Tencent Announces 2012 Third Quarter Results

                 Tencent Announces 2012 Third Quarter Results

PR Newswire

HONG KONG, Nov 14, 2012

HONG KONG, Nov 14, 2012 /PRNewswire/ -- Tencent Holdings Limited ("Tencent" or
the "Company", SEHK 00700), a leading provider of comprehensive Internet
services in China, today announced the unaudited consolidated results for the
third quarter of 2012 ended September 30, 2012.

Highlights of the Third Quarter of 2012:

  oTotal revenues were RMB11,565.6 million (USD1,823.9 million[1]), an
    increase of 9.9% over the second quarter of 2012 ("QoQ") or an increase of
    54.3% over the third quarter of 2011 ("YoY").
  oRevenues from Internet value-added services ("IVAS") were RMB8,371.0
    million (USD1,320.1 million), an increase of 7.5% QoQ or an increase of
    39.4% YoY.
  oRevenues from mobile & telecommunications value-added services ("MVAS")
    were RMB946.2 million (USD149.2 million), an increase of 1.9% QoQ or an
    increase of 12.0% YoY.
  oRevenues from online advertising were RMB1,015.3 million (USD160.1
    million), an increase of 15.4% QoQ or an increase of 69.0% YoY.
  oRevenues from e-Commerce transactions were RMB1,133.9 million (USD178.8
    million), an increase of 32.2% QoQ.
  oGross profit was RMB6,778.5 million (USD1,069.0 million), an increase of
    9.1% QoQ or an increase of 40.2% YoY. Gross margin decreased to 58.6%
    from 59.0% last quarter.
  oOperating profit was RMB4,124.4 million (USD650.4 million), an increase of
    4.7% QoQ or an increase of 37.9% YoY. Operating margin decreased to 35.7%
    from 37.4% last quarter. Non-GAAP operating profit[2] was RMB4,442.8
    million (USD700.6 million), an increase of 5.2% QoQ or an increase of
    31.5% YoY. Non-GAAP operating margin decreased to 38.4% from 40.1% last
  oProfit for the quarter was RMB3,241.1 million (USD511.1 million), an
    increase of 4.2% QoQ or an increase of 32.5% YoY. Net margin decreased to
    28.0% from 29.5% last quarter.
    Non-GAAP profit for the quarter2 was RMB3,587.1 million (USD565.7
    million), an increase of 5.2% QoQ or an increase of 29.0% YoY. Non-GAAP
    net margin decreased to 31.0% from 32.4% last quarter.
  oProfit attributable to equity holders of the Company for the quarter was
    RMB3,218.7 million (USD507.6 million), an increase of 3.8% QoQ or an
    increase of 31.6% YoY. Non-GAAP profit attributable to equity holders of
    the Company for the quarter2 was RMB3,551.3 million (USD560.1 million), an
    increase of 4.9% QoQ or an increase of 28.2% YoY.
  oBasic earnings per share were RMB1.759. Diluted earnings per share were
  oKey platform statistics:

       oMonthly active Instant Messaging ("IM") user accounts were 783.9
         million, flat QoQ or an increase of 10.1% YoY.
       oPeak simultaneous online IM user accounts were 167.3 million, an
         increase of 0.4% QoQ or an increase of 15.1% YoY.
       oMonthly active Qzone user accounts were 592.8 million, a decrease of
         0.8% QoQ or an increase of 8.2% YoY; monthly active Pengyou user
         accounts were 258.9 million, an increase of 4.5% QoQ or an increase
         of 26.8% YoY.
       oPeak simultaneous online QQ Game Platform user accounts were 9.4
         million, an increase of 6.8% QoQ or an increase of 17.5% YoY.
       oFee-based IVAS registered subscriptions were 73.8 million, a decrease
         of 1.2% QoQ or a decrease of 4.8% YoY.
       oFee-based MVAS registered subscriptions were 33.7 million, a decrease
         of 2.6% QoQ or an increase of 8.0% YoY.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "Our platform strength
enabled us to achieve solid year-on-year growth in operating and financial
metrics during the third quarter 2012. Several of our investment initiatives,
such as open platform, Weixin and online video, made progress in driving user
engagement or monetisation. Looking forward, we will extend our open platform
from desktop to mobile Internet, and we will enrich the platform by
encouraging a greater diversity of applications. Our focus remains on building
our user base and enhancing our user experience, particularly during this
period of rapid mobile Internet growth."

Financial Review for the Third Quarter of 2012

Revenues from our IVAS business increased 7.5% QoQ to RMB8,371.0 million and
represented 72.4% of our total revenues for the third quarter of 2012. Online
game revenues increased 7.3% QoQ to RMB5,972.9 million. This primarily
reflected growth in games revenues from China which benefited from the
positive impact of summer holidays on titles such as Cross Fire, QQ Dancer and
QQ Speed, as well as contributions from new titles, such as Legend of Yulong.
We also experienced growth in game revenues from international markets such as
the US, Europe, and Korea. Revenues from our community and open platforms
increased 7.9% QoQ to RMB2,398.1 million, mainly driven by growth in
item-based sales within applications on our open platforms.

Revenues from our MVAS business increased 1.9% QoQ to RMB946.2 million and
represented 8.2% of our total revenues for the third quarter of 2012. This
primarily reflected an increase in revenues from our mobile games and mobile

Revenues from our online advertising business increased 15.4% QoQ to
RMB1,015.3 million and represented 8.8% of our total revenues for the third
quarter of 2012. Brand display advertising revenues increased, reflecting the
positive impact of the London Olympic Games, and performance display
advertising grew, as advertisers spent more on our social networks'

Revenues from our e-Commerce transactions business increased 32.2% QoQ to
RMB1,133.9 million and represented 9.8% of our total revenues for the third
quarter of 2012. This was mainly driven by increased volume of e-Commerce
transactions in which we act as principal. Fees generated from transactions
on our marketplace also contributed to the growth rate.

Other Key Financial Information for the Third Quarter of 2012

Share-based compensation was RMB217.3 million for the third quarter of 2012 as
compared with RMB255.7 million for the previous quarter.

Capital expenditure was RMB1,132.3 million for the third quarter of 2012 as
compared with RMB915.2 million for the previous quarter.

The Company didn't repurchase any shares on the Stock Exchange during the
third quarter of 2012 as compared with 26,000 shares repurchased for an
aggregate consideration of approximately RMB4.3 million in the previous

As at September 30, 2012, net cash position totaled RMB23,492.4 million which
excluded short-term borrowings of RMB3,012.0 million, long-term borrowings of
RMB2,219.4 million and long-term notes payable of RMB7,591.2 million.

As at September 30, 2012, the total number of shares of the Company in issue
was 1.846 billion.

Business Review and Outlook

Overall Financial Performance

In the third quarter of 2012, we achieved solid year-on-year growth in
revenues and earnings.

  oOur IVAS business benefited from the popularity of our online game titles
    in China and overseas, and from increased item-based sales within
    applications on our open platforms.
  oOur MVAS business continued to achieve year-on-year revenue growth.
    However, our primary focus for this business is maximising long-term user
    base and user engagement, rather than near-term financial performance.
  oOur online advertising business registered a significant year-on-year
    revenue increase, thanks to new platform contributions and continued
    expansion in traditional brand display advertising.
  oOur e-Commerce transactions business experienced a sequential revenue
    increase during the quarter, due to growth in transaction volume.

Strategic Highlights

In September 2012, we announced the completion of a USD 600 million senior
unsecured notes offering. This is our second international bond issue,
following our first such transaction in December 2011. We are grateful that
our investors continue to display confidence in our business model and
financial performance, and we remain firmly committed to maintaining our
strong credit profile and investment grade credit ratings.

Divisional and Product Highlights

Communications Platforms

For QQ IM, MAU registered 10% year-on-year growth and reached 784 million at
the end of the third quarter of 2012. It's PCU for the quarter was 167
million, representing 15% growth as compared to the same period last year.
The growth rate of PCU decelerated as the increased number of mobile users
resulted in greater dispersion of time spent on QQ IM through different day
parts. During the quarter, Weixin reinforced its position as the leading
mobile community in China, exceeding 200 million registered use accounts in
September 2012.

Media Platforms

QQ.com extended its lead among portals in China in terms of page views and
unique visitors, and Tencent Microblog maintained a leading social media
position in China with 507 million registered user accounts and 94 million DAU
at the end of the quarter. Tencent Video gained popularity among Internet
users due to content enrichment and user experience improvement. During the
quarter, we leveraged our in-depth coverage of the London Olympic Games and
our cross-platform sharing tools to enhance our media influence and brand
recognition, especially in the sports category.


Our social networks registered solid growth in the third quarter of 2012, with
increased traffic and photos uploads from mobile users. MAU of Qzone
increased by 8% year-on-year to 593 million at the end of the quarter. MAU of
Pengyou increased by 27% year-on-year to 259 million at the end of the

Our IVAS registered subscriptions count declined compared to the same period
last year due to policies we launched in the second quarter of 2012 for
cleaning up certain user accounts acquired through telecommunications
operators, for whom fee collection was unlikely. We believe these measures
should ultimately improve our subscriber base quality. The increasing
adoption of mobile Internet activities is also impacting our IVAS registered
subscriptions count, because at this stage the pace of our mobile user growth
is faster than that of our mobile privilege development. Consequently, some
of our IVAS subscription services are less appealing to mobile-oriented users
as we have not yet extended all IVAS privileges from desktop to mobile
devices. In future, we intend to enrich the mobile-related features and
privileges of our IVAS subscription services to cater to this emerging user
demand trend.

On our open platforms, item-based sales within applications continued to grow
due to more usage of such applications and increased social sharing traffic.
We have generated material revenues for third-party developers, who can
publish their applications across our multiple platforms to tap into our base
of social and game-oriented users. Looking ahead, we are extending the reach
of our open platforms from desktop to mobile with the implementation of open
QQ account login on third-party mobile applications, in order to position for
the emerging opportunities in the mobile Internet. To maximise user
engagement, and thus the long-term development of our open platforms, we are
incentivising developers of applications with large user bases but moderate or
low per user revenue generation. This initiative is particularly focused on
non-game applications as we aim to broaden the range of services that our
users can enjoy.

Our online game business achieved healthy year-on-year growth in users and
revenues in the third quarter of 2012, with increased contribution from
self-developed titles. Growth in revenues from China was driven by our
established ACG and MMOG, as well as new titles, such as Legend of Yulong and
Legend of Xuanyuan, which are both developed in-house. Revenue contribution
from international markets, such as the US, Europe, and Korea, increased along
with an expanded user base. QQ Game Platform's PCU increased to 9.4 million
during the quarter, representing growth of 18% compared to the same period
last year. As the Chinese game industry matures and hit titles within the
industry face the law of large numbers, our game business revenue growth rate
will depend in part on the popularity and monetisation of our new and future
titles, and in part on the health of our existing titles.


In the third quarter of 2012, our MVAS business delivered stable revenue
growth compared to the same period last year, driven by our bundled SMS
packages and mobile games. We continued to progress in building our long-term
user base with different types of mobile applications. For example, our mobile
security product achieved over 100 million activated users during the period.

Our MVAS business is primarily focused on extending our desktop services to
mobile, and on developing new applications for smartphones. As we are
currently less focused on optimising monetisation, the near-term financial
trajectory of this business may be uneven. Longer term, we believe growth in
smartphone users, and in time spent online on mobile devices, should enable
new business models to emerge which tap into the unique features of such

Online Advertising

In the third quarter of 2012, our online advertising business achieved robust
revenue growth on a year-on-year basis, supported by performance advertising
on our social networks, video advertising, traditional brand display
advertising, and search advertising. During the quarter, we utilised the
London Olympic Games opportunity to better penetrate selected up-scale brand
advertisers. Performance advertising on our social networks increased as we
delivered greater impression volume, improved our click-through rates, and
enabled new advertiser categories, such as education service providers, to
participate in performance advertising. Looking forward, the absence of the
Olympic Games event and decelerating economic growth in China may slow revenue
growth rates for the online advertising industry as a whole, including our own
online advertising business.

e-Commerce Transactions

The volume of our principal e-Commerce transactions increased sequentially in
the third quarter of 2012 due to our own promotional activities, as well as
increased public awareness of our long-established price leadership in the
consumer electronics sector as a result of a widely publicised "price war"
among other industry players. Our agency revenues also grew on a
quarter-on-quarter basis, albeit from a low base, due to an increased number
of transactions on our marketplace.

About Tencent

Tencent aims to enrich the interactive online experience of Internet users by
providing a comprehensive range of Internet and wireless value-added
services. Through its various online platforms, including Instant Messaging
QQ, web portal QQ.com, the QQ Game Platform under Tencent Games, multi-media
social networking service Qzone and wireless portal, Tencent services the
largest online community in China and fulfills the user's needs for
communication, information, entertainment and e-Commerce on the Internet.

Tencent has four main streams of revenues: Internet value-added services,
mobile and telecommunications value-added services, online advertising and

Shares of Tencent Holdings Limited are traded on the Main Board of the Stock
Exchange of Hong Kong Limited, under stock code 00700. The Company became a
constituent of the Hong Kong's Hang Seng Index (HSI) on June 10, 2008. For
more information, please visit www.tencent.com/ir.

For enquiries, please contact:

Catherine Chan Tel: (86) 755 86013388 ext 88369 or (852) 31485100 Email:
Jane Yip Tel: (86) 755 86013388 ext 81374 or (852) 31485100 Email:

Non-GAAP Financial Measures

To supplement the consolidated results of the Company prepared in accordance
with IFRS, certain non-GAAP financial measures, including non-GAAP operating
profit, non-GAAP operating margin, non-GAAP profit for the period, non-GAAP
net margin and non-GAAP profit attributable to equity holders of the Company,
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 Company'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 Company's core operations by excluding certain non-cash items and certain
impact of acquisitions.

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
realized 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.

In RMB '000 (unless otherwise stated)
                              Unaudited                Unaudited
                              3Q2012      2Q2012       3Q2012      3Q2011
Revenues                      11,565,556  10,527,244   11,565,556  7,496,157
 Internet VAS              8,371,026   7,786,625    8,371,026   6,003,135
 Mobile & Telecom VAS      946,218     929,007      946,218     844,900
Online advertising            1,015,266   879,691      1,015,266   600,572
 e-Commerce           1,133,901   857,526      1,133,901   -
 Others                    99,145      74,395       99,145      47,550
Cost of revenues              (4,787,093) (4,311,379)  (4,787,093) (2,661,407)
Gross profit                  6,778,463   6,215,865    6,778,463   4,834,750
Gross margin                  58.6%       59.0%        58.6%       64.5%
Interest income               205,781     196,806      205,781     124,159
Other (losses)/gains, net     (14,791)    (3,219)      (14,791)    9,200
S&M expenses                  (819,790)   (609,672)    (819,790)   (507,252)
G&A expenses                  (2,025,298) (1,862,165)  (2,025,298) (1,469,278)
Operating profit              4,124,365   3,937,615    4,124,365   2,991,579
Operating margin              35.7%       37.4%        35.7%       39.9%
Finance (costs)/income, net   (99,478)    (115,256)    (99,478)    43,097
Share of (losses)/profit of   (21,188)    5,411        (21,188)    (21,842)
Share of losses of jointly    (6,089)     (9,375)      (6,089)     (59,926)
controlled entities
Profit before income tax      3,997,610   3,818,395    3,997,610   2,952,908
Income tax expense            (756,465)   (707,824)    (756,465)   (506,760)
Profit for the period         3,241,145   3,110,571    3,241,145   2,446,148
Net margin                    28.0%       29.5%        28.0%       32.6%
Attributable to:
 Equity holders of the     3,218,693   3,100,075    3,218,693   2,446,437
 Non-controlling interests 22,452      10,496       22,452      (289)
Non-GAAP profit attributable
to equity holders of the      3,551, 337  3,386,266    3,551, 337  2,769,143
Earnings per share (GAAP)
- basic (RMB)                 1.759       1.698        1.759       1.340
- diluted (RMB)               1.727       1.665        1.727       1.314

In RMB '000 (unless otherwise stated)
                                      Unaudited            Unaudited
                                      3Q2012    2Q2012     3Q2012    3Q2011
Profit for the period                 3,241,145 3,110,571  3,241,145 2,446,148
Other comprehensive income; net of
Net losses from changes in fair value
of                                    (37,923)  (530,203)  (37,923)  (491,093)
 available-for-sale financial
Currency translation differences      125       7,743      125       (13,322)
Total comprehensive income for the    3,203,347 2,588,111  3,203,347 1,941,733
Attributable to:
 Equity holders of the Company     3,180,882 2,576,886  3,180,882 1,942,022
 Non-controlling interests         22,465    11,225     22,465    (289)

In RMB '000 (unless otherwise stated)
                           3Q2012     2Q2012     3Q2011
EBITDA (a)                 4,591,603  4,331,322  3,403,665
Adjusted EBITDA (a)        4,784,020  4,558,963  3,581,786
Adjusted EBITDA margin (b) 41.4%      43.3%      47.8%
Interest expense           86,104     69,344     14,759
Net cash (c)               23,492,375 19,631,631 15,654,534
Capital expenditures (d)   1,132,314  915,156    1,133,342


a) EBITDA consists of operating profit less interest income, and plus
other losses/(gains), net, depreciation of fixed assets and 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
c) Net cash is calculated as cash and cash equivalents, term deposits
with initial term of over three months, and restricted cash pledged for
secured bank borrowings, minus total borrowings and long-term notes payable.
d) Capital expenditures consist of additions (excluding business
combination) to fixed assets, construction in progress, land use rights and
intangible assets (excluding game and other content licences).

 In RMB '000 (unless otherwise stated)             Unaudited      Unaudited
                                                    30 September 30 June
                                                    2012          2012

Non-current assets
Fixed assets                                       6,707,460     6,201,179
Construction in progress                            450,764       323,786
Investment properties                               21,789        21,643
Land use rights                                     346,697       348,509
Intangible assets                                   4,739,476     4,194,417
Interests in associates                             7,070,127     5,292,559
Investment in jointly controlled entities           47,819        53,908
Deferred income tax assets                          172,590       184,608
Available-for-sale financial assets                 5,504,415     5,320,869
Prepayments, deposits and other assets              1,991,043     3,877,451
Long-term deposits                                  8,591,724     -
                                                    35,643,904    25,818,929
Current assets

Inventories                                         424,273       202,106
Accounts receivable                                 2,683,965     2,500,207
Prepayments, deposits and other assets              3,332,155     3,275,968
Short-term deposits                                 14,281,401    17,014,730
Restricted cash                                     2,192,256     2,317,431
Cash and cash equivalents                           13,441,768    10,602,451
                                                    36,355,818    35,912,893
Total assets                                        71,999,722    61,731,822
Equity attributable to the Company's equity holders
Share capital                                       198           198
Share premium                                       2,651,800     2,488,779
Shares held for share award scheme
                                                    (625,960)     (609,657)

Other reserves                                      518,860       532,264
Retained earnings                                   34,870,783    31,652,090
                                                    37,415,681    34,063,674
Non-controlling interests                           876,950       650,698
Total equity                                        38,292,631    34,714,372
Non-current liabilities

Borrowings                                          2,219,350     948,735
Long-term notes payable                             7,591,193     3,751,839
Deferred income tax liabilities                     1,016,454     893,822
Long-term payables                                  1,530,080     1,441,920
                                                    12,357,077    7,036,316
Current liabilities
Accounts payable                                    3,960,242     3,368,438
Other payables and accruals                         5,403,161     4,872,613
Derivative financial instruments                    -             14,680
Borrowings                                          3,011,975     3,609,323
Current income tax liabilities                      1,029,070     998,523
Other tax liabilities                               468,738       256,781
Deferred revenue                                    7,476,828     6,860,776
                                                    21,350,014    19,981,134
Total liabilities                                   33,707,091    27,017,450
Total equity and liabilities                        71,999,722    61,731,822

                         As          Equity-settled Cash-settled     Losses on    Amortisation
In RMB '000                                                                                    Impairment    Special    Non-GAAP
                         reported    share-based    share-based      deemed       of           provision(d) dividend
except percentages                   compensation   compensation(a)              intangible                 income(e)
                                                                     disposal(b) assets (c)
Unaudited three months ended 30  September 2012
Operating profit           4,124,365 192,417        24,860           5,150        38,494       448,000       (390,472)  4,442,814
Operatingmargin 35.7%                                                                                        38.4%
Profit for the  period     3,241,145 192,417        24,860           5,150        66,013       448,000       (390,472)  3,587,113
Net  28.0%                                                                                        31.0%
Profit attributable to
equity holders of the      3,218,693 189,660        21,921           5,150        58,385       448,000       (390,472)  3,551,337
Unaudited three months ended 30  June 2012
Operating profit           3,937,615 227,641        28,081           -            28,137       -             -          4,221,474
Operating margin 37.4%                                                                                        40.1%
Profit for the period      3,110,571 227,641        28,081           -            44,060       -             -          3,410,353
Net  29.5%                                                                                        32.4%
Profit attributable to
equity holders of the    3,100,075   221,817        24,643           -            39,731       -             -          3,386,266
Unaudited three months ended 30  September 2011
Operating profit           2,991,579 178,121        24,294           -            184,212      -             -          3,378,206
Operating margin  39.9%                                                                                        45.1%
Profit for the  period     2,446,148 178,121        24,294           -            131,211      -             -          2,779,774
Net   32.6%                                                                                        37.1%
Profit attributable to
equity holders of the      2,446,437 176,934        22,397           -            123,375      -             -          2,769,143

(a) Including put options granted to employees of investees on their shares
and shares to be issued under investees' share-based incentive plans which can
be acquired by the Company, and other incentives
(b) Losseson deemed disposal of previously held interests in associates
(c) Amortisation of intangible assets resulting from acquisitions, net of
related deferred tax
(d) Impairment provision for interests in associates and available-for-sale
financial assets
(e) Special dividend income from Mail.ru

[1] Figures stated in USD are based on USD1 to RMB6.3410

[2] See "Non-GAAP Financial Measures" section for more details on the reasons
for presenting these measures

SOURCE Tencent Holdings Limited

Website: http://www.tencent.com
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