative of a major and enduring hit.

And games surpassing such DAU and revenue thresholds will contribute to long-term stability and growth of our game portfolio. Having a large and expanding portfolio of major hits illustrates our ability in continually developing new major hits and in operating multiple, highly popular games at the same time. During the year, our new major titles are, one, Fight of the Golden Spatula. It has transitioned from a niche auto chess game to one of the most popular mobile games in the domestic market, ranking top 5 by DAU and total time spent.

Second, LoL Wild Rift, now also ranks among the top 5 mobile games by total time spent and gross receipts in China. We expect to keep adding major hits to our portfolio in the course of this year. We’re looking forward to releasing several major new games, which should also contribute to improving revenue trends through 2024. DnF Mobile is a key title for us given the success and longevity of DnF PC and given a general scarcity of successful action games on mobile.

DnF Mobile has just completed a major closed beta test successfully. And given the positive results, we intend to launch the game in the second quarter of this year. Other high potential games in our portfolio for 2024 include Honor of Fight, Need for Speed Mobile, and One Piece Mobile. In 2023, we also made notable progress in core technologies, especially those involving AI, that will serve as our growth multiplier going forward.

After deploying leading-edge technologies such as the Mixture of Experts, MoE, architecture, our foundation model, Tencent Hunyuan, is now achieving top-tier Chinese language performance among large language models in China and the worldwide. The enhanced Hunyuan excels particularly in multi-turn conversations, logical inference, and numerical reasoning, areas which has been challenging for large language models. We’ve scaled the model up to the trillion-parameter mark, leveraging the MoE architecture to enhance performance and reduce inference costs, and we are rapidly improving the model’s text-to-picture and text-to-video capabilities. We’re increasingly integrating Hunyuan to provide copilot services for our enterprise SaaS products, including Tencent Meeting and Tencent Docs, and we are also developing new gen AI tools for effective content production internally.

More generally, deploying AI technology in our existing businesses have begun to deliver significant revenue benefits. This is most obvious in our advertising business, where our AI-powered ad tech platform is contributing to more accurate ad targeting, higher ad click-through rates, and thus faster advertising revenue growth rates. We’re also seeing early stage business opportunities from providing AI services to Tencent Cloud customers. Finally, with this high-quality revenue growth model, we have the resources to keep investing in our businesses while, at the same time, returning more capital to our shareholders.

Historically, we have continually paid cash dividends to our shareholders and periodically repurchased shares at times when we believed our share price was undervalued, which is particularly true today. With our record-high and growing profit and cash flow, we propose to increase our upcoming cash dividend by 42% year on year to 3.4 Hong Kong dollars per share, and we intend to at least double our buyback activity year on year from 49 billion Hong Kong dollars in 2023 to at least 100 billion Hong Kong dollars in ’24. We believe this commitment to return at least 132 billion Hong Kong dollars, or $16.9 billion, to shareholders during the year is well supported by our free cash flow, which was $24 billion for the full year of ’23, along with our gross cash position of $57 billion and our investment portfolio of $126 billion. Now, with that, I will pass it to James to talk about business review.

James MitchellChief Strategy Officer

Thank you, Martin. For the fourth quarter of 2023, our total revenue was up 7% year on year. VAS represented 45% of our revenue, within which the social network segment was 18%, domestic games was 18%, and international games 9%. Online advertising was 19% of our revenue, and fintech and business services represents 35%.

The value-added services segment revenue was 69 billion renminbi in the fourth quarter, down 2% year on year. Social network revenue of 28 billion renminbi was also down 2% year on year. Revenue from music-related and game-related livestreaming services decreased, but revenue from the video accounts streaming service, music subscriptions, and mini games increased. Long-form subscription — long-form video subscription revenue increased 1% year on year, driven by higher ARPU, while the video subscriptions declined slightly to 117 million.

Our self-commissioned drama series Blossoms Shanghai ranked first by video views across all online platforms in China year to date, extending Tencent Video’s audience lead within the online video industry. Music subscription revenue increased 45% year on year on 21% growth in subscription count and 20% growth in ARPU. Domestic games revenue was down 3% year on year to 27 billion renminbi. Recently released PC games VALORANT and Lost Ark contributed to PC game revenue increasing, but were offset by decreased revenue from Honor of Kings and Peacekeeper Elite.

International games revenue increased 1% year on year in renminbi terms, or decreased in constant currency terms to 14 billion renminbi, as Supercell was repositioning some of its games. PUBG Mobile extended its revenue recovery, and VALORANT maintained solid growth. In aggregate, our domestic plus international game subsegments reported revenue was down 2% year on year, although game gross receipts were slightly up year on year. We expect our domestic and international game reported revenue to improve from the second quarter of 2024 onwards as revamps for big existing games such as Brawl Stars and Peacekeeper Elite have started to yield results and as we will be launching new games, including Dungeon and Fighter Mobile.

Moving to communications and social networks. For Weixin video accounts, on the content consumption side, time spent increased over 80% year on year in the fourth quarter, driven partly by DAU and mostly by time spent per user, benefiting from our enhanced content recommendation engine. On the content creation side, daily video uploads grew rapidly year on year. We provided targeted traffic support for creators in key categories such as knowledge-based content, lifestyle, and music, which contributed to a sharp increase in the number of creators with over 10,000 followers.

And with more followers and better livestreaming tools, the number of creators that directly generate revenue from their video accounts more than tripled year on year. For QQ, the number of active QQ channels grew at a double-digit rate quarter on quarter, and we launched a new version of QQ that features a refreshed user interface and enriched functionalities. Moving on to some domestic games highlights. The release of Set 10 drove Fight of the Golden Spatula to double its average DAU year on year in the fourth quarter to a new high.

Arena Breakout increased its gross receipts and average DAU, each by over 30% year on year, driven by a new competitive PvE mode, an upgraded Battle Pass, and more appealing virtual items. And Arena Breakout is now the seventh biggest mobile game in China by total time spent. Naruto Mobile, an eight-year-old game developed by our MoreFun Studio, achieved record-high gross receipts and average DAU in January, benefiting from extensive content updates. We view the success of Naruto as a positive leading indicator for our upcoming One Piece game, also from MoreFun.

We launched our party game Dream Stars in December. Party games aggregate a range of game modes, and we’re still building out the number and variety of Dream Stars game modes to compete with the game modes featured in incumbent party games, as well as releasing tools for players to create their own game modes. We view party games as a genre that will require sustained effort over a long period, but we’re encouraged that Dream Stars ranked among the top 10 mobile games in China by DAU during the Chinese New Year, and we believe that Dream Stars is already the industry leader in party games measured by DAU within certain game modes such as social deduction and tower defense. Among our international games, PUBG Mobile increased its DAU and gross receipts year on year in the fourth quarter, benefiting from the introduction of the Frozen Kingdom theme mode and an innovative top-tier outfit with upgradeable weapons.

NIKKE released a new storyline and new characters. And encouragingly, NIKKE’s average DAU reached a 2023 year-high level in the fourth quarter. Supercell’s five-year-old game Brawl Stars achieved record-high gross receipts and DAU in February 2024 due to enhancements to its friend invitation system, the introduction of a new 5v5 game mode, and a complete redesign of its Battle Pass. Brawl Stars’ resurgence demonstrates the latent franchise value of our evergreen titles and their potential to unleash new growth.

Moving to online advertising. Our ad revenue was 30 billion renminbi in the fourth quarter, up 21% year on year, benefiting from upgrades to our ad tech platform and more advertising revenue in video accounts. We generated increased ad revenue from all major categories except automotive, with notable step-ups in revenue from internet services, healthcare, and consumer goods categories. We refined our ad targeting by utilizing more real-time data in the AI powering our ad tech, enabling us to match target users with more relevant ads in a more timely manner across both our own and our ad network properties.

Our video accounts ad revenue more than doubled year on year despite maintaining a very low ad load due to increased video views and upgraded ad targeting. Weixin Search increased its revenues severalfold year on year in the quarter on growth in commercial queries and RPM. Summarizing fintech and business services. Segment revenue is 54 billion renminbi in the fourth quarter, up 15% year on year.

Fintech services revenues sustained a teens year-on-year growth rate on increased commercial payment volume, wealth management fees, and consumer loan fees. Gross profit grew faster than revenue due to a shift from social to commercial payments. Within commercial payments, daily active users and transactions per user both increased. We enhanced mini program-based, QR code, and palm payment solutions, helping offline merchants boost repeat sales.

For business services, revenue grew around 20% year on year in the fourth quarter, benefiting from higher cloud spending by industries such as retail and finance and increased technology service fees on video accounts e-commerce transactions. Business services gross profit more than quadrupled year on year due to those technology service fees, as well as supply chain optimization initiatives. Among our enterprise software as a service products, we deployed AI for real-time content comprehension in Tencent Meeting, deployed AI prompt-based document generation in Tencent Docs, and rolled out a paid customer acquisition tool for WeCom. We deepened our enterprise SaaS penetration among domestic companies such as Vivo, as well as multinationals such as Novo Nordisk.

As a result, our enterprise software revenue from WeCom, Tencent Meetings, and Tencent Docs together more than doubled year on year. And I’ll now pass it to John.

John LoChief Financial Officer

Thank you, James. Hello, everyone. For Quarter 4 2023 and full year 2023, we have reclassified interest income from above to below the operating profit line. Additionally, investment-related gains and losses and donations both previously included in other gains or losses net above the operating line are now combined as net gains or losses from investment and others and presented below the operating profit line.

The reclassification aims to better reflect the results of day-to-day operations. Comparative figures have also been restated. For fourth quarter 2023, total revenue was 155.2 billion renminbi, up 7% year on year. Gross profit was 77.6 billion renminbi, up 25% year on year.

Operating profit was 41.4 billion renminbi, up 42% year on year. Net losses from investments and others were 6.7 billion renminbi, primarily reflecting impairment provisions against certain investees. Interest income was 3.9 billion renminbi, up 52% year on year, driven by growth in cash reserves and improved use on term deposits. Finance costs were 3.5 billion renminbi, down 3% year on year, due to reduced forex losses, partially offset by higher interest expenses.

Share of profit of associates and JVs was 2.4 billion renminbi, versus loss of 1.6 billion renminbi in the same period last year. On a non-IFRS basis, share of profit increased to 4.5 billion renminbi, up from a profit of 3.1 billion renminbi last year, driven by better profitability of certain domestic associates and the successful game released by an overseas studio investee. Income tax expense rose by 111% year on year to 9.7 billion renminbi, driven by operating profit growth and increased withholding tax provision. IFRS net profit attributable to equity holders was 27 billion renminbi, down 75% year on year, primarily due to the 106.6 billion renminbi gained from the disposal of Meituan recognized in the same quarter last year.

Diluted EPS was 2.807 renminbi, down 74% year on year. Now, I’ll share our non-IFRS financial figures. For Quarter 4, operating profit was 49.1 billion renminbi, up 35% year on year. Net profit attributable to equity holders was 42.7 billion renminbi, up 44% year on year.

Diluted EPS was 4.443 renminbi, up 46% year on year. Moving on to gross margins. For Quater 4, overall gross margin was 50%, up 7.4 percentage points year on year. And by segment, gross margin for value-added services was 53.7%, up 3.9 percentage points year on year.

This was due to higher mix of high-margin mini games platform service fee and reduced contribution from low-margin music- and games-related livestreaming revenue, along with our cost control measures. Gross margin for online advertising increased to 56.8%, up 12.6 percentage points year on year. As Martin highlighted, our high-quality revenue streams, particularly video accounts ad revenue generated from our own traffic with platform costs already paid for, contributed to our incremental margins. Our efficiency efforts also led to margin improvement.

Gross margin for fintech and business services was 43.9%, up 10.3 percentage points year on year. This was driven by margin enhancement following cloud business restructuring, emerging high-quality revenues, including video accounts e-commerce technology service fee, structural shift toward high-margin products within fintech services, and our efficiency initiatives. For Quarter 4 operating expenses, selling and marketing expenses were 11 billion renminbi, up 79% year on year against the low base last year, driven by more spending on promotion advertising to support new content release. It represented 7.1% of revenues.

R&D expenses were 16.4 billion renminbi, up 3% year on year. G&A expenses, excluding R&D, were 10.8 billion renminbi, down 6% year on year due to lower staff force and optimized operating lease expenses. At quarter-end, we had approximately 105,000 employees, down 3% year on year or partly stable quarter on quarter. Let’s look at our operating and net margin ratios.

For fourth quarter 2023, non-IFRS operating margin was 31.7%, up 6.6 percentage points year on year. Non-IFRS net margin was 28.2%, up 7.1 percentage points year on year. Next, I will highlight some key cash flow and balance sheet metrics. For Quarter 4, total capex was 7.5 billion renminbi, up 33% year on year.

Within total capex, operating capex was 6.7 billion renminbi, more than tripled year on year, driven by increased investment in GPUs and servers. Nonoperating capex decreased by 78% year on year to 0.8 billion renminbi. Free cash flow was 34.2 billion renminbi for Quarter 4, up 48% year on year. For full year 2023, as highlighted by Martin, our free cash flow was $24 billion, or 167 billion renminbi, up 89% year on year.

Net cash position was 54.7 billion renminbi, up 50% quarter on quarter, reflecting strong free cash flow generation, partly offset by cash outflows for share repurchases and strategic investments. To conclude, I’ll discuss our share repurchase and annual dividend. For the full year of 2023, we repurchased 152 million shares with a total consideration of 49 billion Hong Kong dollars. As a result, our total issued shares after accounting for employee share options and award issuance decreased by 0.9% year on year as of the end of 2023.

The weighted average number of shares for calculating our 2023 diluted EPS also decreased by 0.9% year on year. Subject to the shareholders’ approval at the upcoming 2024 AGM, we are proposing an annual dividend of 3.4 Hong Kong dollars per share, reflecting a 42% increase from the previous year. This dividend will be payable to shareholders on the 31st of May 2024. Thank you.

Wendy Huang

Thank you, John. We shall now open the floor for questions. [Operator instructions] So, we will take the first question from Kenneth Fong from UBS.

Kenneth FongUBS — Analyst

Hi. Good evening, management. Thanks for taking my question. My first question is for online games.

As we highlight in our strategy for online games, we will work on enhancing the flagship titles, building emerging franchise game, and launch of new titles. Can management share with us the timing and when we should see it benefiting our overall online game growth? And for the industry top down, we also see some gradual relaxation on the number of banhao being approved and also games with a high commercial value. But — while at the same time, we also see some industry headwinds like lower players spends with more competition. So, how should we think about the medium-term growth for the online game ahead? And I have a follow-up question is for the livestreaming e-commerce.

Last year, we made very meaningful progress and have stepped up hiring and building of our team for livestreaming e-commerce. Can management share with us some update like our current scale, the road map ahead, and how we are differentiating with our peers? Thank you.

James MitchellChief Strategy Officer

Hi, Kenneth. Perhaps I’ll answer the online game question. So, you identified a number of, you know, potential, you know, factors that could affect our growth, including banhao issuance, lower player spends, and I think more competition. In reality, we don’t think any of those are the key issue that we’ve been facing.

You know, we’ve received a decent number of banhao, certainly sufficient for our aspirations. Our games are generally much lower ARPU than the industry. And therefore, we haven’t seen and we wouldn’t expect to see lower player spend as an external macro factor. And then, you know, continued competition is sort of an inevitability in an industry that’s still a high-growth, high-returns industry.

So, you know, we believe that, you know, the key challenge for us is just getting our own house in order. And, you know, we have three strategies that are underway now for getting our own house in order. One is revamping, changing the leadership for our existing games. And, you know, we did that with Brawl Stars, and we’ve seen a very sharp upturn in Brawl Stars’ revenue, you know, reaching new records and becoming the biggest Supercell game.

We’ve done that — we’ve made changes with, you know, PUBG Mobile, and that’s seen a big upturn. And more recently, we’ve made changes with Peacekeeper Elite. So, where we need to make changes, we’re now making those changes. Secondly, we have, you know, a number of games that, over the last two to three years, have aggregated very substantial user bases.

And, you know, now, we’re in the process of monetizing those games, and you can see that relatively clearly with Fight for the Golden Spatula, with Wild Rift, with Arena Breakout, among others. And then thirdly, we’ve been focusing on bringing bigger-budget games that iterate on prior successes to market. And you’ll see those coming through the rest of this year, including Dungeon and Fighter Mobile, where as a result of a very successful internal test, we’ve actually accelerated the launch date to be in the second quarter of this year, over the next three months. And so, you know, as a result of the above, we believe that our game revenue will improve from the second quarter of this year onwards, and the extent of our success in those three strategies will determine the medium-term growth rate.

Thank you.

Martin LauPresident

And in terms of the livestreaming and video accounts e-commerce, I think we have made very good progress in the course of 2023, but that’s only the beginning of nurturing of this exciting opportunity. In terms of GMV, in the course of 2023, that’s grown a lot to more than 100 billion. But to put it in context, you know, it’s still very small compared to the size of video accounts and, you know, that it’s also a fraction of mini programs e-commerce GMV. So, in order for us to really capture the, you know, very big opportunity within this business, we have a number of strategies that’s ongoing.

Number one, we want to really upgrade the management of the overall ecosystem, including improving the product quality control, improving the process to which we handle user complaints and user feedback. And overall, we want to improve the shopping experience for the customers. Second is actually through better category management. We actually want to work through each one of the high-potential product category and make sure that we have high-quality merchants and attractive products for the customers.

And that actually requires very meticulous work, quite a bit of workforce additions, and also have to be rolled out one by one. We also want to work on better tools for merchants and brands so that they can do business and look at their business analytics and help them to make pricing decisions better. So, you know, there’s a whole set of merchant tools that we’re going to be adding. And overall, we also want to market this overall platform and the availability of these products to the consumers that’s on WeChat and that’s in using video accounts so that we can actually increase the awareness of a shopping experience within video accounts.

And finally, we are looking to increase the integration between video accounts shopping experience and infrastructure and the mini programs that are already operated at scale by a lot of merchants. And we believe by doing a combination of the above, we can continue to grow the GMV of our video accounts e-commerce in a healthy way. And, you know, it’s very important for us to build a very solid foundation for this platform at this point in time so that we can actually usher in a very long and significant growth track for this business going forward.

Wendy Huang

Thank you. We will take the next question from William Packer from Exane BNP.

William PackerExane BNP Paribas — Analyst

Hi, management. Thanks for taking my questions. Firstly, domestic gaming growth weakened during the ’20, ’21, ’22 rectification period. And then in last August, you talked to weaker Q2 trends, reflecting seasonality and less commercial content.

You’re again talking to a weak monetization at key games for Q4 and Q1. Should we think of these challenges as the new normal for evergreen domestic games? Does this reflect that these games are now ex-growth so you, therefore, need to rely on new releases? And then my follow-up question is regarding regulation. The market was somewhat alarmed in Q4 regarding new draft rules for the video games industry, which could curtail in-game monetization. Could you update us on latest developments there? When should we expect a new draft? How should we think about the potential impact on your business? Thanks very much.

James MitchellChief Strategy Officer

Hi, Will. So, perhaps I’ll start, you know, on your first question, and if you look at our commentary in Q2, you know, what we reported in Q4 is actually sort of a consequence of the commentary in Q2, if you will, in that, as you may know, for our two biggest games, we have roughly nine — we have a nine-month amortization period from gross receipts into reported revenue. And so, you know, we saw weak monetization, therefore weak grossing receipts, you know, from Q2 onwards last year. And, you know, that impacts us most heavily in Q4 because, in Q4, we lose the benefit of relatively strong grossing receipts from Q1.

And, you know, as a result, that’s why if you look at the reported revenue for Q4, it was down year on year because of the lagged effect of weak monetization in Q2 and Q3. But if you looked at the grossing receipts, the actual cash inflows, it was slightly up year on year in Q4. So, you know, what we saw in Q2 is, you know, the driver of what we saw in Q4, as opposed to being two sort of separate or contradictory phenomena. And, you know, in terms of whether our big games are ex-growth, you know, we clearly don’t think that’s the case.

You know, we’re very active investors across the game industry. We can see that, you know, big games with longevity, with substantial user bases, you know, enjoy, you know, way — in — they experience, you know, upswings and downswings. But over the longer term, they’re only becoming more powerful, whether you look at a Call of Duty or a Grand Theft Auto or a Fortnite. And, you know, we certainly believe that that is the case in China, that longevity is an asset rather than a liability, just as it is in the luxury goods industry.

No one would say that, you know, a luxury goods brand with longevity is inferior to a newly emerging luxury goods brand. And certainly, we can see it with our own games. We can see that PUBG Mobile is now rebounding strongly. We can see that in Brawl Stars.

And also, actually, the entire Supercell portfolio of games is rebounding strongly. You know, we expect a number of our other games to also see substantial rebounds. So, you know, again, because of the time lag between cash inflows versus reported revenue, you know, that will show up in our P&L from the second quarter, but we are already experiencing improvements in cash inflow. So, that’s on the first question around, you know, where we are with games.

And then maybe on the game regulation side —

Martin LauPresident

Yeah. On the regulation, we actually don’t know when the new draft will be released or whether it will be released, but it’s no longer our concern because, you know, one, after the original draft was released, there’s concern about the market. And I think, you know, the regulators have actually come out very explicitly in explaining that the purpose of the draft was actually to provide a healthy environment for growing the industry rather than constraining the industry. And two is, you know, we’re actually very encouraged by the supportive measures that were unleashed after the initial concern was expressed by the market, including, in the very beginning of this year, there is a single batch of domestic banhao, which is more than 100 and including there’s an expedited approval of imported game licenses.

And also, our flagship mobile game, DnF Mobile, has been approved in that batch. And also, if you just look at what’s the focus of people’s concern, right, it’s about high-ARPU games, and that’s really not relevant to us because our ARPU is actually on the very low end of the overall industry. So, I think, you know, if — to be fair, it’s no longer one of our concerns anymore.

Wendy Huang

Thank you, Martin. Next, we will take the question from Alicia Yap from Citigroup.

Alicia YapCiti — Analyst

Hi. Good evening. Can you hear me, management? Thanks for taking my questions. I have — my main question is on the AI-powered functionality.

So, in addition to enhancing and powering the internal advertising targeting capability, what is your expectation of the AI-powered functionality to generate decent tractions of revenue from the external cloud and business services customer near term, or should we actually expect any near-term benefits more reflecting on the continual improvement on the advertiser ROI and also e-commerce merchants conversion rate? Second, a very quick follow-up is I understand the user profile for mini games is quite different from the mobile app game user but just curious to see if there’s any, you know, preference shift or cannibalization of the time spent from the app games to the mini games that will also contribute to the slower growth of domestic game in the past few quarters. Thank you.

Martin LauPresident

Yeah. In terms of the AI short-term benefit, I think, you know, financial benefits should be much more indexed toward the advertising side because if you think about the size of our advertising business as, call it, 100 billion RMB a year, and if you can just, you know, have a 10% increase, right, you know, that’s 10 billion RMB and mostly all profit, right? So, that’s, you know, the scale of the benefits on the advertising side, and especially as we see continued growth of our advertising business and when we, you know, add in the video accounts e-commerce ecosystem, you know, that just has a very long track of growth potential. And also the low ad load right now within video accounts. But on the other hand, if you look at, you know, the cloud and business services customers, then you are really facing a relatively nascent market.

You still have to sell to these customers. And we spent a lot of time working with all the customers in different industries and trying to figure out what’s the best way of leveraging AI for their business. And then you have to go through a long sales cycle. And then, at the same time, it’s competitive because your competitors will actually come in and say, oh, they can also provide a similar service.

And despite we believe we have superior technology and product, you know, it’s actually very cutthroat, and your competitor may actually sort of come in and say, oh, they’re going to cut prices, even though theirs is an inferior product. So, all these things, you know, all the low-margin, highly competitive, and long sales cycle of the 2B business would actually come into play in that side of the business. So, when you compare the two sides of the equation, you can actually clearly see that ramping up advertising is actually, you know, going to be much more profitable from the short term. Of course, you know, we continue to do both, right? And we believe that, you know, the value that we provide to our customers are not just measured in how much profit we make from them, but also in, you know, how much improvement that we make to their business over the long run.

And we believe as China move into an economy which is much more focused on productivity and as the cost of — human cost actually sort of came out increasing, right? So, you know, some of the dynamics of the U.S. market in having a more profitable business services business would actually come in, but that would take quite some time to realize.

James MitchellChief Strategy Officer

And, you know, on your question about whether our mini games are cannibalizing time spent or revenue generation for our app-based games, you know, we’re very confident that, you know, our mini games are not a tribe of cannibals. They’re a sort of tribe of pioneers and explorers and developers of new territory. And I say that because from a time spent perspective, our app-based game has been, you know, performing fine, and you can see the increased time spent for games like Fight for the Golden Spatula, Arena Breakout, Wild Rift were very substantial. And we’ve disclosed previously that only less than half of the mini game MAU were also app-based game MAU.

When we look at it from a user spend perspective, you know, there’s an even starker illustration because only a teens percentage of the mini game paying users are also app-based game paying users and only a single digit percentage of the app-based game paying users are also mini game paying users. So, we don’t believe that there’s cannibalization taking place between mini games and app-based games.

Wendy Huang

Thank you. We will take the next question from Ronald Keung from Goldman Sachs.

Ronald KeungGoldman Sachs — Analyst

Thank you, Pony, Martin, James, John, and Wendy. I have two questions. One is we’ve read about the shareholder return. So, compared with those regular dividends, buybacks, and we used to have some distribution in specie, how should we view 2024 and maybe in the medium term upside potential to a total annual kind of shareholder return, let’s say, in dollar terms or in percentage of market cap, which one will we usually kind of assess more and how do we plan to reward shareholders maybe around the investment portfolio value? And then my second question is on video accounts e-commerce.

Martin, you mentioned about the video accounts e-commerce and looking at combining with mini program e-commerce. Is it fair to say we are eventually building a more open platform in transactions, not forcing every transaction through our own kind of shop infrastructure because mini program is more like a platform? So, that — would that look more like Meta, which is like kind of Facebook-style open platform, building that e-commerce system, versus the very closed system in the short-form video platforms? Thank you.

James MitchellChief Strategy Officer

Hi, Ronald. So, on the shareholder return question, you know, we assess the total return dynamically. Now, for the dividends and the buyback, you know, we view those more sort of programmatic in nature versus the distributions, you know, somewhat more opportunistic in nature. But, you know, overall, you know, we intend to return a very substantial share of capital to shareholders during the course of this year.

In terms of the role of the investment portfolio, then actually, over the last two years, the investment portfolio has, you know, returned substantially more capital to shareholders than it has absorbed. And even if you exclude the JV and then Meituan distributions, the investment portfolio has been self-funding, meaning new investments that we’ve made have been funded by divestments or dividends or distributions from what we already own in the investment portfolio. And, you know, looking at 2024, at this point in time, our expectation is that the investment portfolio will be once again self-funding and, therefore, a source of cash rather than the use of cash.

Martin LauPresident

In terms of the video accounts e-commerce, I would say — I think that’s a good question, right? And we actually had a lot of discussion on that topic and in the sense that, you know, what’s the architecture of the e-commerce activities that should be happening on the platform given we have video — mini program e-commerce. And that actually is a very significant platform already. And I think, you know, our view is that, going forward, we have actually both open platform, closed platform, and they serve actually different purposes. Open platform is along the line of mini programs, and these are actually much more suitable for brands which actually are well-recognized.

They actually have a very large self-channel for promoting mini programs. For example, if they have a very large chain of offline stores, they can actually ask their customers to add the mini programs and then shop and — online. And at the same time, they need to have pretty strong brand recognition for the consumers to keep coming back to the mini programs. But the shortcoming of the mini program is that the merchants, basically, it’s very hard for them to get new customers online.

They can only rely on their own channels. But even with that, you know, the mini programs e-commerce platform have actually grown to a very large size. Now, on the other hand, when we look at video accounts livestreaming platform, at the new platform, it’s actually a closed platform in the sense that we actually want to put in much more active management of the ecosystem so that the shopping quality is actually very much better than an open platform, you know, especially for merchants which are not well-known, right, because, you know, if these are smaller merchants, white label merchants, then we want to make sure that their products actually exceed a certain level so that, you know, it would create a good experience for the users. And it also have the access to the video accounts traffic so that it can actually acquire new customers.

Now, over time, we’re going to connect the open platform with the closed platform. We’ll provide a curated connection so that the open platform can actually benefit from the traffic of the video accounts, while at the same time, the small merchants can actually also benefit from their private domain, you know, when they actually start selling on our platform. So, you know, when we curate the connection between the open platform mini programs with video accounts shops, then I think we can actually get the best of both worlds and help different types of merchants to maximize their sales and maximize their exposure to consumers on the platform while, at the same time, making sure that our users actually has a great shopping experience on our platforms, either on the open platform, on a closed platform.

Ronald KeungGoldman Sachs — Analyst

Got it. Thank you, Martin and James.

Wendy Huang

Thank you. The next question comes from Robin Zhu from Bernstein.

Robin ZhuAllianceBernstein — Analyst

Thank you, management, for taking my question. I guess a couple of questions, please. One on AI. I mean, there’s been — you guys have talked a lot about ads and fintech and so on.

Gaming is commonly thought to be one of these areas where, you know, generative AI could have quite a big impact potentially when it comes to game design, production, NPC — AI NPCs, and so on. There’s been different views on how much is hype and how much is reality, but curious where you stand on how quickly you want to move on some of these areas. And then the follow-up, again on gaming, is I think a couple of quarters ago, you mentioned that there was a periodic kind of slowdown in the productivity of AAA game development. Just wanted to get your thoughts on where you are on that, you know, the aspiration to do kind of a new big title on the level of your top games every so often, every few years, aspiration to do console and PC beyond just the mobile ecosystem.

Thank you.

James MitchellChief Strategy Officer

I think in terms of the application of AI to games, then, you know, like many things, the boundary between, you know, hype and reality is a function of how far forward one is willing to look. And, you know, we’re willing to look very far forward. And, you know, all of the areas you mentioned, such as AI-powered NPCs, such as AI-accelerated graphical content generation, graphical asset generation, you know, are areas that, you know, over the years to come, not over the months to come, will benefit meaningfully from the deployment of AI. And I think it’s also fair to say that, you know, the game industry has always been a mixture of, on the one hand, you know, innovation around gameplay techniques; and on the other hand, you know, deployment of enhanced content, renewed content into existing gameplay.

And it’s reasonable to believe that AI will be most beneficial for the second of those activities, but one will continue to require very talented individuals and teams to, you know, focus on the first of those opportunities, which is the creation of innovative gameplay. You know, secondly, in terms of productivity related to AAA game development, then, you know, I think that, you know, for our international studios, you know, there was some, you know, bumps due to COVID in the current game development cycle. And, you know, those are now largely behind us. And so, you know, we believe that productivity is now on a more normal footing.

And, you know, looking forward, we have a number of, you know, what we expect to be, you know, substantial hits in the pipeline, both domestically and internationally. And, you know, we’re doing, you know, some things the same as before and some things differently. You know, on the differently side, we’re focusing on fewer bigger-budget games. Typically, we’re, you know, seeking to make the biggest bets around games that either iterate on a successful IP such as, you know, the Honor of Kings, fighting game around the Honor of Kings IP, or games that are iterating around, you know, proven gameplay success within a niche and taking those to a more mass market.

And so, you know, a stereotypical example would be moving the Dark Souls combat into Elden Ring. In our case, I mentioned earlier, you know, we have the learnings from, you know, games such as Naruto that will be, you know, updated with state-of-the-art graphics and technology for games such as One Piece. In addition, on the marketing front, you know, we now cooperate with a range of platforms, including Douyin, both in terms of the user-generated content marketing, as well as in the paid advertising marketing. So, overall, you know, we think those enhance our position — those changes enhance our position in a AAA game releases, and, you know, we look forward to the results.

Thank you.

Robin ZhuAllianceBernstein — Analyst

Thank you, James.

Wendy Huang

Thank you. Next question is from Charlene Liu from HSBC. Charlene, your line is open.

Charlene LiuHSBC — Analyst

Can you —

Wendy Huang

Yeah, we can hear you. Go ahead.

Charlene LiuHSBC — Analyst

OK. Great. Thank you so much. I have two question.

First is on fintech. Recently, Tenpay has lifted registered capital. I would like to find out a little bit more on how that may be used on, you know, consumer loans or perhaps overseas business and how would that affect Tencent’s balance sheet and whether the management can update us on the growth strategy on fintech segment in 2024. So, that’s the first one.

The second one would be related to AI developments. Obviously, we’ve seen developments in AI create new revenue streams and cost optimization. For overseas internet platforms, the management has already discussed where some of the monetization opportunities lie. Can we better understand, you know, benefits which we have been able to reap on the cost front from AI adoption and how much more upside we can expect to see from here and how long will it take for Tencent to realize these gains? Thank you.

Martin LauPresident

In terms of the fintech side, so Tenpay has been approved to increase their registered capital substantially, and the money is actually going to be moving from Tencent balance sheet to Tenpay balance sheet. So, since Tenpay is actually a consolidated entity, so it’s not going to change our consolidated balance sheet. And I would say this capital increase is essentially a recognition of the increased size of Tenpay’s business and also a sign of approval for future development of the company. So, we viewed it very positively.

Now, in terms of our fintech strategy, I think the fintech strategy centered around the payment platform. We will continue to build out our payment platform and to improve it’s basic services reliability as a platform that would support economic activities and consumption for the economy, and we’ll continue to roll out new functionalities and better functionalities, including improving the mini programs payment ecosystem so that we not only provide a payment service at the spot for the merchants, we actually also help to establish a link between the merchants and the consumers so that, in the future, the merchants and consumers can further interact. Maybe the consumers can actually do repeat purchase, the merchants can do a future engagement with the consumers, and it can also provide after sales service. So, I think there’s a lot that we can do to, you know, improve the overall payment experience.

We’ll provide more tools to SMEs so that SMEs can increasingly digitize their business and gain efficiency. We’ll roll out new payment technologies like palm payment, for example, in order to increase the convenience of the payment service. And we’ll also improve the payment experience for foreigners in China, right, so that it can help to foster an even more vibrant tourism industry in China. So, with that, you know, if we continue to do that, right, you know, the payment platform will continue to grow with the economy, to grow with consumption, and grow with the cashless penetration in China.

So, on top of that, we also found that we can actually roll out value-added financial information services such as wealth management, such as loan service, such as installment service that I actually described in the prepared remarks. And these are very high-margin, high value-added services that we can offer alongside with licensed financial institutions. Overall, I think the philosophy for us to grow in the fintech business is that, you know, one is, you know, we want to be fully compliant; two is that, you know, we want to make sure that we manage risk in an absolute, you know, high-quality manner. We want to create more value than capturing value for merchants with consumers.

And at the same time, we want to work on constructive relationships with licensed financial institutions. And if we can keep on doing all of these, right, you know, then the fintech business will continue to thrive.

James MitchellChief Strategy Officer

On the AI question and, you know, the cost-benefit, then, you know, as you would expect, we are increasingly going to be deploying AI, including generative AI, in areas such as accelerating the creation of animated content, which is a big business for Tencent Video and a profitable business for Tencent Video; in terms of, you know, game content, as we discussed earlier; you know, potentially in terms of, you know, creating code, in general. But, you know, the benefit will show up not in, you know, substantial cost reductions, it will show up in more rapid content creation and, therefore, more rapid monetization and revenue generation. And, you know, not to repeat the same point too many times, but the immediate benefit and the biggest benefit is really around the advertising revenue uplift. You know, Martin gave the example of if we can improve click-through rates by 10%, then that’s 10 billion renminbi in incremental revenue, you know, probably 8 billion renminbi in incremental gross and operating profit.

In reality, you should view 10% as being in the nature of a floor, not a ceiling. You know, Facebook has seen a substantially bigger improvements in click-through rates. You know, for some of our most important inventories, we’ve actually seen our click-through rates increase by 100% in the past 18 months. So, you know, when we’re thinking about where are the financial benefits of AI, then, you know, it’s advertising click-through rate and, therefore, advertising revenue, first and foremost, and that’s a very high flow-through business for us.

Thank you.

Charlene LiuHSBC — Analyst

Thank you.

Wendy Huang

Thank you. We will take the next question from Alex Yao from J.P. Morgan.

Alex YaoJPMorgan Chase and Company — Analyst

Thank you, management, for taking my question. My first question is regarding the recent partnership with Douyin, which we believe had a quite a bit ripple effect to the whole game livestreaming and gaming industry. What are the changes have you seen this partnership has brought to us? So, that’s the first one. And then the second one is on the path of video account monetization.

Clearly, I think the industry incumbent has demonstrated the short video monetization capability across advertising, e-commerce, and the local services. What are your thoughts and strategy on video account making inroads into local services? Thank you.

James MitchellChief Strategy Officer

Hi, Alex. So, maybe I’ll answer the first question on marketing our games through additional channels, including Douyin. So, you know, as I mentioned with regard to Robin’s question, you know, we are doing that. We’re providing more, you know, content that the users then virally share on short video platforms, including video accounts, Kuaishou, Bilibili, Douyin, and so forth.

And we’re also, you know, investing in advertising our games more actively on short video services. So, that’s on the game marketing side.

Martin LauPresident

In terms of, you know, livestreaming e-commerce, I think we have discussed it in detail, and I think it’s very, very synergistic with, you know, the video accounts, with livestreaming, as well as with the advertising that sits within video accounts. And, you know, if we can actually have a closed loop in terms of knowing what the merchants — what are the products that were sold, what’s the user experience after the sales, then the ability for us to improve the conversion rate on a full chain basis is actually much stronger. So, that’s why it’s very important for us to build out the e-commerce infrastructure and ecosystem in anticipation of supporting a very long and significant growth on our video accounts advertising business. Now, on the other hand, I think, you know, the local services is actually not something that, you know, we are focused on at this point in time.

You know, local services, from our perspective, is actually much more of a provide — provision of content. So, along that line, you know, we actually would consider working with our partner — some other partners, for example, Meituan, you know, who happened to be, you know, our close partner for a long time, to actually have them generate the content and we actually help them to promote the local services.

Wendy Huang

Thank you. In the interest of time, we will take the last question from James Lee from Mizuho.

James LeeMizuho Securities — Analyst

Thanks for taking my —

Wendy Huang

James —

James LeeMizuho Securities — Analyst

Can you guys hear me?

Wendy Huang

Go ahead.

James LeeMizuho Securities — Analyst

Yeah. Great.

Wendy Huang

Yeah, we can hear you.

James LeeMizuho Securities — Analyst

Yeah. Great. Thanks for taking my questions. My question is on cloud and AI.

On the cloud side, I think a competitor recently announced a pretty large-scale price discount for their cloud offering. So, just curious what you’re seeing in terms of enterprise demand and, probably most importantly, price elasticity. Now, on AI, how should we think about your positioning in large language model? Just curious, like what stage are you in now? Can the model handle multiple modalities of data input and output? And just curious on that position at this point. Thanks.

James MitchellChief Strategy Officer

Maybe I’ll start with cloud. So, you know, the — for better or worse, the cloud industry is an industry where input prices are always falling. And so, naturally, the cloud service providers are always reducing the costs they pass on to their customers. So, you know, price cuts have always existed and will always be the trend within the cloud services industry for as long as, you know, Moore’s Law continues to drive down the cost of compute.

And, you know, we don’t see a dramatic change in the competitive situation, just as we didn’t see a dramatic change when there was a round of high-profile but low-impact price cuts for SMBs a year ago. You know, what does matter is, first of all, being, you know, cost competitive. And in order to be cost competitive, one needs scale, which, you know, several companies in China are at similar scale, including us. And one needs supply chain optimization.

And, you know, we’ve been very active on supply chain optimization in the last several quarters. And as we optimize the supply chain, we bring down our input costs faster, and, you know, we can cut our output costs further as a result. And then, you know, the second factor that matters is the ability to upsell from infrastructure into, you know, platforms such as our security platform, our real-time communications platform, our database platform, as well as upsell into software as a service, including, you know, Tencent Meeting and WeCom and other enterprise SaaS products we’ve spoken about. So, that’s really where we’re focused.

It’s on delivering more value to our cloud customers by continually optimizing supply chain and by continually upgrading the depth and complexity of services that we can provide.

Martin LauPresident

In terms of our Hunyuan model, I think — you know, we have talked — actually, I’ve talked about it quite a bit in our prepared remarks. We believe Hunyuan actually is now performing at the top tier in Chinese language — among LLMs in China and worldwide. And we — this belief is supported by the very comprehensive testing that we have done internally. And, you know, from a technology perspective, this is a model that is leveraging the, you know, Mixture of Experts architecture that’s already scaled up to the trillion-parameter mark.

And also, you know, it’s exhibiting very good performance in multi-turn conversations, logical inference, and numerical reasoning, the — some of the toughest areas to conquer in large language models. And at this point in time, we are actually very focused on the text technology because this is actually the fundamentals of the model. And from text, you know, we have built out text-to-picture. From text, we have built out text-to-video capabilities.

And the next important evolution is actually, you know, what we have seen with Sora, right? Sora has done an incredible job with text to a long video, and we — you know, this is something which we’d be developing in the next turn. When we continue to improve the text fundamental capability of Hunyuan, at the same time, we will be developing the text-to-video capability because we actually think that this is actually very relevant to our core business, which is, you know, content-driven business in the area of short video, long video, and games, and, you know, that’s the area in which we’ll be developing and moving our Hunyuan into. So, you know, if you look into the future, we felt Hunyuan will continue to be stronger and stronger in the fundamental model capability, and at the same time, it will be starting to develop better and better text-to-multimedia capability.

Wendy Huang

Thank you. We are now ending the webinar. Thank you all for joining our results today. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com.

The replay of this webinar will also be available shortly. Thank you and see you next quarter.

Duration: 0 minutes

Call participants:

Wendy Huang

Pony MaChairman and Chief Executive Officer

Martin LauPresident

James MitchellChief Strategy Officer

John LoChief Financial Officer

Kenneth FongUBS — Analyst

William PackerExane BNP Paribas — Analyst

Alicia YapCiti — Analyst

Ronald KeungGoldman Sachs — Analyst

Robin ZhuAllianceBernstein — Analyst

Charlene LiuHSBC — Analyst

Alex YaoJPMorgan Chase and Company — Analyst

James LeeMizuho Securities — Analyst

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