TENCENT(TCEHY)2024-11-13 18:37Financial Data and Key Metrics - Total revenue for Q3 2024 was RMB 167 billion, up 8% YoY and 4% QoQ [8] - Gross profit was RMB 89 billion, up 16% YoY and 3% QoQ [8] - Non-IFRS operating profit was RMB 61 billion, up 19% YoY and 5% QoQ [8] - Diluted EPS was RMB 6.34, up 36% YoY [40] - Free cash flow was RMB 58.5 billion, up 14% YoY [45] Business Line Data and Key Metrics - Value-Added Services (VAS) revenue was RMB 83 billion, up 9% YoY, with social networks contributing RMB 31 billion, up 4% YoY [14] - Domestic games revenue grew 14% YoY to RMB 37 billion, driven by titles like Honour of Kings and Peacekeeper Elite [15] - International games revenue increased 9% YoY to RMB 15 billion, with PUBG Mobile and Brawl Stars performing well [16] - Marketing Services revenue grew 17% YoY, with video accounts marketing services revenue increasing over 60% YoY [29][31] - FinTech and Business Services revenue was RMB 53 billion, up 2% YoY [33] Market Data and Key Metrics - Combined MAU of WeChat and QQ grew to 1.38 billion, with QQ mobile MAU resuming YoY growth to 562 million [9] - Mini Programs facilitated over RMB 2 trillion in GMV in Q3 2024, driven by use cases like food ordering and medical services [17] - International cloud revenue increased significantly YoY, leveraging competitive pricing and domain expertise in gaming and live streaming [36] Company Strategy and Industry Competition - The company upgraded its e-commerce strategy around Mini Shops to create a unified transaction experience within the Weixin ecosystem [7] - AI deployment across products and operations, including marketing services and cloud, is yielding tangible benefits [7] - The company continues to invest in AI technology, tools, and solutions to assist users and partners [7] - The strategy for games focuses on leveraging both in-house studios and external partnerships to create evergreen titles [53][54] Management Commentary on Operating Environment and Future Outlook - Management highlighted the robust performance of evergreen games and the potential of new titles like DnF Mobile and Delta Force [6][10] - The company is optimistic about the long-term potential of its e-commerce ecosystem, particularly with the upgrade to Mini Shops [59][60] - Management is constructive on the outlook for international games revenue growth, given the deferred revenue backlog and potential from new releases [70] Other Important Information - The company introduced Tencent Hunyuan Turbo, which doubles training and inference efficiency and halves inference costs compared to its predecessor [35] - GPU-powered services now represent a teens percentage of the company's infrastructure as a service revenue [34] - The company made its Hunyuan large model and 3D generation models available on an open-source basis [36] Q&A Session Summary Question: Implications of major hit games on the industry and Tencent's game strategy - The success of games like Black Myth Wukong and Whiteout Survival reflects a structural trend facilitated by China's large home market and engineering workforce [50][51] - Tencent's strategy focuses on leveraging both in-house studios and external partnerships to create evergreen titles [53][54] Question: Upgrade to Weixin Mini Shops and its potential - The upgrade aims to create a unified and trustworthy e-commerce platform within Weixin, improving the shopping experience for consumers and providing better transaction support for merchants [56][57] - The potential is significant, with Mini Programs already facilitating RMB 2 trillion in GMV, primarily in services [60] Question: Weixin Search and international games deferred revenue - Weixin Search saw commercial queries increase and click-through rates improve, with search revenue more than doubling YoY [32][66] - The elongation of deferred revenue periods for international games is primarily for flagship titles, with deferral periods typically six to nine months or longer [70] Question: Macroeconomic environment and positioning - Management is encouraged by recent pro-growth policies in China and is constructive on the long-term economic outlook [73][74] - The company focuses on compliance, product improvement, and cost efficiency to navigate the evolving regulatory and macroeconomic environment [75][76] Question: Near-term focus for Weixin e-commerce and collaboration with Taobao - The near-term focus is on improving the infrastructure and functionalities of Mini Shops, with growth expected to follow [83][84] - The collaboration with Taobao has seen good adoption of Weixin Pay, benefiting both companies [85] Question: Delta Force monetization and payment revenue decline - Delta Force is monetizing well, with the majority of revenue generated on PC, despite the majority of users being on mobile [90][91] - The decline in payment revenue is due to the elimination of lower-quality transactions and a focus on smaller ticket everyday items [92][93] Question: Earnings growth outlook and share buyback - The company does not have a specific target for earnings growth but aims to achieve operating leverage from revenue growth [95][96] - Share buybacks for 2024 are expected to exceed the RMB 100 billion target, with plans for 2025 to be shared at the year-end earnings announcement [97][98] Question: AI-related revenue and Hunyuan monetization - AI is driving significant benefits in content recommendation and ad targeting, with GPU-powered services contributing to infrastructure as a service revenue [101][102] - The company is testing Hunyuan across various products and services, with more use cases expected to scale in the coming quarters [105][106] Question: Game preferences and FinTech strategy - Younger users in China disproportionately favor first-person action games, with titles like VALORANT and Delta Force performing well [109][110] - The company is focusing on wealth management, particularly money market funds, and is cautious on lending due to macroeconomic conditions [114][116] Question: Game business adjustments and advertising outlook - Adjustments to game teams, such as Honour of Kings and Peacekeeper Elite, have been productive, with both games registering good growth [120][121] - The advertising business is expected to continue outperforming peers, driven by ad tech enhancements and increased ad load in video accounts [129][131] Question: Collaboration with Taobao and future partnerships - The collaboration with Taobao benefits users, Tencent, and Taobao, with significant work done to ensure a good user experience and compliance [134][135] - The company is open to future collaborations that make sense and are safe for users and content partners [138]