Tencent Announces 2020 First Quarter Results

HONG KONG, May 13, 2020 /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 first quarter ("1Q2020") ended March 31, 2020.

1Q2020 Key Highlights

Revenues: +26% YoY, non-IFRS([1]) profit attributable to equity holders of the Company: +29% YoY

    --  Total revenues were RMB108,065 million (USD15,252 million([2])), an
        increase of 26% over the first quarter of 2019 ("YoY").

    --  On a non-IFRS basis, which is intended to reflect core earnings by
        excluding certain one-time and/or non-cash items:-  Operating profit was
        RMB35,575 million (USD5,021 million), an increase of 25% YoY. Operating
        margin remained stable at 33%.-  Profit for the quarter was RMB27,984
        million (USD3,950 million), an increase of 29% YoY. Net margin increased
        to 26% from 25% last year.-  Profit attributable to equity holders of
        the Company for the quarter was RMB27,079 million (USD3,822 million), an
        increase of 29% YoY.-  Basic earnings per share were RMB2.858. Diluted
        earnings per share were RMB2.817.

    --  On an IFRS basis:-  Operating profit was RMB37,260 million (USD5,259
        million), an increase of 1% YoY. Operating margin decreased to 34% from
        43% last year. -  Profit for the period was RMB29,403 million (USD4,150
        million), an increase of 6% YoY. Net margin decreased to 27% from 33%
        last year. -  Profit attributable to equity holders of the Company for
        the quarter was RMB28,896 million (USD4,078 million), an increase of 6%
        YoY.-  Basic earnings per share were RMB3.049. Diluted earnings per
        share were RMB2.999.
    --  Total cash were RMB220,584 million (USD31,134 million) at the end of the

                        [1] Non-IFRS (formerly referred to
                         as non-GAAP) adjustments excludes
                         share-based compensation, M&A
                         related impact such as net (gains)/
                         losses from investee companies,
                         amortisation of intangible assets
                         and impairment provision/
                         (reversals), as well as income tax

                        [2] Figures stated in USD are based
                         on USD1 to RMB7.0851

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "As the world tackles COVID-19, our thoughts and hearts go out to all the people who are suffering from the pandemic. During this difficult period, we seek to provide online services that keep people connected, informed, productive, and entertained. So far, our businesses have proved resilient and cashflow-generative, enabling us to increase our investment to fulfill our mission of 'Tech for Good'. We are allocating time and resources, including over RMB2 billion of donations, to contribute to COVID-19 relief initiatives in China and globally."

1Q2020 Financial Review

Revenues from VAS increased by 27% YoY to RMB62,429 million. Online games revenues grew by 31% YoY to RMB37,298 million. The increase primarily reflected revenue contributions from domestic smart phone games such as Peacekeeper Elite and Honour of Kings, as well as increased contributions from our overseas titles including PUBG Mobile and Clash of Clans, partly offset by lower revenues from PC client games such as DnF. Total smart phone games revenues (including smart phone games revenues attributable to our social networks business) were RMB34,756 million and PC client games revenues were RMB11,795 million for the first quarter of 2020. Social networks revenues increased by 23% YoY to RMB25,131 million. The increase was primarily driven by greater contributions from in-game virtual item sales as well as digital content services including music streaming and video streaming subscriptions.

Revenues from Online Advertising increased by 32% YoY to RMB17,713 million. Social and others advertising revenues grew by 47% YoY to RMB14,592 million. The increase mainly reflected higher advertising revenues derived from increased inventories and impressions from our mobile advertising network and Weixin Moments. Media advertising revenues decreased by 10% YoY to RMB3,121 million. The decrease was primarily due to lower revenues from our video and news platforms as a result of weak macro-economic conditions and suspension of sports events.

Revenues from FinTech and Business Services increased by 22% YoY to RMB26,475 million. The increase was primarily due to revenue growth from commercial payments and wealth management platform, as well as greater revenue contributions from cloud services capturing opportunities in verticals including video, education and retail sectors.

Other Key Financial Information for 1Q2020

EBITDA was RMB42,228 million, up 26% YoY. Adjusted EBITDA was RMB45,190 million, up 27% YoY.

Capital expenditures were RMB6,151 million, up 37% YoY.

Free cash flow* was RMB39,210 million, up 133% YoY.

As at March 31, 2020, net debt position totalled RMB5,716 million. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB410,299 million.

                            * Starting from 2020, free cash
                             flow was adjusted by subtracting
                             payments for media content and
                             lease liabilities, in addition to
                             subtracting payments for capital
                             expenditure from the operating
                             cash flow. Restated free cash
                             flow was RMB16.8 billion in
                             1Q2019, RMB12.6 billion in
                             2Q2019, RMB28.1 billion in
                             3Q2019, and RMB31.3 billion in
                             4Q2019, respectively.

                Operating Metrics

                                                    As at                
              As at       
        As at           
              31 March     
       31 December
                                                             2020                         2019   
       change                     2019

       (in millions, unless specified)

              Combined MAU of Weixin and                 1,202.5                      1,111.7           8.2%                1,164.8                    3.2%

              Smart device MAU of QQ                       693.5                        700.4          -1.0%                  647.0                    7.2%

              Fee-based VAS registered                     197.4                        165.5          19.3%                  180.1                    9.6%

Business Review and Outlook

In the first quarter of 2020, we harnessed the power of technology to enable users to stay connected, informed and entertained, to help advertisers reach target audiences effectively, and to assist enterprises in achieving service continuity. During these challenging times, we allocated substantial time and resources, including charitable donations, in contribution to COVID-19 relief initiatives in China and globally. And, we delivered solid quarterly operating and financial metrics, demonstrating the resilience of our business model and the platform value of our Company. Looking forward, we expect in-game consumption activities to largely normalise as people return to work, and we see some headwinds for the online advertising industry. Here are some highlights of our key products and business lines:

Communication and Social

Weixin and QQ enabled our users to keep connected with their families and friends during the stay-at-home period, and their respective total daily messages and time spent increased at double-digit percentages on a year-on-year basis. Our communication platforms introduced new functionalities to fulfill evolving user needs in different verticals. For eLearning, teachers can now customise QQ group toolbar with relevant Mini Programs, such as online examination and homework collection tools, to better manage online classes. QQ School-plus-Home groups have become a primary eLearning platform serving tens of millions of teachers, students and parents every day. As users are structurally shifting their behavior from offline to online, Weixin deepened its penetration in daily services via Mini Programs, particularly for grocery shopping and municipal services. This contributed to the rapid growth of Mini Programs, DAU of which exceeded 400 million. Leveraging our extensive reach to consumers and merchants, we assisted local governments and merchants in distributing eVouchers to expedite the recovery in consumption, especially for retailers and restaurants.

Online Games

Games serve important roles in keeping players entertained and connected, especially during the stay-at-home period. For mobile games, our studios released attractive content and our publishing teams ran compelling in-game events and activities, resulting in higher DAU. For example, our upgraded game engine for Honor of Kings enhanced audio and visual quality for in-game items, and a new location-based teamplay system encouraged more user interactions. Peacekeeper Elite ran a successful collaboration with Rocket Girls 101 (an idol girl group managed by Tencent, which emerged from our popular variety show), driving user engagement to a new high and demonstrating cross-IP synergy within Tencent. For PC games, activity in China declined due to temporary closures of internet cafés and the soft performance of DnF. Internationally, PUBG Mobile celebrated its second anniversary and enhanced localisation capabilities to meet diverse user tastes in different regions. Brawl Stars' optimised player-matching algorithm enhanced its user experience. Riot Games released a Teamfight Tactics mobile app, contributing to higher user retention and extended playing time for the League of Legends franchise. It also launched a mobile card game, Legends of Runeterra, and started beta-testing Valorant in April this year. Looking forward, we expect game playing time and in-game consumption activity to largely normalise industry-wide as people return to work, but also believe that games have structurally expanded their long-term audiences and appeal.

Digital Content

Our fee-based VAS subscriptions increased 19% year-on-year to 197 million, reflecting robust growth in video and music subscriptions. This was driven by the popular self-commissioned video content, an expanding paid music library and more user time spent online during the stay-at-home period. Total video subscriptions rose 26% year-on-year to 112 million and music subscriptions grew 50% year-on-year to 43 million. Tencent Video DAU and traffic grew as users were attracted to our platform by the release of popular self-commissioned Chinese anime and drama series, such as The Land of Warriors Season 3 and Sansheng Sanshi Pillow. We strengthened our short-form video content, driving user traffic and consumption of short-form video across Weishi, news feed platforms and Mini Programs. With the appointment of a new management team at China Literature, we intend to deepen cooperation with our subsidiary company in adapting its literature IP into various media formats such as TV series, anime and games, leveraging our distribution capability to broaden its user reach, as well as exploring product innovation and new technologies to strengthen its content ecosystem.

Online Advertising

Our online advertising revenue grew year-on-year, reflecting increased consumer time spent on our key apps during the stay-at-home period and the attractive ROIs (return on investments) we delivered to advertisers. Revenue decreased sequentially as the first quarter is a low season for marketing activities. By industry, games, Internet services and online education advertising spending on our platforms increased as consumption of these services grew during the stay-at-home period; while FMCG, automobile and travel advertising spending declined.

Social and others advertising revenue increased year-on-year and quarter-on-quarter, driven by increases in advertisement impressions, particularly for Moments. Our mobile advertising network revenue expanded on more traffic and higher eCPMs as video advertisements represented over one-third of advertisement impressions. As for media advertising, sponsorship advertising revenue declined year-on-year and quarter-on-quarter due to budget cuts, delays in variety shows and suspension of NBA games. In-feed advertising revenue grew year-on-year and quarter-on-quarter across video and news properties, driven by the popularity of top-tier drama series and demand for reliable news and information during the stay-at-home period.

Looking forward, we see several likely industry-wide headwinds, including consumer time spent online normalising which will lead to lower advertisement impression growth, online services advertisers adjusting their customer acquisition budgets to reflect revised life time value assumptions, and multinational brands sharply reducing their global marketing budgets as they faced the pandemic in their home markets.


Revenue of FinTech services decreased sequentially as payment activities, especially offline transactions, and cash withdrawals reduced during the Chinese New Year and stay-at-home period. Despite lower revenue, our FinTech services margins were stable as our higher-margin revenue streams such as wealth management and lending continued to grow, and as we controlled marketing and subsidy expenses. For the last week of April, our average daily commercial transactions value recovered to late 2019 levels. Our wealth management business expanded at a stable rate in the first quarter, achieving year-on-year and quarter-on-quarter growth in aggregated customer assets. WeiLiDai's loan book remained healthy, reflecting WeBank's prudent risk management.

Cloud and Other Business Services

Project deployment and new accounts acquisition for our cloud business were delayed due to the pandemic, causing a sequential decline in revenue. However, Tencent Meeting achieved breakout success and became a leading video conference app in China. We strengthened its security measures and introduced functions to facilitate discussion and conference management. In March 2020, we launched an international version, VooV Meeting. WeChat Work enhanced its industry solutions and deepened integration with Weixin, helping us to sign up more key accounts, especially in the retail, education and public sectors, and driving its DAU to grow significantly. We invested heavily in promoting these remote work products and in maintaining a robust cloud infrastructure, to ensure secure and reliable services for our users. Looking forward, we expect the cloud industry to remain challenging in the short term. However, we will continue increasing our investment in these areas and expect to see accelerated cloud services and enterprise software adoption from offline industries and public sectors over the longer term.

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

About Tencent

Tencent uses technology to enrich the lives of Internet users.

Our communication and social platforms, Weixin and QQ, connect users with each other and with digital content and services, both online and offline, making their lives more convenient. Our targeted advertising platform helps advertisers reach out to hundreds of millions of consumers in China. Our FinTech and business services support our partners' business growth and assist their digital upgrade.

Tencent invests heavily in talent and technological innovation, actively promoting the development of the Internet industry. Tencent was founded in Shenzhen, China, in 1998. Shares of Tencent (00700.HK) are listed on the Main Board of the Stock Exchange of Hong Kong.

For investor and media enquiries, please contact:

      Catherine Chan 
     Tel: (86) 755 86013388 / (852) 3148 5100 ext. 888369 
     Email: cchan#tencent.com

     Wendy Huang    
     Tel: (86) 755 86013388 / (852) 3148 5100 ext. 850839 
     Email: wendyyhuang#tencent.com

     Jane Yip       
     Tel: (86) 755 86013388 / (852) 3148 5100 ext. 868961 
     Email: janeyip#tencent.com

     PH Cheung      
     Tel: (86) 755 86013388 / (852) 3148 5100 ext. 868919 
     Email: phcheung#tencent.com

Non-IFRS Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-IFRS 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-IFRS 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-IFRS financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-IFRS 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-IFRS adjustments include relevant non-IFRS adjustments for the Group's major associates based on available published financials of the relevant major 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 lot of risks and uncertainties. Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.


            RMB in millions, unless specified


                                                                                                                                                     1Q2020    1Q2019


                Revenues                                                                                                                   108,065    85,465

            VAS                                                                                                                                      62,429    48,974

            FinTech and Business Services                                                                                                            26,475    21,789

            Online Advertising                                                                                                                       17,713    13,377

            Others                                                                                                                                    1,448     1,325

                Cost of revenues                                                                                                          (55,271) (45,645)

                Gross profit                                                                                                                52,794    39,820

                  Gross margin       49%      47%

            Interest income                                                                                                                           1,636     1,408

            Other gains, net                                                                                                                          4,037    11,089

            Selling and marketing expenses                                                                                                          (7,049)  (4,244)

            General and administrative expenses                                                                                                    (14,158) (11,331)

                Operating profit                                                                                                            37,260    36,742

                  Operating margin       34%      43%

            Finance costs, net                                                                                                                      (1,684)  (1,117)

            Share of losses of associates and joint ventures                                                                                          (281)  (2,957)

                Profit before income tax                                                                                                    35,295    32,668

            Income tax expense                                                                                                                      (5,892)  (4,812)

                Profit for the period                                                                                                       29,403    27,856

                  Net margin       27%      33%

                Attributable to:

                Equity holders of the Company                                                                                                        28,896    27,210

                Non-controlling interests                                                                                                               507       646

            Non-IFRS profit                                                                                                                          27,079    20,930

            attributable to equity holders of the Company

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

            - basic                                                                                                                                   3.049     2.877

            - diluted                                                                                                                                 2.999     2.844


     RMB in millions, unless specified




                Profit for the period                                                                                                  29,403       27,856

                Other comprehensive income, net of tax:

                Items that may be subsequently reclassified to profit or loss

             Share of other comprehensive loss of associates and joint ventures                                                                    (30)        (26)

             Currency translation differences                                                                                                     1,315      (1,999)

             Other fair value losses                                                                                                            (1,357)       (648)

                Items that will not be subsequently reclassified to profit or loss

             Net (losses)/gains from changes in fair value of financial assets at fair                                                          (7,850)      14,265
      value through other comprehensive income

             Other fair value losses                                                                                                               (54)         (1)

                                                                                                                                                 (7,976)      11,591

                Total comprehensive income for the 
                period                                                                 21,427       39,447

                Attributable to:

                 Equity holders of the Company                                                                                                   21,020       38,491

                 Non-controlling interests                                                                                                          407          956


      RMB in millions, unless specified




     EBITDA (a)                          42,228                        35,675        33,566

     Adjusted EBITDA
      (a)                                45,190                        38,572        35,598

     Adjusted EBITDA
      margin (b)                            42%                          36%          42%

     Interest and
      related expenses                    2,006                         2,348         1,499

     Net debt (c)                       (5,716)                     (15,552)      (9,595)

      expenditures (d)                    6,151                        16,869         4,506


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

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

               (c)  Net debt represents period end balance and
                is calculated as cash and cash equivalents, plus
                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 video and music
                content, game licences and other content).


              RMB in millions, unless specified

          Unaudited                   Audited


          As at                      As at

          March 31, 2020            December 31, 2019



                Non-current assets

       Property, plant and equipment                                                                                                   48,557                       46,824

       Land use rights                                                                                                                 15,685                       15,609

       Right-of-use assets                                                                                                             10,677                       10,847

       Construction in progress                                                                                                         4,371                        3,935

       Investment properties                                                                                                              641                          855

       Intangible assets                                                                                                              127,718                      128,860

       Investments in associates                                                                                                      224,505                      213,614

       Investments in joint ventures                                                                                                    7,485                        8,280

       Financial assets at fair value through profit or loss                                                                          149,929                      128,822

       Financial assets at fair value through other                                                                                    80,176                       81,721

        comprehensive income

       Prepayments, deposits and other assets                                                                                          22,265                       23,442

       Deferred income tax assets                                                                                                      20,928                       18,209

       Term deposits                                                                                                                   21,210                       19,000

                                                                                                                                       734,147                      700,018

                Current assets

       Inventories                                                                                                                        601                          718

       Accounts receivable                                                                                                             42,869                       35,839

       Prepayments, deposits and other assets                                                                                          34,856                       27,840

       Other financial assets                                                                                                             489                          375

       Financial assets at fair value through profit or loss                                                                            6,571                        7,114

       Term deposits                                                                                                                   57,968                       46,911

       Restricted cash                                                                                                                  2,174                        2,180

       Cash and cash equivalents                                                                                                      135,270                      132,991

                                                                                                                                       280,798                      253,968

                Total assets                                                                                                      1,014,945                      953,986


              RMB in millions, unless specified



          As at         
           As at

          March 31, 2020  
        December 31, 2019



                Equity attributable to equity holders of the Company

       Share capital                                                                                                                        -

       Share premium                                                                                                                   38,687                       35,271

       Shares held for share award schemes                                                                                            (3,873)                     (4,002)

       Other reserves                                                                                                                   9,129                       16,786

       Retained earnings                                                                                                              413,881                      384,651

                                                                                                                                       457,824                      432,706

                Non-controlling interests                                                                                            55,719                       56,118

                Total equity                                                                                                        513,543                      488,824


                Non-current liabilities

       Borrowings                                                                                                                     124,125                      104,257

       Notes payable                                                                                                                   84,640                       83,327

       Long-term payables                                                                                                               3,958                        3,577

       Other financial liabilities                                                                                                      6,538                        5,242

       Deferred income tax liabilities                                                                                                 13,512                       12,841

       Lease liabilities                                                                                                                8,274                        8,428

       Deferred revenue                                                                                                                 6,961                        7,334

                                                                                                                                       248,008                      225,006

                Current liabilities

       Accounts payable                                                                                                                88,176                       80,690

       Other payables and accruals                                                                                                     40,619                       45,174

       Borrowings                                                                                                                      16,441                       22,695

       Notes payable                                                                                                                    1,094                       10,534

       Current income tax liabilities                                                                                                  12,911                        9,733

       Other tax liabilities                                                                                                            1,048                        1,245

       Other financial liabilities                                                                                                      6,006                        5,857

                  Lease liabilities                                                                                                   3,383                        3,279

       Deferred revenue                                                                                                                83,716                       60,949

                                                                                                                                       253,394                      240,156

                Total liabilities                                                                                                   501,402                      465,162

                Total equity and liabilities                                                                                      1,014,945                      953,986


                Adjustments                                                                 Non-IFRS


                RMB in millions,                         
                Net (gains)/losses from      
                Amortisation of              
                                                                                   investee companies (b)
                unless specified                                        compensation 
                intangible assets (c)   
                Provision/(reversals) (d)       tax effects (e)


                Unaudited three months ended March 31, 2020

                Operating profit                                                                           37,260                                              3,435                                          (5,272)                                                 639                  (487) 
            -  35,575

                Profit for the period                                                                      29,403                                              4,198                                          (6,992)                                               1,572                   (18)            (179)  27,984

                       Profit attributable to equity                                                              28,896                                              3,957                                          (6,976)                                               1,338                   (18)            (118)  27,079

                                      Operating margin                                                               34%                                                                                                                                                                                                  33%

                  Net margin                                                                     27%                                                                                                                                                                                                  26%


                Unaudited three months ended December 31, 2019

         Operating profit                                                                                        28,604                                              3,269                                          (2,340)                                                 701                     72          
          -  30,306

         Profit for the period                                                                                   22,372                                              3,965                                          (1,412)                                               1,667                    140              (93)  26,639

         Profit attributable to equity                                                                           21,582                                              3,756                                          (1,403)                                               1,406                    133                10   25,484

                Operating margin                                                                              27%                                                                                                                                                                                                  29%

                Net margin                                                                                    21%                                                                                                                                                                                                  25%


                Unaudited three months ended March 31, 2019

         Operating profit                                                                                        36,742                                              2,033                                         (10,546)                                                 114                    127          
          -  28,470

         Profit for the period                                                                                   27,856                                              2,868                                         (10,374)                                               1,084                    589             (350)  21,673

         Profit attributable to equity                                                                           27,210                                              2,782                                         (10,351)                                               1,033                    589             (333)  20,930

                Operating margin                                                                              43%                                                                                                                                                                                                  33%

                Net margin                                                                                    33%                                                                                                                                                                                                  25%



                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

                Including net (gains)/losses on deemed disposals/disposals of investee companies, fair value changes 
                arising from investee companies, and other expenses in relation to equity transactions of investee companies

                Amortisation of intangible assets resulting from acquisitions

                mpairment provisions/(reversals) for associates, joint ventures and intangible assets arising from acquisitions

                Income tax effects of non-IFRS adjustments

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SOURCE Tencent Holdings Limited