Tencent Announces 2017 Second Quarter and Interim Results
HONG KONG, Aug. 16, 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 second quarter ("2Q2017") and the first half year of 2017 ("1H2017") ended June 30, 2017.
1H2017 Key Highlights(1) - Revenues: +57% YoY, non-GAAP net profit: +43% YoY
-- Total revenues were RMB106,158 million (USD15,670 million), an increase
of 57% over the first half of 2016 ("YoY").
-- Operating profit was RMB41,832 million (USD6,175million), an increase of
51% YoY. Operating margin decreased to 39% from 41% last year.
-- Profit for the period was RMB32,802 million (USD4,842 million), an
increase of 63% YoY. Net margin was increased to 31% from 30% last year.
-- Profit attributable to equity holders of the Company for the period was
RMB32,707 million (USD4,828 million), an increase of 64% YoY.
-- Basic earnings per share were RMB3.480. Diluted earnings per share were
RMB3.436.
-- On a non-GAAP(2) basis, which exclude certain non-cash items and certain
impact of M&A transactions:
-- Operating profit was RMB 38,556 million (USD5,691 million), an
increase of 37% YoY. Operating margin decreased to 36% from 42% last
year.
-- Profit for the period was RMB30,859 million (USD4,555 million), an
increase of 43% YoY. Net margin decreased to 29% from 32% last year.
-- Profit attributable to equity holders of the Company for the period
was RMB30,602 million (USD4,517 million), an increase of 43% YoY.
-- Basic earnings per share were RMB3.256. Diluted earnings per share
were RMB3.215.
1 Figures stated in USD are based
on USD1 to RMB6.7744
(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
2Q2017 Key Highlights - Revenues: +59% YoY, non-GAAP net profit: +45% YoY
-- Total revenues were RMB56,606 million (USD8,356 million), an increase of
59% over the second quarter of 2016 ("YoY").
-- Operating profit was RMB22,560 million (USD3,330 million), an increase
of 57% YoY. Operating margin was 40%, broadly stable from last year.
-- Profit for the period was RMB18,254 million (USD2,695 million), an
increase of 68% YoY. Net margin increased to 32% from 30% last year.
-- Profit attributable to equity holders of the Company for the period was
RMB18,231 million (USD2,691 million), an increase of 70% YoY.
-- Basic earnings per share were RMB1.939. Diluted earnings per share were
RMB1.914.
-- On a non-GAAP basis, which exclude certain non-cash items and certain
impact of M&A transactions:
-- Operating profit was RMB20,036 million (USD2,958 million), an
increase of 36% YoY. Operating margin decreased to 35% from 41% last
year.
-- Profit for the period was RMB16,487 million (USD2,434 million), an
increase of 43% YoY. Net margin decreased to 29% from 32% last year.
-- Profit attributable to equity holders of the Company for the period
was RMB16,391 million (USD2,420 million), an increase of 45% YoY.
-- Basic earnings per share were RMB1.743. Diluted earnings per share
were RMB1.721.
Chairman and CEO of Tencent, Mr. Ma Huateng, said, "During the second quarter of 2017, we delivered strong revenue growth from multiple businesses, which enabled us to reinvest in innovations and new technologies in an increasingly competitive industry. While our games business continued to grow, we have stepped up our effort to ensure users play games in a healthy manner. Successful licensed drama serials and self-commissioned variety shows boosted user engagement and advertising revenue for our video platform. Our payment business continued to make everyday life easier for Internet users, with increased adoption of Weixin Payment for offline transactions. We have also been increasing our investment in cloud services and AI technologies, which will enable us to serve our users and business partners even better into the future."
2Q2017 Financial Review
Value Added Services ("VAS"). Revenues increased by 43% to RMB36,804 million for 2Q2017 on a YoY basis. Online games revenues increased by 39% to RMB23,861 million, primarily driven by revenue growth from our smart phone games, including existing titles such as Honour of Kings, and new titles such as the China version of Contra Return, Dragon Nest Mobile and Legacy TLBB Mobile, and from our key PC titles such as LoL and DnF. Social networks revenues increased by 51% to RMB12,943 million, mainly reflecting growth in revenues from digital content services such as live broadcast, video and music, as well as from item sales in smart phone games.
Online advertising. Revenues increased by 55% to RMB10,148 million for 2Q2017 on a YoY basis. Media advertising revenues grew by 48% to RMB4,077 million. The increase mainly reflected higher traffic for our Tencent Video services and news feed advertisements for our Tencent News products. Social and others advertising revenues grew by 61% to RMB6,071 million. The increase primarily reflected growth in advertising revenues derived from Weixin (primarily Weixin Moments and Weixin Official Accounts) and other mobile apps.(3)
Others. Revenues increased by 177% to RMB9,654 million for 2Q2017 on a YoY basis. The increase was mainly due to revenue growth from our payment related and cloud services.
3 Since the first quarter of 2017, we
have reclassified online advertising
revenues. Without the
reclassification, performance-based
advertising revenues increased by
71% to RMB6,332 million and brand
display advertising revenues
increased by 35% to RMB3,816 million
on a YoY basis.
Other Key Financial Information for 2Q2017
Share-based compensation was RMB1,408 million, up 63% YoY.
EBITDA was RMB22,427 million, up 44% YoY. Adjusted EBITDA was RMB23,802 million, up 45% YoY.
Capital expenditure was RMB3,010 million, doubled YoY.
Free cash flow was RMB17,511 million, up 80% YoY.
As at June 30, 2017, net cash position totalled RMB21,267 million. Fair value of our stakes in listed investee companies (both associates and available-for-sale financial assets) totalled RMB146 billion as at June 30, 2017.
Business Review and Outlook
In the second quarter of 2017
We achieved 59% YoY revenue growth, driven primarily by smart phone games and PC games, payment related services, online advertising, and digital content subscriptions and sales. Operating profit grew by 57% YoY. Profit attributable to equity holders of the Company increased by 70% YoY. Non-GAAP profit attributable to equity holders of the Company increased by 45% YoY. Free cash flow grew by 80% YoY.
Operating Information
-- Monthly active user accounts ("MAU") of QQ was 850 million, a decrease
of 5.4% YoY.
-- Smart device MAU of QQ was 662 million, a decrease of 3.9% YoY.
-- Peak concurrent user accounts ("PCU") of QQ (for the quarter) was 268
million, an increase of 8.4% YoY.
-- Combined MAU of Weixin and WeChat were 963 million, an increase of 19.5%
YoY.
-- MAU of Qzone was 606 million, a decrease of 7.0% YoY.
-- Smart device MAU of Qzone was 586 million, a decrease of 3.5% YoY.
-- Fee-based VAS registered subscriptions were 118 million, an increase of
12.4% YoY.
Social and Communications
-- QQ: Overall smart device MAU was down by 3.9% YoY due to fewer casual
users, while engagement with core users increased. Specifically, PCU,
including PC and mobile, increased by 8.4% YoY to 268 million. In
addition, smart device MAU for users aged 21 years or below was up YoY,
demonstrating QQ's increased popularity among younger users. Popular
features within Mobile QQ, such as Kandian news feeds, increased average
user time spent within Mobile QQ.
-- Qzone: Smart device MAU was down by 3.5% YoY broadly in line with the
decrease in smart device MAU of QQ. We introduced campus page to
increase engagement among users in high schools and colleges
-- Weixin and WeChat: MAU reached 963 million, representing YoY growth of
19.5%. We have extended user access to Mini Programs through the launch
of keyword and location-based search functions.
Online Games
PC client games achieved approximately RMB13.6 billion in revenue, representing 29% YoY revenue growth with exceptional strength from key titles such as LoL and DnF. Average revenue per user ("ARPU") generally increased both YoY and quarter-on-quarter. We expect PC client game revenue growth rates to decelerate in future periods.
Smart phone games grew by 54% YoY to approximately RMB14.8 billion in revenue (including smart phone games revenue attributable to our social networks business) and exceeded PC client games revenue for the first time. Revenue growth in smart phone games was driven by existing titles such as Honour of Kings in the MOBA genre, and new titles such as the China version of Contra Return in the Action genre, Dragon Nest Mobile and Legacy TLBB Mobile in the RPG genre.
Digital Content
Digital content revenue continued to record rapid growth during the quarter, primarily driven by the strong performance of virtual gifting with live broadcast, video subscriptions and music services subscriptions.
Online Advertising
Our online advertising business achieved 55% YoY growth in revenue.
For media advertising, increased mobile video views and the news feeds of Tencent News were the key contributors to YoY revenue growth. High quality content, notably certain licensed TV dramas and self-commissioned variety shows, attracted users to our video platforms and generated a substantial increase in advertising revenue. While our mobile news services maintained industry leadership in terms of daily active user accounts ("DAU"), we focused on sharpening personalized recommendation of our news feeds to further enhance our user experience.
For social and others advertising, Weixin properties, our mobile browser and advertising network, were the primary drivers of revenue growth. We increased inventories in Weixin by lowering the traffic threshold for loading advertisements in Official Accounts and expanded our self-service ad platform to cover first-tier cities for placing Weixin Moments advertisements.
Others
We recorded 177% YoY revenue growth for other businesses, which was primarily driven by the growth of payment related and cloud services. Payment business for commercial transactions increased rapidly as we strengthened cooperation with Meituan-Dianping and other channel partners to expand our offline merchant base.
Tencent Cloud further expanded its global infrastructure coverage and now operates 34 availability zones around the world. In addition to solidifying our lead in providing cloud services to the game, video and live broadcast industries, we expanded our market share in TMT and finance industries during the quarter.
We view artificial intelligence ("AI") as an essential capability that benefits our businesses by enhancing our overall user experience, sharpening our targeting technology and empowering our ecosystem partners. Our in-house engineers have recently made breakthroughs in several areas including Go Chess AI, face recognition and medical imaging. Artificial intelligence is a strategic initiative and we will continue to make long-term investments to strengthen our competence in machine learning, computer vision, speech recognition and natural language processing. Given the intensifying competitive nature of the industry, we expect our investment in new initiatives such as payment, cloud services and AI to increase, enabling us to serve our users and business partners even better into the future.
For other detailed disclosure, please refer to our website www.tencent.com/ir, or follow us via Weixin Official Account.
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:
Jane Yip Tel: (86) 755 86013388 ext 68961/ (852) 3148 5100 Email: janeyip@tencent.com
Stella
Lui Tel: (86) 755 86013388 ext 68870/ (852) 3148 5100 Email: stellalui@tencent.com
Kennis
Lau Tel: (86) 755 86013388 ext 68958/ (852) 3148 5100 Email: kennislau@tencent.com
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
--------- ---------
2Q2017 2Q2016 2Q2017 1Q2017
------ ------ ------ ------
Revenues 56,606 35,691 56,606 49,552
VAS 36,804 25,680 36,804 35,108
Online advertising 10,148 6,532 10,148 6,888
Others 9,654 3,479 9,654 7,556
----- ----- ----- -----
Cost of revenues (28,300) (15,235) (28,300) (24,109)
------- ------- ------- -------
Gross profit 28,306 20,456 28,306 25,443
------ ------ ------ ------
Gross margin 50% 57% 50% 51%
Interest income 959 626 959 808
Other gains, net 5,125 911 5,125 3,191
Selling and marketing expenses (3,660) (2,365) (3,660) (3,158)
General and administrative expenses (8,170) (5,299) (8,170) (7,012)
Operating profit 22,560 14,329 22,560 19,272
Operating margin 40% 40% 40% 39%
--- --- --- ---
Finance costs, net (834) (377) (834) (691)
Share of profit/ (losses) of associates and joint venture 498 (292) 498 (375)
Profit before income tax 22,224 13,660 22,224 18,206
Income tax expense (3,970) (2,780) (3,970) (3,658)
------ ------ ------ ------
Profit for the period 18,254 10,880 18,254 14,548
------ ------ ------ ------
Net margin 32% 30% 32% 29%
--- --- --- ---
Attributable to:
Equity holders of the Company 18,231 10,737 18,231 14,476
Non-controlling interests 23 143 23 72
--- --- --- ---
Non-GAAP profit attributable to equity holders of the 16,391 11,319 16,391 14,211
Company
Earnings per share for profit attributable to
equity holders of the Company
(in RMB per share)
- basic 1.939 1.146 1.939 1.540
- diluted 1.914 1.133 1.914 1.522
----- ----- ----- -----
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
RMB in million, unless specified
Unaudited
---------
2Q2017 2Q2016
------ ------
Profit for the period 18,254 10,880
------ ------
Other comprehensive income, net of tax:
Items that may be subsequently reclassified to profit or loss
Share of other comprehensive income of associates 66 277
Net gains from changes in fair value of available-for-sale financial assets 10,190 4,979
Transfer to profit or loss upon disposal of available-for-sale financial assets - 79
Currency translation differences (3,232) 1,308
Other fair value losses (162) (182)
Items that may not be subsequently reclassified to profit or loss
Other fair value losses (47) (66)
--- ---
Total comprehensive income for the period 25,069 17,275
------ ------
Attributable to:
Equity holders of the Company 25,063 17,116
Non-controlling interests 6 159
--- ---
OTHER FINANCIAL INFORMATION
RMB in million, unless specified
Unaudited
---------
2Q2017 1Q2017 2Q2016
------ ------ ------
EBITDA (a) 22,427 19,995 15,581
Adjusted EBITDA (a) 23,802 21,300 16,401
------ ------ ------
Adjusted EBITDA margin (b) 42% 43% 46%
--- --- ---
Interest expense 760 667 494
--- --- ---
Net cash (c) 21,267 27,572 24,037
------ ------ ------
Capital expenditures (d) 3,010 2,108 1,505
----- ----- -----
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, 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 Audited
--------- -------
30 June 2017 31 December 2016
------------ ----------------
ASSETS
Non-current assets
Property, plant and equipment 15,874 13,900
Construction in progress 5,346 4,674
Investment properties 846 854
Land use rights 5,165 5,174
Intangible assets 38,891 36,467
Investments in associates 74,202 70,042
Investments in redeemable instruments of associates 23,789 9,627
Investments in joint ventures 715 630
Available-for-sale financial assets 107,117 83,806
Prepayments, deposits and other assets 8,261 7,363
Other financial assets 4,033 1,760
Deferred income tax assets 8,076 7,033
Term deposits 5,364 5,415
----- -----
297,679 246,745
------- -------
Current assets
Inventories 297 263
Accounts receivable 14,448 10,152
Prepayments, deposits and other assets 18,013 14,118
Other financial assets 1,974 1,649
Term deposits 61,474 50,320
Restricted cash 1,327 750
Cash and cash equivalents 70,301 71,902
------ ------
167,834 149,154
------- -------
Total assets 465,513 395,899
======= =======
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
RMB in million, unless specified
Unaudited Audited
--------- -------
30 June 2017 31 December 2016
------------ ----------------
EQUITY
Equity attributable to equity holders of the Company
equity holders
Share capital - -
Share premium 19,793 17,324
Shares held for share award schemes (3,513) (3,136)
Other reserves 33,996 23,693
Retained earnings 164,398 136,743
------- -------
214,674 174,624
Non-controlling interests 11,724 11,623
------ ------
Total equity 226,398 186,247
------- -------
LIABILITIES
Non-current liabilities
Borrowings 70,460 57,549
Notes payable 31,294 36,204
Long-term payables 4,459 4,935
Other financial liabilities 2,468 2,576
Deferred income tax liabilities 5,171 5,153
Deferred revenue 1,886 2,038
----- -----
115,738 108,455
------- -------
Current liabilities
Accounts payable 36,982 27,413
Other payables and accruals 21,224 20,873
Borrowings 10,779 12,278
Notes payable 4,059 3,466
Current income tax liabilities 6,332 5,219
Other tax liabilities 1,041 745
Deferred revenue 42,960 31,203
------ ------
123,377 101,197
------- -------
Total liabilities 239,115 209,652
------- -------
Total equity and liabilities 465,513 395,899
======= =======
RECONCILIATIONS OF IFRS TO NON-GAAP RESULTS
-------------------------------------------
As Adjustments Non-GAAP
reported
--------
RMB in million, Share-based Net (gains)/losses from Amortisation of Impairment
unless specified compensation(a) investee companies (b) intangible assets (c) provision (d)
---------------- -------------- --------------------- -------------------- ------------
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 31 March 2017
------------------------------------------
Operating profit 19,272 1,339 (2,747) 153 503 18,520
Profit for the period 14,548 1,530 (2,717) 500 511 14,372
Profit attributable to equity holders 14,476 1,483 (2,717) 458 511 14,211
Operating margin 39% 37%
Net margin 29% 29%
---------- --- ---
Unaudited three months ended 30 June 2016
-----------------------------------------
Operating profit 14,329 862 (2,990) 49 2,437 14,687
Profit for the period 10,880 1,056 (3,251) 328 2,483 11,496
Profit attributable to equity holders 10,737 1,037 (3,247) 317 2,475 11,319
Operating margin 40% 41%
Net margin 30% 32%
---------- --- ---
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
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SOURCE Tencent Holdings Limited
