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Classified in: Science and technology, Business
Subjects: ERN, ERP

Tencent Announces 2017 Third Quarter Results


HONG KONG, Nov. 15, 2017 /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 ("3Q2017") ended September 30, 2017.

3Q2017 Key Highlights - Revenues: +61% YoY, non-GAAP net profit: +45% YoY

Chairman and CEO of Tencent, Mr. Ma Huateng, said, "During the third quarter of 2017, we recorded strong business and revenue growth across multiple business lines including games, digital content, online advertising and payment related services. In particular, our video platform gained audience and revenue market share, we believe it has become China's top online video platform in terms of mobile daily active users and subscriptions. We believe this success reflects our increasing investment in self-commissioned video content, our improved selection of licensed video content, and our scheduling and audience management initiatives. The listing of our online literature platform, China Literature, in November also reflects the value of our years of investment in the business. We believe our multi-faceted digital content businesses are synergistic with each other, and allow us to deliver unique content to our users."

3Q2017 Financial Review

Revenues from our Value Added Services (VAS) business increased by 51% to RMB42,124 million for the third quarter of 2017 on a year-on-year basis. Online games revenues grew by 48% to RMB26,844 million. The increase mainly reflected contributions from our smart phone games, including existing titles such as Honour of Kings, and new titles such as the China version of Contra Return and Legacy TLBB Mobile. Revenues from PC client games also increased, benefiting from our key titles such as DnF and LoL. Social networks revenues increased by 56% to RMB15,280 million. The increase was primarily driven by revenue growth from digital content services such as live broadcast and subscription video on-demand, as well as from virtual item sales.

Revenues from our online advertising business increased by 48% to RMB11,042 million for the third quarter of 2017 on a year-on-year basis. Media advertising revenues increased by 29% to RMB4,122 million, primarily due to growth in revenues from our mobile media platforms such as Tencent Video, but decreased versus the high base effect from the Olympics Games a year ago. Social and others advertising revenues grew by 63% to RMB6,920 million, mainly reflecting higher advertising revenues derived from Weixin (primarily Weixin Moments and Weixin Official Accounts) and other mobile apps[3].

Revenues from our other businesses increased by 143% to RMB12,044 million for the third quarter of 2017 on a year-on-year basis. The increase primarily reflected higher revenues from our payment related and cloud services.   

[1] Figures stated in USD are based on USD1 to RMB6.63692

[2] Non-GAAP adjustments excludes share-based compensation and M&A related impact such as net (gains)/losses from investee companies, amortisation of intangible assets and impairment provision

[3] Since the first quarter of 2017, we have reclassified online advertising revenues. Before reclassification, performance-based advertising revenues increased by 61% to RMB7,017 million and brand display advertising revenues increased by 31% to RMB4,025 million for the third quarter of 2017 on a YoY basis

Other Key Financial Information for 3Q2017

Share-based compensation was RMB1,632 million, up 44% YoY.

EBITDA was RMB24,024 million, up 51% YoY. Adjusted EBITDA was RMB25,632 million, up 51% YoY.

Capital expenditure was RMB3,492 million, down 4% YoY. 

Free cash flow was RMB27,462 million, up 94% YoY.

As at September 30, 2017, net cash position totalled RMB18,862 million. Fair value of our stakes in listed investee companies (both associates and available-for-sale financial assets) totalled RMB 171.1 billion as at September 30, 2017.

Business Review and Outlook

In the third quarter of 2017, We achieved 61% year-on-year revenue growth, driven primarily by smart phone games and PC games, payment related services, digital content subscriptions and sales, and online advertising. Operating profit grew by 57% year-on-year. Profit attributable to equity holders of the Company increased by 69% year-on-year. Non-GAAP profit attributable to equity holders of the Company increased by 45% year-on-year. Free cash flow grew by 94% year-on-year.

Operating Information

Social and Communication 

Online Games

PC client games achieved approximately RMB14.6 billion in revenue, representing 27% year-on-year revenue growth, benefiting from key titles including DnF and LoL. We focused on retaining core users and enhancing engagement through initiatives such as the LoL World Championship 2017 event held in China and a DnF-themed cartoon series. We launched anniversary and seasonal content updates which were well-received by gamers. As a result, ARPUs increased both year-on-year and quarter-on-quarter.

Smart phone games grew by 84% year-on-year to approximately RMB18.2 billion in revenue (including smart phone games revenue attributable to our social networks business). Revenue growth in smart phone games was contributed by existing and newly launched game titles such as Honour of Kings in the MOBA genre, the China version of Contra Return in the Action genre, and Legacy TLBB Mobile, Legend of XuanYuan Mobile and Journey to the Fairyland Mobile in the RPG genre. The launch of our self-developed strategy game, Kings of Chaos, also contributed to revenue growth and expanded our leadership into this mobile game genre. In November 2017, we started the pre-registration process for a licensed survival shooter game, Glorious Mission, and CrossFire Mobile's update called "Deserted Island". Both received overwhelming registration responses. We will continue to enhance our in-house R&D capability and identify attractive licensing opportunities to further diversify our game portfolio.

Digital Content

Digital content revenue continued to record rapid growth, driven by video subscriptions and by live broadcast revenue. Tencent Video has exceeded 43 million fee-based subscriptions, which we believe represents the largest video streaming services subscriber base in China. We will continue to increase our investment in video content, especially self-commissioned video content, and to reinforce our content recommendation algorithms. 

Online Advertising

Our online advertising business achieved 48% year-on-year growth in revenue.

For media advertising, our video platform grew strongly, benefiting from the popular drama series such as "Nothing Gold Can Stay", and self-commissioned variety shows such as "The Temptation of Dinner (Season 2)". These and other self-commissioned and licensed video programmes generated significant growth in our video advertising revenue. News advertising revenue decreased year-on-year versus the high base of the Olympics during the same period last year and decreased quarter-on-quarter due to the reduced advertising inventory of TianTian KuaiBao while we revamped its advertising system.

For social and others advertising, Weixin properties, YingYongBao and our advertising network, were the main contributors of revenue growth. Weixin Moments' advertisement fill rate increased, driven by strong advertising demand and further expanded key accounts and long-tail advertisers.

Others

We recorded 143% year-on-year revenue growth for other businesses, which was primarily driven by the growth of payment related and cloud services. Our monthly offline payment volume increased 280% year-on-year. We empowered retailers to integrate online and offline resources including marketing, sales, payment and loyalty programmes.

Tencent Cloud expanded its global infrastructure coverage and now operates 36 availability zones around the world. We have invested in strengthening our AI cloud technologies, big data analytics and security infrastructure. Leveraging our Weixin enterprise solutions, customer relationship management and targeted marketing capability, Tencent Cloud has made rapid progress in providing end-to-end solutions for financial and eCommerce clients. We will continue to invest in our cloud business to empower the digital and smart transformation of traditional industries, and to build future drivers of revenue growth and profitability. Meanwhile, we will look for collaboration and investment opportunities which can complement our technological capability in order to provide cloud services that fit the needs of our clients. We will also open up cloud computing and AI technological capabilities to third party companies in order to build a vibrant ecosystem.

For other detailed disclosure, please refer to our website www.tencent.com/ir, or follow us via Weixin Official Account (Weixin ID: Tencent_IR).

About Tencent

Tencent uses technology to enrich the lives of Internet users. Our social products Weixin and QQ link our users to a rich digital content catalogue including games, video, music and books. Our proprietary targeting technology helps advertisers reach out to hundreds of millions of consumers in China.  Our infrastructure services including payment, security, cloud and artificial intelligence create differentiated offerings and support our partners' business growth.  Tencent invests heavily in people and innovation, enabling us to evolve with the Internet.   

Tencent was founded in Shenzhen, China, in 1998.  Shares of Tencent (00700.HK) are traded on the Main Board of the Stock Exchange of Hong Kong. 

For investor and media enquiries, please contact:

Catherine Chan

Tel: (86) 755 86013388 ext. 88369/ (852) 3148 5100

Email: [email protected]

Jane Yip

Tel: (86) 755 86013388 ext. 68961/ (852) 3148 5100

Email: [email protected]

Stella Lui  

Tel: (86) 755 86013388 ext. 68870/ (852) 3148 5100

Email: [email protected]

Kennis Lau

Tel: (86) 755 86013388 ext. 68958/ (852) 3148 5100

Email: [email protected]

PH Cheung

Tel: (86) 755 86013388 ext. 68919/ (852) 3148 5100

Email: [email protected]

Non-GAAP Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-GAAP 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-GAAP financial measures should be considered in addition to, not as a substitute for, measures of the Group's financial performance prepared in accordance with IFRS. In addition, these non-GAAP financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-GAAP financial measures provide investors with useful supplementary information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact of M&A transactions. In addition, non-GAAP adjustments include relevant non-GAAP adjustments for the Group's material associates based on available published financials of the relevant material associates, or estimates made by the Company's management based on available information, certain expectations, assumptions and premises.

Forward-Looking Statements

This press release contains forward-looking statements relating to the business outlook, forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realised in future. Underlying the forward-looking statements is a large number of risks and uncertainties. Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.

 

CONSOLIDATED INCOME STATEMENT

RMB in million, unless specified



Unaudited


Unaudited


3Q2017

3Q2016


3Q2017

2Q2017

Revenues

65,210

40,388


65,210

56,606

    VAS

42,124

27,975


42,124

36,804

   Online advertising

11,042

7,449


11,042

10,148

    Others

12,044

4,964


12,044

9,654

Cost of revenues

(33,529)

(18,560)


(33,529)

(28,300)

Gross profit

31,681

21,828


31,681

28,306

Gross margin

49%

54%


49%

50%

Interest income

1,017

637


1,017

959

Other gains, net

3,918

1,155


3,918

5,125

Selling and marketing expenses

(4,812)

(3,277)


(4,812)

(3,660)

General and administrative expenses

(9,058)

(5,883)


(9,058)

(8,170)

Operating profit

22,746

14,460


22,746

22,560

Operating margin

35%

36%


35%

40%

Finance costs, net

(524)

(604)


(524)

(834)

Share of profit/(losses) of associates and joint ventures

818

(619)


818

498

Profit before income tax

23,040

13,237


23,040

22,224

Income tax expense

(4,993)

(2,461)


(4,993)

(3,970)

Profit for the period

18,047

10,776


18,047

18,254

Net margin

28%

27%


28%

32%

Attributable to:






    Equity holders of the Company

18,006

10,646


18,006

18,231

    Non-controlling interests

41

130


41

23







Non-GAAP profit attributable to equity holders of the
  Company

17,070

11,737


17,070

16,391







Earnings per share for profit attributable to
   equity holders of the Company
   (in RMB per share)






- basic

1.912

1.134


1.912

1.939

- diluted

1.888

1.121


1.888

1.914

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in million, unless specified



Unaudited


3Q2017

3Q2016

Profit for the period

18,047

10,776

Other comprehensive income, net of tax:



Items that may be subsequently reclassified to profit or loss



Share of other comprehensive income of associates

336

214

Net gains from changes in fair value of available-for-sale financial assets

1,895

1,042

Transfer to profit or loss upon disposal of available-for-sale financial assets

(176)

-

Currency translation differences

(2,338)

688

Other fair value gains

270

149




Items that may not be subsequently reclassified to profit or loss



Other fair value gains

241

225

Total comprehensive income for the period

18,275

13,094

Attributable to:



    Equity holders of the Company

18,248

12,953

    Non-controlling interests

27

141

 

 

OTHER FINANCIAL INFORMATION

RMB in million, unless specified



Unaudited


3Q2017

2Q2017

3Q2016

EBITDA (a)

24,024

22,427

15,865

Adjusted EBITDA (a)

25,632

23,802

16,963

Adjusted EBITDA margin (b)

39%

42%

42%

Interest expense

794

760

585

Net cash (c)

18,862

21,267

8,368

Capital expenditures (d)

3,492

3,010

3,651

 

Note:

(a) EBITDA consists of operating profit less interest income and other gains/losses, net, and plus depreciation of property, plant and equipment as well as
     investment properties, and amortisation of intangible assets. Adjusted EBITDA consists of EBITDA plus equity-settled share-based compensation
     expenses.

(b) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.

(c) Net cash represents period end balance and is calculated as cash and cash equivalents, term deposits and others, minus borrowings and notes
     payable.

(d) Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress, investment
     properties, land use rights and intangible assets (excluding media contents, game licences and other contents).

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

RMB in million, unless specified



Unaudited


Unaudited


30 September 2017


30 June 2017

ASSETS




Non-current assets




Property, plant and equipment

17,159


15,874

Construction in progress

6,175


5,346

Investment properties

815


846

Land use rights

5,138


5,165

Intangible assets

39,194


38,891

Investments in associates

81,415


74,202

Investments in redeemable instruments of associates

23,489


23,789

Investments in joint ventures

948


715

Available-for-sale financial assets

123,965


107,117

Prepayments, deposits and other assets

12,809


8,261

Other financial assets

5,666


4,033

Deferred income tax assets

9,871


8,076

Term deposits

5,364


5,364






332,008


297,679

Current assets




Inventories

312


297

Accounts receivable

15,567


14,448

Prepayments, deposits and other assets

17,857


18,013

Other financial assets

1,753


1,974

Term deposits

57,371


61,474

Restricted cash

1,407


1,327

Cash and cash equivalents

87,343


70,301






181,610


167,834





Total assets

513,618


465,513


 

   

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

RMB in million, unless specified



Unaudited


Unaudited


30 September 2017


30 June 2017

EQUITY




Equity attributable to equity holders of the Company




Share capital

-


-

Share premium

20,661


19,793

Shares held for share award schemes

(3,903)


(3,513)

Other reserves

33,875


33,996

Retained earnings

182,401


164,398






233,034


214,674





Non-controlling interests

11,871


11,724





Total equity

244,905


226,398





LIABILITIES




Non-current liabilities

 




Borrowings

81,383


70,460

Notes payable

29,819


31,294

Long-term payables

4,417


4,459

Other financial liabilities

2,442


2,468

Deferred income tax liabilities

5,647


5,171

Deferred revenue

2,195


1,886






125,903


115,738





Current liabilities




Accounts payable

41,850


36,982

Other payables and accruals

26,155


21,224

Borrowings

15,907


10,779

Notes payable

4,826


4,059

Current income tax liabilities

8,938


6,332

Other tax liabilities

1,247


1,041

Deferred revenue

43,887


42,960






142,810


123,377





Total liabilities

268,713


239,115





Total equity and liabilities

513,618


465,513

 

 

RECONCILIATIONS OF IFRS TO NON-GAAP RESULTS





As

reported

Adjustments

Non-GAAP


RMB in million,

unless specified

Share-based

compensation(a)

Net (gains)/losses from

investee companies(b)

Amortisation of

intangible assets(c)

Impairment

provision(d)


Unaudited three months ended 30 September 2017

Operating profit

22,746


1,632

(3,169)

110

295

21,614

Profit for the period

18,047


1,851

(3,475)

395

356

17,174

Profit attributable to equity holders

18,006


1,816

(3,475)

367

356

17,070

Operating margin

35%






33%

Net margin

28%






26%


Unaudited three months ended 30 June 2017

Operating profit

22,560


1,408

(5,619)

115

1,572

20,036

Profit for the period

18,254


1,553

(5,691)

472

1,899

16,487

Profit attributable to equity holders

18,231


1,492

(5,670)

439

1,899

16,391

Operating margin

40%






35%

Net margin

32%






29%


Unaudited three months ended 30 September 2016

Operating profit

14,460


1,132

(2,404)

139

1,710

15,037

Profit for the period

10,776


1,293

(2,309)

426

1,743

11,929

Profit attributable to equity holders

10,646


1,257

(2,297)

389

1,742

11,737

Operating margin

36%






37%

Net margin

27%






30%

 

Note:

(a) Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies' share-based incentive
    plans which can be acquired by the Group, and other incentives

(b) Including net (gains)/losses on deemed disposals, disposals of investee companies and businesses, and fair value changes arising from investments

(c) Amortisation of intangible assets resulting from acquisitions, net of related deferred tax

(d) Impairment provision for associates, available-for-sale financial assets, and intangible assets arising from acquisitions

 

SOURCE Tencent Holdings Limited


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