Thank you for standing by, welcome to the Tencent Holdings Limited 2013 fourth quarter and annual results announcement conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by the question and answer session. If you wish to ask a question, you will need to press star one on your telephone to join the question queue. Your name will be announced when it is your turn to ask a question. If you wish to cancel your question, please press the pound or hash key. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host today, Miss Catherine Chan from Tencent. Please go ahead, Miss Chan.
Thank you very much, operator. Good evening. Welcome to our annual results conference call for 2013. I am Catherine Chan from the IR team of Tencent. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-GAAP financial measures that should be considered in addition to, but not as a substitute for, measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of the risk factors and our non-GAAP financial measures, please refer to our disclosure documents downloadable on www.tencent.com/ir. Let me introduce the management team on the call tonight.
We have our Chairman and CEO, Ma Huateng, President Martin Lau, Chief Strategy Officer James Mitchell, and Chief Financial Officer John Lo. Pony will kick off with a short overview. Martin will discuss strategic highlights. James will speak to business review, John will go through the financials before we take your questions. I will turn the call over to Pony now.
Yes, thank you. Good evening. Thank you for joining us. During 2013, we witnessed the rapid penetration of smartphones in China, bringing us a great opportunity to further deepen engagement with our users when they are connected anywhere, anytime. Now let me share with you our business achievement in 2013. In social, we solidified our leadership in China and established our presence in international markets via WeChat. Moreover, we unlocked mobile monetization through games. In online games, we are the largest PC online games platform globally, with six games each surpassing 1 million PCU. Leveraging our mobile social leadership and industry know-how, we quickly built our mobile games platform to become the largest in China, with six games each surpassing 10 million DAU. In online advertising, we are the largest display advertising platform in China by revenue, we are well-positioned in performance advertising and new mobile advertising opportunities.
Last September, we entered into a strategic partnership with Sogou to expand our presence in search. In e-commerce, we more than doubled principal GMV through category and regional expansion, paving the way for our recent strategic partnership with JD.com. In 2014, we will continue to invest in our people, platforms, and partnerships. We are stepping up investment in digital content, mobile utilities, and online payments, and exploring new opportunities in O2O and internet finance. Turning to financial highlights, I will quickly run through the highlight numbers for you. For the fourth quarter of 2013, total revenue was 17 billion RMB, up 40% year-on-year and 9% quarter-on-quarter. Value-added services revenue was 12 billion RMB, up 27% year-on-year and 3% quarter-on-quarter. Online advertising revenue was 1.5 billion RMB, up 58% year-on-year and 8% quarter-on-quarter. E-commerce transactions revenue was 3.3 billion RMB, up 27% year-on-year and 41% quarter-on-quarter.
Non-GAAP operating profit was 5.3 billion RMB, up 23% year-on-year and stable quarter-on-quarter. Non-GAAP net profit was 4.5 billion RMB, up 11% year-on-year and 3% quarter-on-quarter. For the full year of 2013, total revenue was 60 billion RMB, up 38% from 2012. VAS revenue was 45 billion RMB, up 26% year-on-year. Online advertising revenue was 5 billion RMB, up 49% year-on-year. E-commerce transactions revenue was 9.8 billion RMB, up 121% year-on-year. Non-GAAP operating profit was 21 billion RMB, up 22% year-on-year. Non-GAAP net profit was 17 billion RMB, up 19% year-on-year. Moving on to our online platforms. Total MAU for QQ was 808 million, within which smart devices MAU was 426 million, up 74% year-on-year. After two years of hard work, QQ has transitioned very successfully into a mobile-first communications platform. Weixin and WeChat have a combined MAU of 355 million, up 121% year-on-year.
Our user base expanded in China and international markets, and user engagement deepened following the launch of games several months ago. For Qzone, total MAU was 635 million, within which smart devices MAU was 416 million, up 63% year-on-year. Photo shooting using smartphones and photo sharing on Qzone is a popular trend for the young and active in China. Our online games platform further extends its leadership from PC client games to smartphones games. For our media platforms, we strengthen our lead in news by integrating news feeds via plugin with the Mobile QQ and Weixin, and by enhancing our native app, Tencent News. We further engage our microblog service by integrating it with our multi-leading short-form video sharing app, Weishi. Tencent microblog has 190 million MAU. For our utility services, we continue to strengthen our presence in mobile security solution and mobile browser.
I will now pass on to Martin to discuss strategic highlights.
Thank you, Pony, and hello, everybody. First of all, I would like to talk about our social platforms. Our social platforms are the cornerstones of success for Tencent. After two years of hard work, we have successfully transitioned QQ from a PC-based to a mobile-first communication platform in China. It is now fully integrated with Qzone to form a unified communication and social networking platform. On the other hand, Weixin is a mobile-centric creation that sweeps across China since January 2011, and is now starting to also establish global presence through its sister product, WeChat. We now have 355 million MAU for Weixin and WeChat on a combined basis globally. Weixin offers an integrated sharing service through its in-app moments functionality. QQ and Weixin are differentiated in the following ways. Firstly, QQ serves relatively young and entertainment-oriented users, whereas Weixin appeals more to white-collar users.
Secondly, QQ's business model builds on subscriptions to virtual services and privileges and games, whereas in addition to games, Weixin also explore offline-to-online, i.e., O2O opportunities in the longer run. Thirdly, QQ connects users with an ecosystem of people and content through groups and open platform, whereas Weixin connects users with content and service providers through official accounts. QQ and Weixin are also highly synergistic as they cover the broadest spectrum of user segments in China and as they serve as a synchronized publishing and distribution platform for our content partners, such as game developers. In addition, QQ and Weixin can each evolve quickly to respond to the fast-changing user preferences and needs, thus increasing our overall resilience in the market. Our social platforms are also designed to facilitate the development of a rich ecosystem of services, catering to the diversified needs of our users.
By integrating services of users' choice, our social platform achieve higher user stickiness while creating potential monetization opportunities. The ecosystem of services, in which most of them are third-party services, would include games and digital content, in which we have developed significant integration expertise on PC. It also includes O2O e-commerce services, which are more catered to the mobile platform, and in which we're starting to build expertise. How do we facilitate the growth of this mobile ecosystem? We do have a whole series of infrastructure features to do that. For example, our login status help users to access services of their choice easily. Our social graph helps word-of-mouth to propagate. Our payment system helps our partners to get paid. Our targeted marketing system helps the promotion of these services. Our CRM facility, the functionalities help them to stay in touch with our users.
We believe these infrastructural features make our social platforms uniquely positioned to build a rich and vibrant mobile ecosystem. Recently, we have conducted several successful experiments in the area of O2O, leveraging the unique advantages I mentioned earlier. These include, first, Didi Dache, which is a taxi booking service. We ran a promotional campaign jointly with Didi that provide discounts to users and rebate to taxi drivers when users pay the taxi fare via Weixin payment. During the first month of promotion, our users paid for a total of 21 million trips across 58 cities in China. Second, Licaitong, which distributes money market funds managed by leading asset management firms. Since launch in late January, Licaitong has accumulated AUM of over CNY 60 billion. We'll gradually evolve Licaitong to become a platform that distributes a broader selection of high-quality wealth management products over time.
Thirdly, red packets, which enables users to distribute and collect lucky money from their social graph during the Chinese New Year. Our users collected over 40 million red packets totaling approximately CNY 400 million in the course of 9 days during the Chinese New Year. In addition to these O2O experiments, we have also strengthened our O2O presence through a significant investment in Dianping. In February, we invest to acquire approximately 20% of Dianping, which is a leading local life information and transaction platform. Our partnership is synergistic in the following way. We provide our users with Dianping's high-quality local merchant reviews and local deals. We help Dianping to increase user stickiness in tier 1 and tier 2 markets, and also help it to deepen its presence in other tier 3, tier 4 cities.
We enable Dianping's merchants to manage customer relationships via official accounts and complete transactions using Weixin payment. We have also strengthened our presence in physical goods e-commerce through partnership. In early March, we entered into a strategic partnership with JD.com, the largest managed physical goods e-tailing platform in China. We obtained approximately 15% new shares in JD.com and will subscribe an additional 5% interest at their IPO. Through this transaction, JD has become our preferred partner in physical goods businesses. We are transferring our marketplace and logistics personnel to JD to capture scale and geographic synergies. Immediately after the transaction, JD.com holds a 9.9% interest in Yixun, and we expect JD to eventually exercise the call option to acquire the remaining interests of Yixun. We support JD.com to grow by providing level 1 access points in Weixin and Mobile QQ, as well as additional traffic and advertising support.
Leveraging JD.com's rich product selection, nationwide logistics network, and after-sale services, we can enhance end-to-end shopping experiences for our users. JD.com is one of the multiple transactions that we have done over the past six months in which we build strategic relationships with best-in-class vertical players at both investor as well as operations level. The goal of these transactions are to improve user experiences for our users as well as unlocking business synergies. I will invite James to talk about the business review.
Thank you, Martin, and good evening or good morning, everyone. During the fourth quarter, we achieved revenue growth of 40% year-on-year. Online games contributed 50% of our revenue, social networks 20%, e-commerce transactions 20%, and advertising 9%. Excluding e-commerce transactions, our revenue grew 30% year-on-year in the fourth quarter. For the full year, total revenue grew 38% year-on-year and excluding e-commerce transactions, total revenue grew 28% versus 2012, indicating we experienced a slight revenue acceleration in the fourth quarter versus the full year. Diving into value-added services, segment revenue was CNY 12 billion for the fourth quarter, up 27% year-on-year and 3% quarter-on-quarter. Our online game revenue was CNY 8.5 billion, up 35% year-on-year and 1% quarter-on-quarter. Monetization of our popular games and expanded paying user base, new games, and contributions from smartphone games drove the year-on-year revenue growth.
Sequentially, our game revenue was flat as some of our older titles slowed down, partly due to seasonality, which was offset by contributions from new games and smartphone games. Our Social Networks revenue was CNY 3.5 billion, up 11% year-on-year and 8% quarter-on-quarter. The drivers of the growth were smartphone games and item sales from open platforms. For the full year, VAS revenue was CNY 45 billion, up 26%. Taking a closer look at Social Networks, we solidified our social leadership, deepened user engagement, and unlocked mobile monetization during 2013. Partly as a result of our initiatives to enhance the QQ and Qzone mobile experiences, users of smartphones and tablets grew to over 50% of the total QQ and Qzone user base. During the quarter, we added voice calling functionality to Mobile QQ. Daily photo uploads from smartphones to Qzone tripled year-on-year.
Our Weixin and WeChat products expanded their user base globally. As Martin's discussed, we're building out an O2O ecosystem supported by Weixin Payment in China, leveraging our user base and merchant network. For WeChat, we'll focus on increasing user engagement in key markets through targeted marketing and other campaigns. In terms of monetization, we recognized a full quarter contribution from the games on mobile, social, and Weixin. These games generated over CNY 600 million in revenue, which we share between our Social Network and Online Game reporting segments. Our subscription products continue to experience revenue pressure due to users shifting to smartphones. Moving on to PC client games, we sustained clear leadership in the category, leveraging our user behavior insights, segmentation strategy, and operational expertise.
For advanced casual games, our combined PCU for the quarter was 17.1 million, up 30% year-on-year, and our combined ACU was 6 million, up 36% year-on-year. Measured by peak concurrent user, we ranked number one in multiple game categories, including first-person shooter, music, racing, and battle arena games. League of Legends is now arguably the world's most popular online game, with over seven and a half million peak concurrent users globally. For massively multiplayer online games, combined PCU for the quarter was 5.6 million, up 40% year-on-year, and combined ACU was 2.5 million, up 19% year-on-year. Our recently released licensed role-playing game, Blade & Soul, is the first new massively multiplayer online game to surpass 1 million peak concurrent users in China since 2009. Smartphone games represents a new growth opportunity for us.
Since the launch of the game centers on Mobile QQ and Weixin last August, which broadens our game user base, deepened game user engagement and widened game selection. Currently, we have over 100 million unique daily active users playing games on Mobile QQ and Weixin, and six of these games have each exceeded 10 million daily active users. We've redesigned our app store, myapp.com or Yingyongbao, into an open platform and distribution hub for long-tail games. Our peak daily app downloads have quadrupled over the last 12 months, reaching 64 million daily downloads earlier this year. Turning to Online Advertising, segment revenue was one and a half billion CNY, up 58% year-on-year and up 8% quarter-on-quarter. As you may recall, we deconsolidated the search revenue in mid-September following the merger of our search business with Sogou.
Excluding search, our advertising revenue grew 82% year-over-year and 15% quarter-over-quarter, within which our brand advertising revenue was CNY 900 million, up 65% year-over-year and 12% quarter-over-quarter, driven by increases in impression volume and pricing on our video platform and portal. Our performance advertising revenue was CNY 600 million, up 118% year-over-year and up 21% quarter-over-quarter. For the full year, advertising revenue was CNY 5 billion, up 49% year-over-year. Digging into brand advertising, our top 5 advertiser categories included online services, automobiles, food and beverage, consumer electronics, and real estate. Our video brand advertising revenue more than doubled year-over-year as we increased pre-roll ads and achieved better sell-through volumes. For mobile brand advertising, we're developing new ad formats that we believe will not impair user experience.
For example, we're experimenting with banner ads at the bottom of the content page in the Tencent News app and in the Weixin News plugin, and pre-roll ads for our Tencent Video app. Looking to 2014, we'll invest aggressively in content to build market share for our video platform. For example, we've got the exclusive rights to broadcast The Voice of China, Season 3. For performance display advertising, our Guangdian Tong platforms saw a mix shift to bigger advertisers during the fourth quarter due to e-commerce promotions, which enhanced the cost of the revenue per click. In terms of mobile performance advertising, we're currently testing newsfeed ads on Mobile Qzone and text link ads at the bottom of the page on Weixin official accounts. Finally, our e-commerce business segment revenue was CNY 3.3 billion, up 97% year-over-year and 41% quarter-over-quarter.
The principal components delivered strong year-over-year growth across product categories and increased sales sequentially due to the promotional periods in November and December. Our agency revenue commission fees increased due to higher transaction volume. For the full year, e-commerce transaction revenue was CNY 9.8 billion, up 121%. With that, I'll hand over to John.
Thanks, James. Hello, everybody. For the fourth quarter of 2013, our total revenue was CNY 17 billion, up 40% year-over-year and 9% quarter-over-quarter. Operating profit was CNY 4.8 billion, up 28% year-over-year and down 1% quarter-over-quarter. Net other gains was CNY 405 million, mainly comprised of disposal gains from our investee companies and government subsidies. Income tax expenses was CNY 808 million, down 15% quarter-over-quarter due to a decrease in withholding tax recognition and tax reversal resulted from the qualification of tax exemption of a subsidiary. Effective tax rate for the quarter was 17%. Net profit attributable to shareholders was CNY 3.9 billion, up 13% year-over-year and 1% quarter-over-quarter. For the full year of 2013, total revenue was CNY 60.4 billion, an increase of 38% from 2012. Operating profit was CNY 19.2 billion, an increase of 24% year-over-year.
Profit attributable to shareholders was CNY 15.5 billion, an increase of 22% year-on-year. On non-GAAP basis, operating profit for the fourth quarter was CNY 5.3 billion, up 23% year-on-year and flat quarter-on-quarter. Net profit attributable to shareholders was CNY 4.5 billion, up 11% year-on-year and 3% quarter-on-quarter. Operating margin was 31%, down 5 percentage points year-on-year and 3 percentage points quarter-on-quarter. Net margin was about 27%, down 7 percentage points year-on-year and 1 percentage point quarter-on-quarter. For the full year of 2013, non-GAAP operating profit was CNY 20.8 billion, up 22% year-on-year. Non-GAAP operating margin was 34%, down 5 percentage points from last year. Non-GAAP profit attributable to shareholders was CNY 17.1 billion, up 19% year-on-year. Non-GAAP net margin was 29%, down 4 percentage points from last year. Let's turn to segment gross margin.
Gross margin for VAS was 67%, up one percentage point year-on-year or up two percentage points quarter-on-quarter. The sequential increase was mainly due to higher portion of revenue generated from in-house PC client games and full quarter contribution from Weixin and Mobile QQ games, which were mainly developed in-house. Gross margin for online advertising was 32%, down 17 percentage points year-on-year or down 20 percentage points quarter-on-quarter. The sequential decrease was mainly due to accelerated amortization in quarter four for online video content cost to reflect the change in user viewing patterns. Excluding the impact of accelerated amortization of online video content costs, the gross margin for online advertising would have been 54%. Gross margin for e-commerce transactions was 5%, down four percentage points year-on-year or down one percentage point quarter-on-quarter. The sequential decrease mainly reflected the impact of promotional sales last November and December.
For the full year of 2013, gross margin ratios for VAS were stable at 66%. Online advertising declined from 49% to 45%, mainly due to accelerated amortization of video content costs, and e-commerce increased one percentage point from 5% to 6%. Moving on to operating expenses. Selling and marketing expenses were CNY 2 billion, up 86% year-on-year and 39% sequentially. Both sequentially and annual increase were due to e-commerce promotion in the quarter, increase in marketing expenses for PC and smartphone games, media platforms, and WeChat in international markets. As a percentage of revenue, selling and marketing expenses increased to 12% from 9% in the fourth quarter of last year. G&A expenses was CNY 2.8 billion, up 30% year-on-year and 6% sequentially. The year-on-year change mainly reflected increase in R&D expenses and staff costs.
As a percentage of revenue, G&A expenses decreased to 16% from 17% in the fourth quarter last year. Included under G&A, R&D expenses was CNY 1.3 billion, up 21% year-on-year or down 4% sequentially. Sequentially, R&D expenses decreased 4% as we chewed up related staff costs. R&D expenses represented 8% of quarterly revenue. On a full year basis, selling and marketing expenses was CNY 5.7 billion, up 90% over 2012, and represented 9% of annual revenue. G&A expenses was CNY 10 billion, up 29% over 2012 and represented 17% of annual revenue. R&D expenses was CNY 5.1 billion, up 22% over 2012 and represented 8% of annual revenue. As at quarter end, we had about 27,500 employees, which is up 14% year-on-year or 2% sequentially. Year-on-year increase was mainly due to headcount increase in e-commerce business. Let's look at margin ratios for the fourth quarter. Gross margin was 51.7%.
The year-on-year decline of 4.9% was due to increased contribution from e-commerce revenue this year and accelerated amortization of video content costs. non-GAAP operating margin was 31.4%, down 4.1% year-on-year or 2.9% quarter-on-quarter. non-GAAP net margin was 26.8%, down 6.9% year-on-year or 1.6% Q-on-Q. The year-on-year decrease of 6.9 percentage points were mainly due to operating margin decline and lower tax reversal from subsidiaries. During the fourth quarter, we did not buy back any shares. For the full year, we repurchased a total of 6.6 million shares for approximately HKD 1.6 billion. The total number of shares outstanding at year-end was 1.86 billion. For 2013, basic EPS was up 22% year-on-year to CNY 8.464, and diluted EPS was up 21% year-on-year to CNY 8.298. non-GAAP basic EPS was CNY 9.316, and diluted EPS was CNY 9.134, both increased by 19% from last year.
Subject to the approval of shareholders at the annual general meeting to be held on 14th of May, we are proposing an annual dividend of HKD 1.2 per share. This is 20% above last year's dividend, and the payout ratio is stable at 11%. The CapEx for the quarter was CNY 1.7 billion, down 6% year-on-year or up 4% quarter-on-quarter. Operating CapEx was CNY 916 million, up 55% year-on-year or down 7% quarter-on-quarter. Non-operating CapEx was CNY 763 million, down 36% year-on-year or up 20% quarter-on-quarter. Free cash flow reached CNY 5.2 billion, up 20% year-on-year and 26% quarter-on-quarter. Our net cash position at year-end remains strong at CNY 36.2 billion, up 32% year-on-year and 5% quarter-on-quarter. Now, I will walk you through the financial impact relating to the recent two investments.
We will use equity accounting and treat Dianping and JD.com as associate companies starting from first Q 2014. For our investment in Dianping, we will capture our share of net income or losses in P&L and recognize our equity interest in the balance sheet. For our investment in JD.com, we will deconsolidate revenues and costs for our physical goods marketplace businesses and continue to consolidate revenues and costs from our principal business after disposal of 9.9% interest in Yixun. We will book disposal gain of CNY 1.9 billion under other gains or losses and capture our share of Jingdong's net income or losses under share of profit or loss from associates. We expect to recognize income arising from services provided our partnership agreement and also incur channel costs on JD revenue distributed through Jingdong. For the balance sheet, we will recognize our equity holding under interest in associates.
For the cash flow statement, there will be an outflow of CNY 215 million at closing and further cash flow relating to our subscription of Jingdong [Taguo] shares. Last but not least, we are proposing for shareholders approval a one to five share split to facilitate ownership and trading of small investors, such as our employees and retail investors. We will keep the board lot of 100 shares unchanged. This share split will be effective on 15th of May 2014, subject to approvals by shareholders and the Stock Exchange of Hong Kong. The final dividend for 2013 after share split will be CNY 0.24 per share and payable on 30th of May 2014. This concludes our presentation. Thank you.
Thank you, John. Operator, shall we take the first question, please?
Certainly. We will now begin a question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your question, please press the pound or hash key. Your first question comes from Chao Wang from Nomura. Please ask the question.
Hi. Good evening. Thanks for taking my question. My question is just regarding your mobile games. Regarding that CNY 600 million revenue from mobile games, just want to double-check whether it is solely focused on the gaming business line or it is a share between SNS and games. Also, is this just from the game center on your Mobile QQ and Weixin, or it also includes your legacy mobile game, or so-called feature phone games? If so, shall we assume that feature phone games is not growing or even declining, and the main driver is the Weixin and QQ smartphone games? Thank you.
In respect of the figure that we have disclosed of CNY 600 million, it represents income on both our online games and our social networks. Part of it belongs to the platform, and part of it remains on the gaming side. It has not included the legacy type of mobile games, those that are not on the smartphones.
Thank you. Actually, a quick follow-up on the revenue recognition of the mobile games. Is this also based on the amortization of virtual items? What is the typical amortization period? How does that actually compare to a PC game? Thank you.
Actually, in relation to platform games, there will be deferral of revenue. However, for most users, they will tend to charge it and use it immediately or within a time or period of two weeks or a month. The deferred revenue would not be at the same proportion as the PC games.
Thank you very much.
Next question, please.
Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask the question.
Hey, good evening. Thank you for taking my questions. I'm just wondering on your O2O strategy. So far, it seems like you guys are relying more on partners. Do you anticipate, going forward, you need to perhaps set up a direct sales force or a team of business development people to take into a national, perhaps your local advertising opportunities? This is my first question. Just for housekeeping, I'm wondering if you could share with us the number of official accounts on Weixin, as well as the ARPU trend of your different types of games. Thanks.
In terms of O2O initiative, I think we approach it, first of all, from a platform perspective, right? We do want to provide any merchant, any sort of individual partner, the basic ability to be involved in the Weixin platform. What we provide is official accounts, and then sort of within the official accounts, we are going to continually evolve different functionalities for the different types of industries that the O2O merchant is in. We will offer also Weixin payment so that the partner can actually get paid
We are also going to include additional features for these merchants to be able to promote themselves, such as a Guangdian Tong targeted marketing system. All these features will be open to whoever wants to be involved in the O2O overall ecosystem. That's the basic infrastructure. In addition to that, we do want to target different verticals in the process of turning these merchants or these individual companies into a participant. We do rely on certain partners who have already built a pretty good ecosystem of such vertical industries. For example, Didi Dache, who have got a very big crowd of taxi drivers. For example, Dianping, who already connects with hundreds of thousands and even millions of merchants and local restaurants and all sorts of different service providers. I think partnership is an important part of the strategy.
At the same time, over time, we would look at the different verticals and depending on what would be the most effective way of marketing to these merchants, these vertical merchants, we would decide whether using partnership is the better way or using sort of the self-help way for people to sign up or having direct sales force to cover these merchants. Sometimes for larger merchants, like certain retailers, we do have pretty targeted group of people to cover them on an individual basis so that we have more custom-made solution for them.
In relation to the games ARPU, for MMOG, it will fall within CNY 140 to CNY 300. That's a quarterly figure. For advanced casual game, it falls between CNY 80 to CNY 190. I would like to give you another figure in relation to smartphone games. If we view the whole portfolio as one game, we're not talking about one particular game within the smartphone platform, we're talking about the portfolio of games. If we view it as a single game, the ARPU will fall within CNY 60 to CNY 70 per quarter.
In terms of official accounts, we now have more than 2 million official accounts within the Weixin ecosystem.
Thank you. That's very helpful, Martin and John. Thanks.
Thank you for your question. Operator, next question, please.
Next question comes from the line of Dick Wei from Credit Suisse. Please ask your question.
Hi. Thank you for taking my questions. I have a question on the WeChat mobile physical e-commerce. I wonder if there any progress you can share as well as how are the social recommendations or data analysis helps with the conversion? Anything you can share? Thank you.
Dick, I don't quite get your question, sorry. Can you.
My question is about the mobile commerce, right? For physical goods. I wonder what kind of conversions we are seeing or what kind of traffic are we seeing from the WeChat platform, and any of this maybe called big data analysis that can help to improve the conversion compared to other platforms in the industry.
I think right now it's sort of way too early to talk about this. From a physical goods perspective, we just experimented with one entry point with limited product selections. We have also just started to do some extent our Guangdian Tong into some of the official accounts on experimental basis, right? I think we're very early in terms of really leveraging our social platform for the benefit of the physical goods business. Over time, I would imagine sort of we would have more prominent entry points with a much bigger selection of products. We would also have a social infrastructure that encourage social sharing of various different products. We would have a much broader coverage of our Guangdian Tong advertising network as well as continuously improving targeting mechanism to improve the conversion rate of the advertising network.
All these will be coming in the future, but right now we're just scratching the surface in terms of the physical goods e-commerce ecosystem for Weixin at this point in time.
Great. Thank you very much, Martin.
Thank you.
Your next question comes from the line of Alex Yao from Morgan Stanley. My apology. Your next question comes from the line of Timothy Chen from Morgan Stanley. Please ask your question.
Good evening. Thank you for taking my questions. I have two questions. The first one is more about the WeChat promotion overseas. Could you comment about the effectiveness of the WeChat promotion, and whether you're going to step up the marketing effort again this year. How should we think about your overall marketing spending this year? My second question is about your latest video strategy, your views on the competition, and also the potential consolidation in the sector. Thank you.
With regard to marketing spending for WeChat specifically, for the full year 2013, we came in line with our estimate of $100 million-$200 million in marketing spending for WeChat. That was spread pretty broadly across a range of geographies. Some of those geographies proved less hospitable, some of them proved more hospitable. For 2014, we'll probably be spending a similar amount to our spend in 2013. We'll be targeting it more on markets where we see traction and where we see opportunities to really drive engagement as opposed to just collecting a lot of registered users who don't necessarily engage. That's specifically on the marketing spending for WeChat. On marketing spending in general, we'll have some incremental initiatives, for example, related to popularizing our payment, our Weixin payment through taxi app and other mechanisms.
With regards to video, the competitive landscape, what we're assuming, will be very intense this year. We're budgeting our video content costs to approximately double year-on-year, because we want to outspend the market a little bit and increase our market share. The bad news on video is we continue to be loss-making. The good news is that our video advertising revenue is growing at a very brisk pace, substantially more than doubling year-on-year in the fourth quarter of 2013.
Thank you, James.
Thank you. Next question, please.
Your next question comes from the line of Alex Yao from JPMorgan . Please ask your question.
Hi, good evening, everyone. Thank you for taking my question. Two questions on my side. Number one, can you guys talk about your e-commerce strategy now that you have transferred pretty much vast majority of your e-commerce asset to your partners? Secondly, in the press release, you guys discussed that market competition intensified as competitors aligned their strategies with the mobile opportunities and made aggressive organic and inorganic investments along the value chain. Where do you see the most competitive threat, and how would you respond? Thank you.
In terms of e-commerce strategy, I think there will be a two-pronged strategy. The first one is around physical goods, e-commerce, and in a managed way. Basically, sort of having a storefront as well as having a marketplace that hosts a lot of different merchants for selling their products. This kind of format, we will actually partner with JD.com as our strategy. Basically, we would then leverage a lot of our platform advantages as well as our traffic to support JD.com to keep on building their scale of being the leading B2C merchant, as well as to build a large marketplace that hosts a whole host of different merchants. That's our strategy on sort of this managed and centralized storefront approach. At the same time, we would also partner with various retailers who actually want to sell their products online, particularly on the mobile internet.
A lot of these merchants may just want to have their own shop. They don't necessarily want to be part of a big marketplace, but they want to have their own shop. Some of them sort of may be offline retailers, some of them may just have a specific kind of product that they want to sell on the mobile internet. A lot of them would have their own ways of accumulating different user base, and they just want to have a shopfront on the mobile internet. This is sort of what we call the unmanaged distributed ecosystem of e-commerce. That's something that Weixin will continue to support through our official accounts and through our payment system, as well as through our Guangdian Tong advertising network.
In terms of market competition, I think market competition is just sort of intensifying across the board, right?
I think it's very clear that mobile internet has really unlocked a whole range of new possibilities. In the past, when we are on the PC internet, you are limited by the device, you are limited by the time on which you are online. When we get to the mobile internet, basically, sort of the mobile device has become an extension of a person's body as well as a person's everyday life. All sorts of different lifestyle activities can actually be integrated within the mobile internet device. That's why everybody sees the opportunity, and the opportunity also gives rise to new entrants. It gives rise to.
ways through which the online industry can connect with traditional industries. That's why we see competition is increasing, but at the same time, opportunity is expanding. Under this kind of environment, we felt we will be making investments both in terms of strengthening our own platform, in terms of building an ecosystem that would connect our platforms with all sorts of different industries who want to get onto the mobile internet and access users. We also want to invest in best-in-class vertical players so that together we can actually build some unique services and unique value add for our users. These are the areas that we'll be investing our resources.
That's very helpful. Thank you very much.
Thank you for the question. Next question please, operator.
Your next question comes from the line of Cynthia Tamai from Jefferies. Please ask your question.
Thank you management, and congratulations for a strong quarter. I have two questions. One is on the focus of investment for 2014. We remember in 2013, management talked about overseas WeChat expansion, as well as e-commerce and mobile investment. Now that we have the deal with Dianping and JD.com on the e-commerce side, what will be the focus of investment for this year, 2014? Are we still going to continue investing a lot in promotions in the WeChat overseas expansion? That's my first question. I have a follow-up question on going forward, a longer-term strategy for Tencent in terms of operating models. Now we have a different strategy regarding e-commerce. How would we think about the operating model for Tencent? Are we going to focus more on interactive, social and entertainment, and mobile internet? Can management give more color on that front, please? Thank you.
Great. In terms of the first question about the focus of investment, we see sort of 3 buckets of investment activity for 2014. The first is really driving the mobile internet. We feel that Weixin and Mobile QQ are great launch pads or aircraft carriers, which can support a wide range of other applications. We've started to see that with our Tencent News application, started to see that with our smartphone game applications. There's a whole host of other things we can do on mobile internet, leveraging the success of Weixin and Mobile QQ. That's really about taking the investment we've already made and driving incremental leverage from it. A second source of investment is actually putting capital to work. That would include popularizing our Weixin payment service, which I alluded to earlier in the context of the taxi bookings.
That would include the approximate doubling of the Tencent Video content costs I referred to earlier. That would include roughly flattish spending year-on-year on WeChat marketing internationally. The 3rd bucket of investments is really investing our time and energy and our traffic in maximizing the benefits we can deliver to some of our strategic partners, including JD, including Dianping, including Didi Dache, CJ, and so forth. That's about putting CNY to work because we've already put the CNY into acquiring their shares and so forth. It's more about taking our existing traffic and resources and using them to provide full benefit to our partners.
In terms of altering the model and sort of what areas are we going to be focused on, I think there are certain core businesses that we definitely sort of continue to put in a lot of resources to build our operations around. That would include the social platform, that would include the games, that would include our media and digital content platforms. These are the areas that we would continue to invest and put in resources to build out the platforms and the various services. There are also areas as we move into the mobile internet, there are areas in which we see a much broader ecosystem of various different players. That would include areas like e-commerce, areas like O2O services, as well as even areas like online finance and I would say verticals, education, healthcare, and other vertical areas.
I think in a lot of these new areas, we would approach it from two angles. One is, there are areas that we may actually do it ourselves, if we can have a strong expertise in. I think because these are new areas that require quite a bit of industry know-how or even, in a lot of areas, offline capabilities, then we would actually rely even more so on what we call the open platform strategy. Within the open platform strategy, I would say, there are two distinctive formats. One is taking certain best-in-breed platform partners.
If clearly, there are our partners who have already built a lot of expertise in a certain area, who have already built an ecosystem of many of the participants, such as Didi Dache, such as Dianping, such as, in the future, JD.com, we would be working with them and we may sort of approach it in a deep partnership type of model, in which we take investment. We also sort of become their deeply related operating partner and try to create value-added services for the users. On the other hand, we also would want to work on the ecosystem perspective. We would provide certain basic infrastructures so that participants can actually just sign themselves on their own effort, right?
We will have a pure open system where a lot of smaller merchants, smaller participants can actually sign up, and they can promote themselves using a lot of the infrastructure we have, using our login status, using our social network, using our payment system, using our Guangdian Tong advertising network. A lot of these people would also just be able to add themselves onto the network. I think we would be focused on building these basic building blocks for attracting people to our ecosystem.
Thank you.
Thank you. Next question.
Yes, please.
Next question comes from line of Qi Zheng from CNBC. Ask your question.
Good evening. Thank you very much for taking my question. I had just a housekeeping question and then I have a real question. Housekeeping question is, I'm wondering if can you expand a bit in terms of your new definition of MAU and also, what is actually different from this MAU versus what you've reported historically? I'm wondering of how that is benchmarked versus sort of your global peers in terms of defining MAU.
Well, in terms of the Mobile MAU, right? What we include in the definition of activate that in addition to a login, right? A login action, the user needs to have a proactive engagement with the platform. Either through sending one message at least, or posting a feed into either the Moments or the social network, or have actually proactively engaged in a transaction, right? These are the kind of, we would say, valuable activities that a person would have to be engaged in in order for us to count as an active user. That's actually sort of slightly more relaxed from the previous definition, in which there has to be one message sent.
The reason we actually relaxed a little bit is to say, because both our Mobile QQ platform and our WeChat platform actually has become a platform of services that extend beyond just the communication bit, right? That's why we relaxed. At the same time, it's actually more stringent than, I would say, a lot of the other definition of monthly active users, which usually count the login of a user in a month.
Great. Thank you for that. I'm also wondering, just in terms of your WeChat games monetization, I've seen some sort of newsfeed that you've identified roughly between $200 million-$300 million in WeChat games revenue in the fourth quarter. I'm wondering sort of how that might ramp this year, given your games portfolio and maybe different sort of genres that you'll be rolling out on WeChat games. Thank you.
I think we would expect a fairly healthy growth rate given the increased number of games, given the games will serve increasingly targeted niches and given games that serve targeted niches and typically achieve higher ARPU and RPPU than the broader mass market games. Just by way of background.
Yep. Thank you. Next question for you.
Your next question comes from the line of Varun Ahuja from JPMorgan, Hong Kong. Please ask your question.
Hi, thanks for taking my questions. Most of them have been answered. I just wanted a broad color on your expansion strategy to financial services. I mean, is it going to be limited to providing enhanced online payment options to subscribers, and basically just expanding more horizontally to your customers? Is there something more than that? I mean, if you could just throw some color and potential investments. I understand it's early stages, but any potential investment size that you know you're considering. Secondly, if you could just quickly touch on your CapEx guidance for 2014. Thank you.
In terms of online finance, I think we are still in a very early stage of ramping up our knowledge about this industry and sort of finding what are the potential areas that we can add value to our users and we can participate in a value-added manner. I would say sort of a few principles. Number 1, we do want to partner with a lot of very outstanding financial institutions in the industry. We're not participating in the business just to disrupt others. What we see is there is a very good set of financial institutions already providing good services, and what we try to do is actually provide the bridge to connect more users to these financial institutions. We provide these good products to the users.
Two is we also stand from a user's end, what we try to do is actually to complement our range of value add to the users. What we see is, after we have provided a very good social functionality, after we have provided digital content and gaming, we see a clear need among our users in getting access to good financial services. That's evidenced in the fact that our Licaitong has ramped pretty nicely without a lot of promotion within our platform. What we try to do is we would work with our financial institution partners and try to come up with products that are catered to the needs of our users, and we will act as the conduit to help them to transact with each other. I think that's the main principle that we have in mind.
Of course, as we continue to build our expertise in the industry, we will have a more specific strategy around this. This is so far what we can discuss with you.
In terms of CapEx, unfortunately, I won't be able to give any guidance. However, I would like to share with you that back in 2010, as a percentage of revenue, operating CapEx represent about 6%, and in 2011, it was 11% as a result of building up of infrastructure for our open platform strategy. In both 2012 and 2013, our operating CapEx were 6% for both years. I would guess that in the future, we won't be seeing big OpEx spending just like what we did in 2011.
All right. Is it safe to say that the 6% which you've maintained in 2012, 2013, it would be in similar range going forward?
I think given the scale of our business now, unless there are new strategic initiatives, we don't think that there will be significant change in that level.
Understood. Thanks a lot for your time.
Thank you very much. Operator, in the interest of time, we shall take the last three questions, please.
Certainly. Next question comes from the line of Alicia Yap from Barclays. Please ask your question.
Hi. Good evening, everyone. Thanks for taking my questions. My first question is actually regarding the WeChat payment. Can management share with us, how should we think about the progressions and the trend for the payment monetization for this year? In related to that, for the Didi Dache in the first quarter, how much of that should we expect the expenses to incur in the first quarter?
In terms of WeChat payments, I would say the primary goal for us at this point in time is really to increase the number of users that are connecting their bank card to WeChat payment. We're not only not making money, we are actually spending quite a bit of money to promote that linkage. What we see is that once users have binded their bank card, they can start to really consume not only a few services, but a whole host of different services. Over time, as we continue to build up the ecosystem of the O2O services and we'll provide more user case around payment, that would help to move a lot of these WeChat payment users into more active users.
At this point in time, we are spending a lot of effort in signing up WeChat payment users, which I think we're making pretty good progress. In terms of Didi Dache, a lot of the promotional expenses, as you pointed out, will be booked in the first quarter. I would say it's in the several hundred million type of CNY range. We will have the more exact number as we close the quarter, but that's the guidance for now.
I see. My second question is with regards to the WeChat International. Given what happened to Facebook acquisitions on the WhatsApp and also Rakuten on the Viber, is there any change on management view on the overall international expansion plans and which countries that we plan to continue pushing the user engagement? Thank you.
I think we've been pretty vocal since the middle of last year that the incumbent apps such as WhatsApp are very well established in certain markets, for example, Germany, Spain, Mexico. Consequently, our belief is that it's difficult for a new entrant app, no matter how good it is, to make dramatic progress in those markets with a very strong incumbent. Since late last year, we've really been focusing on markets where we're strong or greenfield markets, and I think that inclination is only reinforced by the recent change of ownership of WhatsApp.
I would also say that international expansion is a really long-term initiative. We don't expect you would get it done with just one app, right? I think it's a holistic strategy that we have been approaching. In addition to the promotion of WeChat, we also have been building presence within specific local markets in order to deepen our reach and our involvement in the ecosystem within different markets. We also have been very active in making investments in entrepreneurial teams so that we can leverage the creativity of the different local markets in order to penetrate those markets. These strategies will continue.
I see. Great. Thank you.
Next question, please.
Your next question comes from the line of Elinor Leung from CLSA. Please ask your question.
Hi. Thank you for taking my questions. My question is related to the payment services. How do you see the recent regulation on online payment? How is that going to affect your revenue growth there or transactions there? Also, how aggressive you will expand your online payment in 2014, especially offline? Will the new regulation affect your O2O business because that is highly tied to your payment services?
Yeah. I would say around mobile payment, especially when you touch a point, the O2O bit, I think this is obviously a new area for all the industry participants, including the regulators. What I would say is, despite we are having some discussions with the regulators, I would say a few things, right? One is, it is a very big opportunity. Two is, there is a clear user need, there is a clear merchant need, and there is clear room for innovation. Thirdly, at the broad level, the regulators are actually encouraging innovative services.
When it gets into the specific implementation of certain services, I think we need to have a much tighter communication with the regulators because when it actually involves a certain bit of innovation, there needs to be more discussion between the industry and the regulators so that we can explain how the solution is actually implemented to the regulators. At the same time, regulators can actually voice their concerns and voice their opinions to us so that we can include their opinions into the implementation of these solutions. I think it will be a iterative process. It will be a very interactive process with the regulators.
What we feel is, as long as the demand is there, as long as the opportunities are there, we would be able to find solutions that are acceptable to the regulators, that will be welcomed by the users as well as welcomed by the merchants. We're still long-term bullish on this overall market.
Okay. Thank you.
Thank you very much. Operator, shall we take the last question, please?
Certainly. The last question comes from the line of Thomas Chong from BOCI. Please ask your question.
Hi. Good evening. I have two questions. My first question is about the mobile games. Given there are six games which have over 10 million DAU, can management give some sort of color or some sort of ranking in terms of descending order, in terms of revenue contribution of the six games? My second question is about the online advertising. Given management's strategic focus in online video advertising this year, should we expect online video advertising to surpass your traditional portal advertising for this year or next year? Thanks.
Great. With regards to the revenue ranking for the mobile game, what's interesting is that the revenue for the mobile games doesn't directly correlate with the usage. Some of the most popular games monetize very well, and some of the most popular games monetize less well. On the other hand, we have some of the niche games I alluded to earlier, which would have substantially less than 10 million DAUs, but would achieve very healthy monetization because of the nature of those games, because of the nature of the people playing those games. Overall, our belief is that we're creating a platform, the strongest platform that has the broadest portfolio, and we're in the very early stages of conducting that broadening of the portfolio.
We're very happy with what we see so far in terms of the ability of new games to expand the cumulative unique daily active users as opposed to just cannibalizing the existing DAUs, and in terms of the abilities of different kinds of games to monetize different kinds of users. That's on the mobile games. With regards to the online advertising, I think we saw healthy above-industry revenue growth rates in 2013 extending through the fourth quarter. That partly reflects the strong growth in our online video product, but it also reflects the rapid expansion of Guangdian Tong. Our traditional portal advertising business continues to grow, albeit at a slower rate than the other two. Overall, I think we're just very broadly happy with our online advertising business.
Thanks.
Thank you very much. Operator, we're rounding up on the call now. If you wish to check out our press release and our financial information, please visit our website under www.tencent.com/ir. We'll also post a replay of this webcast on the site shortly. Thank you, and see you next quarter.
Thank you. That does conclude the conference for today. Thank you for participating. Tencent Holdings Limited 201-