Tencent Announces 2020 Third Quarter Results

HONG KONG, Nov. 12, 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 third quarter ("3Q2020") ended September 30, 2020.

3Q2020 Key Highlights

Revenues: +29% YoY, non-IFRS([1]) profit attributable to equity holders of the Company: +32% YoY

    --  Total revenues were RMB125,447 million (USD18,421 million([2])), an
        increase of 29% over the third 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 RMB38,116 million (USD5,597 million), an increase of 34% YoY.
        Operating margin increased to 30% from 29% last year.-  Profit for the
        period was RMB33,325 million (USD4,893 million), an increase of 33% YoY.
        Net margin increased to 27% from 26% last year.-  Profit attributable to
        equity holders of the Company for the quarter was RMB32,303 million
        (USD4,743 million), an increase of 32% YoY.-  Basic earnings per share
        were RMB3.402. Diluted earnings per share were RMB3.314.

    --  On an IFRS basis: -  Operating profit was RMB43,953 million (USD6,454
        million), an increase of 70% YoY. Operating margin increased to 35% from
        27% last year. -  Profit for the period was RMB38,899 million (USD5,712
        million), an increase of 85% YoY. Net margin increased to 31% from 22%
        last year. -  Profit attributable to equity holders of the Company for
        the quarter was RMB38,542 million (USD5,660 million), an increase of 89%
        YoY.-  Basic earnings per share were RMB4.059. Diluted earnings per
        share were RMB3.964.
    --  Total cash were RMB265,892 million (USD39,044 million) at the end of the

             [1] Non-IFRS adjustments (formerly
              referred as non-GAAP) 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 RMB6.8101

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "This quarter marked the second anniversary of our strategic organisation upgrade, which was intended to enhance our strength in Consumer Internet and extend our presence to Industrial Internet. While the upgrade was designed to bear fruit over the longer run, we are already seeing initial benefits in areas such as consolidating our advertising services, rejuvenating our product and content platforms, growing our cloud and SaaS businesses and building an internal open source code base. In the face of public health, macroeconomic, and geopolitical challenges, we will seek to sharpen our focus, innovate, and collaborate with our partners in order to better serve our users, customers and the society at large."

3Q2020 Financial Review

Revenues from VAS increased by 38% to RMB69,802 million for the third quarter of 2020 on a year-on-year basis. Online games revenues grew by 45% to RMB41,422 million. The increase was primarily due to revenue growth of our smart phone games, including domestic titles such as Peacekeeper Elite and Honour of Kings, as well as overseas titles. Total smart phone games revenues (including smart phone games revenues attributable to our social networks business) were RMB39,173 million and PC client games revenues were RMB11,631 million for the third quarter of 2020. Social networks revenues increased by 29% to RMB28,380 million. The increase reflected contributions from digital content services including HUYA's live streaming service, our video subscription service, and our music subscription service, as well as from in-game virtual item sales.

Revenues from Online Advertising increased by 16% to RMB21,351 million for the third quarter of 2020 on a year-on-year basis, benefitting from wider adoption of our algorithmic advertisement buying solutions, as well as rapid demand growth from categories such as education, Internet services and eCommerce platforms, and recovered demand from sectors such as real estate and automobiles. Social and others advertising revenues grew by 21% to RMB17,752 million. The increase was primarily driven by higher revenues flowing from Weixin Moments due to increased inventories and eCPMs, and our mobile advertising network revenue growth on higher eCPMs as advertisers responded favorably to our video ad formats. Media advertising revenues decreased 1% to RMB3,599 million. The slower decline versus prior quarters benefitted from key Tencent Video content releases, as well as inventory and impression growth from our music platforms.

Revenues from FinTech and Business Services increased by 24% to RMB33,255 million for the third quarter of 2020 on a year-on-year basis. The increase was mainly due to higher revenues from commercial payment and wealth management, while our Business Services revenue growth slowed down due to lingering impact from the pandemic on project development and new contract sign-ups, as well as non-recurring adjustments to certain IaaS contracts.

Other Key Financial Information for 3Q2020

EBITDA was RMB45,055 million, up 27% YoY. Adjusted EBITDA was RMB47,849 million, up 26% YoY.

Capital expenditures were RMB8,684 million, up 31% YoY.

Free cash flow* was RMB28,127 million, stable YoY.

As at September 30, 2020, net cash position totalled RMB6,363 million. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB890,730 million, compared to RMB726,244 million as at June 30, 2020.

                            * 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   
       30 September  
       30 June
                                                              2020              2019    
        change          2020

     (in millions, unless specified)

             Combined MAU of
              Weixin and                                   1,212.8           1,151.0           5.4%       1,206.1               0.6%

             Smart device MAU of
              QQ                                             617.4             653.4          -5.5%         647.6              -4.7%

             Fee-based VAS
              registered                                     213.4             170.6          25.1%         203.4               4.9%

Business Review and Outlook

Communication and Social

For Weixin, we are facilitating more convenient access to high frequency services within the Weixin Pay interface by regrouping such services into four verticals, namely Financial Services, Daily Services, Travel & Transportation, and Shopping & Entertainment. For the Travel & Transportation vertical, we connect automobile owners with a range of car services, such as car wash and car insurance, as well as general users with public transportation services, such as transit codes and bus schedules. We have now extended these mobility services to ten provinces and municipalities in China. We are also enhancing the efficiency of content and service discovery via cross-referencing within Weixin properties, so that users can press-to-search words and phrases that appear in chat boxes and find content and services from Mini Programs, Official Accounts and Moments. In Moments, contributors can create hashtags in posts, and their friends can click these hashtags and access deep-linked search results from Official Accounts, video feeds and H5 pages.

In QQ chats and groups, we enabled users to watch Tencent Video together while they are making video calls, to compete with friends via battle-mode Mini Games, and to co-edit classwork via our online collaborative tool, Tencent Docs. The launch of QQ's Mini World video and image feed service has increased QQ's appeal among the younger audience. Through Mini World, we encourage contributors to create videos and images, and share them beyond their existing friend circle. We recommend attractive content in Mini World to QQ users based on their interest graphs, enabling users to explore more content and communities. These initiatives, along with the growing demand for real-time video chatting since the onset of the pandemic, drove daily time spent per QQ user up by a teens percentage year-on-year.

Online Games

Our online game revenue increased year-on-year, driven by healthy growth in paying users in China and international markets. For smart phone games, we celebrated the fifth anniversary for Honour of Kings, which exceeded 100 million average DAU for the first ten months of 2020. Since we first released the game in 2015, we have expanded the user base of Honour of Kings through constant innovation and user-centric operations, backed up by our robust technology infrastructure. We aim to unleash the potential of this IP by rolling out two new games, an animated series and a live action drama series based on the Honour of Kings' world. While our best-known games such as Honour of Kings attract the most attention, lesser-known games also contribute to our game business' stable growth. For example, Naruto Mobile, an internally developed game based on the popular anime IP, has recently become one of the top fighting games in China with all-time high DAU and revenue, despite being first released over four years ago. This speaks to our team's success in making ongoing game enhancements, such as refining a highly popular PvP game mode. As for new games, we believe that our Moonlight Blade Mobile represents 2020's most successful launch of a new MMO role playing game in China, and our battle arena game League of Legends Wild Rift is currently among the most-downloaded mobile games across its available markets, according to AppAnnie.

We have a constructive view on PC game opportunities as the IP and influence of our major franchises remain notably robust. League of Legends released a major thematic event, "Spirit Blossom Festival", coordinating the release of new champions, new skins, and new event passes. The recent League of Legends World Championship in Shanghai attracted a sizeable audience globally. Tencent Video aired a highly-rated drama series based on our CrossFire game during the quarter, which tied into a new in-game mode and skins, reviving the game's popularity and monetisation. Valorant became a breakout hit in the tactical shooter genre and was widely watched on Twitch.

Digital Content

Our fee-based VAS subscriptions increased 25% year-on-year to 213 million, primarily driven by video and music content subscriptions. Video subscriptions expanded 20% year-on-year to 120 million. Our self-commissioned drama and animated series such as Nothing But Thirty, The Song of Glory and The Land of Warriors Season 3 have attracted additional subscribers for Tencent Video. We successfully converted trial users acquired during summer promotions to regular video subscribers. Music subscriptions grew 46% year-on-year to 52 million, due to an expanded paid content library and a higher retention rate.

Online Advertising

Following the COVID-19 outbreak, overall China advertising activity appears to have largely returned to normal conditions, albeit with a few industry exceptions lagging (for example, the travel industry), and with substantial changes in advertiser behavior (for example, toward retargeting and toward video format advertisements). We believe these changes, along with our own initiatives, have contributed to our increasing presence and relevance in China's advertising market. By category, advertising spending from sectors such as education, Internet services and eCommerce platforms experienced rapid secular growth through the pandemic, and sustained robust year-on-year growth during the quarter. Advertising spending from cyclical categories, such as automobiles and real estate, picked up year-on-year. Advertising spending from categories which dipped during the pandemic, such as financial services and consumer staples, were flattish year-on-year. Internally, we upgraded our algorithmic advertising buying solutions, delivering higher conversion rates for advertisers and attracting increased share of budgets towards our services. We also provided incremental advertising inventories in casual game apps, eSports events and live streaming platforms.

For social and others advertising, Weixin properties achieved solid revenue growth year-on-year, driven by higher impressions and eCPM. Our mobile advertising network revenue grew rapidly year-on-year as advertisers responded favorably to our video formats, such as rewarded video advertisements.

For media advertising, the rate of revenue decrease moderated to minus 1% year-on-year. We captured sponsorship advertising demand via self-commissioned variety shows such as The Coming One Season 4 and drama series such as Nothing But Thirty.


Our FinTech revenue grew healthily at a similar rate to prior quarters, led by the continued expansion of our commercial payment and wealth management businesses, while our social payment and micro lending businesses grew at moderate rates. Our TPV increased over 30% year-on-year as commercial payment DAU and transaction value per user grew robustly year-on-year, mainly driven by our deeper penetration in offline transactions and expansion of our Mini Programs transactions in retail categories such as grocery and apparel.

The number of our wealth management customers increased over 50% year-on-year, and our aggregated customer assets expanded at a similar rate. We believe that LiCaiTong's penetration rate among our payment users is still quite low, and we are seeking to further grow our wealth management customer base at a measured rate via long-term initiatives such as investor education programs and an expanded product offering.

Cloud and Other Business Services

During the quarter, cloud and other business services revenue were affected by the lingering impact from pandemic, causing delays in project deployment and new contract sign-ups, as well as by non-recurring adjustments to certain IaaS contracts. The year-on-year revenue growth rate was therefore lower than previous quarters, which we expect to be temporary in nature.

We saw rising demand for PaaS solutions, in particular security PaaS, from financial, healthcare and Internet services clients. We also upgraded our SaaS enterprise productivity toolkit which consists of three signature products, namely WeCom (the enterprise version of Weixin), Tencent Meeting, and Tencent Docs. Customers are increasingly adopting WeCom for workplace communication, and its DAU grew over 100% year-on-year. More than 100 million users have registered for our video communication solution Tencent Meeting. In September, we released an enterprise version for Tencent Meeting, with enhanced features such as webinars, simultaneous interpretation, and connection with enterprises' existing conference room systems. We further integrated Tencent Docs, our cloud-based document processing tool, with other Tencent products, including QQ, QQ Browser and our CRM SaaS products.

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: IR#tencent.com

     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 million, unless specified

                                                                         Unaudited           Unaudited

                                                                           3Q2020    3Q2019              3Q2020     2Q2020


                           Revenues                                        125,447    97,236              125,447     114,883

             VAS                                                           69,802    50,629               69,802      65,002

              FinTech and Business
               Services                                                     33,255    26,758               33,255      29,862

              Online Advertising                                            21,351    18,366               21,351      18,552

             Others                                                         1,039     1,483                1,039       1,467

                           Cost of revenues                               (68,800) (54,757)            (68,800)   (61,673)

                           Gross profit                                     56,647    42,479               56,647      53,210

                                              Gross margin                     45%      44%                 45%        46%

              Interest income                                                1,864     1,674                1,864       1,749

              Other gains, net                                              11,551       932               11,551       8,607

              Selling and marketing
               expenses                                                    (8,920)  (5,722)             (8,920)    (7,756)

              General and
               expenses                                                   (17,189) (13,536)            (17,189)   (16,499)

                           Operating profit                                 43,953    25,827               43,953      39,311

                                          Operating margin                     35%      27%                 35%        34%

              Finance costs, net                                           (1,945)  (1,747)             (1,945)    (2,005)

              Share of profit/
               (loss) of associates
               and joint ventures                                            2,630       234                2,630       (295)

                           Profit before income
                            tax                                             44,638    24,314               44,638      37,011

              Income tax expense                                           (5,739)  (3,338)             (5,739)    (4,557)

                           Profit for the period                            38,899    20,976               38,899      32,454

                                                Net margin                     31%      22%                 31%        28%

                Attributable to:

                  Equity holders of the
                   Company                                                  38,542    20,382               38,542      33,107

                   interests                                                   357       594                  357       (653)

              Non-IFRS profit                                               32,303    24,412               32,303      30,153
                 attributable to equity holders of
                  the Company

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

             - basic                                                        4.059     2.151                4.059       3.491

             - diluted                                                      3.964     2.127                3.964       3.437


             RMB in millions, unless specified



                           Profit for the period                                            38,899      20,976

                Other comprehensive income, net of tax:

                           Items that may be subsequently reclassified to profit or loss

              Share of other comprehensive income/
               (loss) of associates and joint                                                  192        (21)

              Transfer of share of other comprehensive
               income to profit or loss upon                                                     -        (3)
      deemed disposal of associates

              Currency translation differences                                             (5,731)      2,069

             Other fair value gains/(losses)                                                  169       (475)

                           Items that will not be subsequently reclassified to profit or

              Net gains/(losses) from changes in fair
               value of financial assets at fair                                             9,535     (3,213)
      value through other comprehensive income

             Other fair value gains/(losses)                                                  202        (96)

                                                                                             4,367     (1,739)

                           Total comprehensive income for the
                                 period                                                     43,266      19,237

                Attributable to:

                  Equity holders of the Company                                             43,082      18,885

                 Non-controlling interests                                                    184         352


     RMB in millions, unless specified




      EBITDA (a)                                           45,055       40,525        35,378

       (a)                                                 47,849       43,742        38,123

       (b)                                                    38%         38%          39%

       expenses                                             1,855        1,822         2,086

      Net cash/
       (c)                                                  6,363        7,212       (7,173)

       (d)                                                  8,684        9,466         6,632


               (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 cash/(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

                                                            September 30, 2020         December
                                                                                       31, 2019



                   Non-current assets

         plant and
         equipment                                                      56,153            46,824

        Land use
         rights                                                         15,801            15,609

         assets                                                         10,646            10,847

         progress                                                        4,318             3,935

         properties                                                        628               855

         assets                                                        137,135           128,860

         associates                                                    247,985           213,614

         in joint
         ventures                                                        7,119             8,280

         assets at
         profit or
         loss                                                          168,926           128,822

         assets at
         other                                                         143,935            81,721

         comprehensive income

         and other
         assets                                                         23,423            23,442

         assets                                                         22,981            18,209

         deposits                                                       31,664            19,000

                                                                       870,714           700,018

                Current assets

        Inventories                                                      1,164               718

         receivable                                                     41,696            35,839

         and other
         assets                                                         38,237            27,840

         assets                                                          1,650               375

         assets at
         profit or
         loss                                                            6,135             7,114

         deposits                                                       75,692            46,911

         cash                                                            2,250             2,180

        Cash and
         equivalents                                                   152,491           132,991

                                                                       319,315           253,968

                    assets                                           1,190,029           953,986


      RMB in millions, unless

                                                                           Unaudited Audited

                As at                     As at

                                                                  September 30, 2020         December 31, 2019


                   Equity attributable to
                    equity holders of the

       Share capital

       Share premium                                                         44,804                     35,271

        Shares held for share award
         schemes                                                             (4,351)                   (4,002)

       Other reserves                                                        60,763                     16,786

        Retained earnings                                                    475,887                    384,651

                                                                             577,103                    432,706

                   Non-controlling interests                                  69,394                     56,118

                   Total equity                                              646,497                    488,824


                   Non-current liabilities

       Borrowings                                                           118,037                    104,257

       Notes payable                                                        127,375                     83,327

        Long-term payables                                                     3,057                      3,577

        Other financial liabilities                                            6,846                      5,242

        Deferred income tax
         liabilities                                                          14,488                     12,841

        Lease liabilities                                                      8,105                      8,428

        Deferred revenue                                                       6,304                      7,334

                                                                             284,212                    225,006

                   Current liabilities

        Accounts payable                                                      87,008                     80,690

        Other payables and accruals                                           48,738                     45,174

       Borrowings                                                            14,117                     22,695

       Notes payable                                                                                   10,534

        Current income tax
         liabilities                                                          13,470                      9,733

        Other tax liabilities                                                  1,941                      1,245

        Other financial liabilities                                            4,165                      5,857

        Lease liabilitiess                                                     3,454                      3,279

        Deferred revenue                                                      86,427                     60,949

                                                                             259,320                    240,156

                   Total liabilities                                         543,532                    465,162

                   Total equity and
                    liabilities                                            1,190,029                    953,986


                Adjustments                                                         Non-IFRS


                RMB in millions,                            
     Net (gains)/losses from        
                Amortisation of                
                                                                                                    investee companies (b)

                unless specified                              compensation 
                intangible assets (c)   
       Provisions/(reversals) (d)       tax effects (e)


               Unaudited three months ended September 30, 2020

                Operating profit                                                  43,953                        3,059                                         (8,703)                                         905                (1,098) 
             -  38,116

                Profit for the period                                             38,899                        3,770                                        (10,099)                                       2,005                  (973)            (277)  33,325

                      Profit attributable to equity                                     38,542                        3,517                                        (10,133)                                       1,620                (1,026)            (217)  32,303

                                     Operating margin                                      35%                                                                                                                                                                   30%

                  Net margin                                            31%                                                                                                                                                                   27%


               Unaudited three months ended June 30, 2020

        Operating profit                                                               39,311                        3,507                                        (14,672)                                         870                  8,613         
           -  37,629

        Profit for the period                                                          32,454                        4,225                                        (16,108)                                       1,886                  9,268             (505)  31,220

        Profit attributable to equity                                                  33,107                        4,019                                        (15,436)                                       1,503                  7,310             (350)  30,153

                Operating margin                                                     34%                                                                                                                                                                   33%

                Net margin                                                           28%                                                                                                                                                                   27%


               Unaudited three months ended September 30, 2019

        Operating profit                                                               25,827                        2,745                                         (1,814)                                         118                  1,668         
           -  28,544

        Profit for the period                                                          20,976                        3,568                                         (2,509)                                       1,544                  1,981             (474)  25,086

        Profit attributable to equity                                                  20,382                        3,475                                         (2,444)                                       1,491                  1,971             (463)  24,412

                Operating margin                                                     27%                                                                                                                                                                   29%

                Net margin                                                           22%                                                                                                                                                                   26%



                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

                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

                Impairment provisions/
                             (reversals) for associates, joint ventures,
                             goodwill and intangible assets arising from

                Income tax effects of non-
                             IFRS adjustments

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SOURCE Tencent