Earnings Call: Q3 2013

Nov 13, 2013

Ladies and gentlemen, thank you for standing by, and welcome to the Tencent Holdings Limited 2013 Third Quarter Results Announcement Conference Call. You. Please press the pound or hash key. And I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host today, Ms. Catherine Chen, who from Tencent. Please go ahead, Ms. Chen. Thank you very much, and good evening, ladies and gentlemen. Welcome to our Analyst Conference Call for the First Quarter 2013. I'm Catherine Chanelguera team of consent. Before we start the presentation, we'd like to remind you that this is 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 from a variety of sources outside of Tansant. This presentation also contains some unaudited non GAAP financial measures that should be considered in addition to, but not as a substitute for matches of the company's financial performance prepared in accordance with IFRS. For our detailed discussion direct factors and our non GAAP measures, please refer to our disclosure documents downloadable on www.com/ir. W w w dot com Tencent.com/ar, sorry. Now let me introduce the management team on the call tonight. They are our Chairman and CEO, Thomas, President, Martin Lau, who Strategy Officer James Mitchell and CFO, John Lowe. Then we kick off with a short overview of our financials and key platforms. Martin with discuss strategy highlights James proceed to business review and John will go through the financials before we take your questions. Now let me turn the call over to Billy. Thank you, Kevin. Good evening, everyone. Thank you for joining us In the third quarter of 2013, we delivered a solid growth in revenue and profits. Operationally, we made good progress adapting our products for mobile internet and deepening user engagement. Our online games business strengthened its market leaders by adding smartphone games integrated with mobile, QQ and WACING, both WACING in China and WeChat in International markets continue to grow user bases. Now let me run through the highlight numbers for you. Total revenue was RMB15.5 1,000,000,000, up 34% year on year and 8% quarter on quarter. Value added services revenue was rmb 11,600,000,000, up 25% year on year and 8% quarter on quarter. Online advertising revenue was rmb 1,400,000,000, up 37% year on year and 7% quarter on quarter. E commerce transactions revenue was rmb 2,400,000,000, up 108% year on year and 7% quarter on quarter. Non GAAP operating profit was RMB5.3 billion, up 20% year on year and 6% quarter on quarter. Non GAAP net profit attributable to shareholders was rmb 4,400,000,000, up 23% year on year up 5% quarter on quarter. Moving on to our online platforms. Our core social communications platforms differently user engagement via mobile interactions. While total overall MAU for QQ was stable quarter on quarter, MAU on smart devices grew percent sequentially. On a year to year basis, total QQ and au increased 4% to RMB 816,000,000. PCU for the quarter reached RMB178,000,000, up 7% year on year. Combined MAU for reaching and we chat reached RMB272 1,000,000, up 124 year on year. $23,000,000, driven by increased mobile activities. Qzone remains a leading platform for our users to share photos journals with their close friends. Our online games platform is the largest and most active in China measured by MAU, we ranked number 1 in multiple categories, including casual games, web games, smartphone games, ACG and NMOG. Our media platforms, q2.com, Tencent microblog and Tencent Video continue to enrich content and services for our users in entertainment needs, especially on mobile. On our utility services, we continue to strengthen our presence in mobile security solution and mobile browser. I will pass on to Martin to discuss 2 different strategic achievements our mobile game platform and the Sogou Sogou transaction. Thank you, Claudia, and good you name, and good morning, everybody. The 3rd quarter marked the official launch of our mobile QQ and Weixin based mobile game platform. To date, we have officially released 5 games via mobile QQ and Weixin Game Centers. The total registrations for these 5 games reached $570,000,000 in 3 months. Each of our games topped the free download chart on iOS App Store within hours, after launch and successively claiming the number one position during August September of this year. For our first batch of games, we're mainly focused on providing a light and fun gaming experience to our users. Nevertheless, certain games have started to generate some meaningful revenue. For example, our game TME run every day has ranked for quite some time among the top 3 grossing titles on iOS App Store. While the first five titles have been our own games for the purpose of proof of concept, we'll broaden the range of titles and launch 3 third party games very soon. We expect 3rd party games to constitute the majority of games on this platform in the near future. Based on what we have seen so far, we believe Mobile QQ Innovation are highly effective game distribution channels. First of all, The games are featured in game senders embedded in the 2 very popular applications, enabling the games to reach 100 of 1,000,000 users within a very short time. Secondly, users can broadcast their achievements and invite friends to join the games thus creating viral marketing buzz. Thirdly, interaction among real life friends within the game such as social leaderboards, helping friends by donating cards and also playing either alongside or against your friends in PDP mode at another dimension of fun that differentiates our games from others. In short, mobile games when connected with our platform Android Broadridge as well as social network effect, which enables both user adopt as We are excited about this deal for a number of reasons. Operationally, merchant social with SOCO creates a strong combination product and technology teams to deliver superior search experiences to users. Strategically, the in Sogou is well positioned to compete, especially in mobile search, but capturing traffic synergies with social platforms, online security, browsers as well as payment input. Advertisers also benefit from working with an enlarged advertising platform. So from a financial perspective, the new Sogou can capture cost synergies as well as monetization potential as a result of larger advertising platform that's inherent in the search business model. Now we have high regards for the new Sogou Management team, will provide Sogou with full support via access and integration with our key properties. This deal is also in line with our open approach of cooperating, and working with strong and independent teams to create innovative products for users and also resulting in a healthy ecosystem for the industry. So with that, I'll pass to James to talk about business review. Thank you, Martin. Good evening. During the third quarter, we achieved revenue growth of 34% year on year. Online games contributed 54 percent of our revenue, social networks 21% online advertising 9% and e commerce transactions 15%. Our social network revenue was rmb 3,200,000,000, up 4% year on year and 2% quarter on quarter. Our open platforms expanded their user base, paying users, and ARPU year on year. We positive summer seasonality and the initial contributions from mobile games distributed through mobile QQ anyway, Shin, contributed a slight uptick in sequential revenue growth, more than offsetting continued weakness in subscription revenue. On revenue was rmb8.4 billion, up 35% year on year and up 11% quarter on quarter. Monetization improved on some key titles such as legal urgency cross file. Some new high profile titles such as Zunora moved in provider release and we booked initial contributions from South developed mobile games distributed through mobile QQ and Weixin. Taking a closer look at our social networks, during the quarter, we launched mobile QQ version 4.4 5, which includes the game center, a reading center link to our online literature business, and digital coupons. Mobile QQ usage has substantially increased in the past 12 months as we add features, differentiate the user experience from Weixin more clearly, and benefit from the uptake of smartphones and Second And Third Tier Cities, where Q2 has historically been very popular. We also launched Weixin Version 5, which includes the game center and importantly, the Weixin payment solutions freeing up purchases, which deepens our relationship with smartphone users and opens the door for our community with a number of revenue generating applications doubling year on year. We added distribution capabilities, so as click for reward tasks and PC push to mobile downloads, which help developers maximize their traffic on our platform. Moving to online gains. Our QQ game platforms average concurrent users dipped 7% year on year to 3 $900,000 and certain users migrate from PC client to web and mobile. In August, we released a new version of mobile QQ game for Android users adding features such as location based invitations. For advanced casual games, our average concurrent users grew 42% year on year to $6,400,000. Payang users in ARPU also generally increased. League of Legends organized a widely watched global tournament series culminating in a finale in Los Angeles, a staple center where our Korean team won the league of legends season 3 world championship. Cross Five's anniversary promotion and new game items contributed to its increased user activity and monetization. For massively multiplayer online games, combined year on program. Legend of Yulong released a successful expansion pack in early July with a new play mode and new game items, helping it exceed 800,000 PQs AZura entered unlimited closed beta testing in mid September generating a positive user response, and blade and soul moved into limited closed beta steam during October. Our Online Advertising segment revenue was RMB1.4 billion, up 37% year on year and up 7% quarter on quarter. Display advertising revenue was rmb 1,300,000,000, up 42% year on year and up 9% quarter on quarter, Despite the Olympics comparison from the third quarter of last year, brand display ad revenue grew at a healthy double digit rate year on helped by video and regional portal contributions. Performance display ad revenue more than doubled year on year due to an enhance targeting technology and higher impressions volume. Our search advertising revenue was rmb 94,000,000, down both year on year quarter on quarter. Following the merger of our general search business with SOGO, we'll no longer be breaking search out as a separate sub segment in future Within brand display, our top 5 appetizer categories for food and beverage, automobiles, online services, consumer electronics and real estate Year to year, we believe we've gained market share in the consumer electronics from real estate and automobile categories among others. Our video branded ad revenue grew 90% year on year due to increased inventories and higher CPMs. Our mobile, we're distributing customized news content rapidly expanding smartphone user base by not only our Tencent news app, but also plug ins to mobile Q2 and Weixin where testing monetization on our news app with splash screen ads and sponsored news feeds. The performance display our impression volume more than doubled year on year as we extended performance advertising from QZome to other online properties and more recently to our video platform. Our performance display revenue yields increased due to higher click through rates. When we can improve click through rates, we not only raise revenue yield to media owners, but we also improved the return on segment revenue was rmb 2,400,000,000, up 108% year on year and up 7% quarter on quarter. In our Principal business, GMV of Fox be doubled year on year as our user base and total number of orders expanded. Home appliance sales dipped quarter on quarter due to the termination of government energy to say in subsidy programs and adverse seasonality. In our Asian business, revenue grew year on year, driven by increased commission fees. And with that, I'll hand over to John to discuss the financials. 5,000,000,000, up 34% year on year and 8% quarter on quarter. Operating profit was rmb 4,800,000,000, up 17% year on year end, up 5% quarter on quarter. Income tax expenses was rmb 955,000,000, up 3% quarter order, effective tax rate for the quarter was stable at 19.8%. Net profit attributable to shareholders was RMB3.9 billion, up 20% year on year and 5% quarter on quarter. On a non GAAP basis, operating profit for 3rd quarter was rmb 5,300,000,000, up 20% year on year and 6% quarter on quarter. Net profit attributable to shareholders was rmb 4,400,000,000, up 23% year on year and 5% quarter on quarter. Operating margin was 34% down 4 percentage points year on year and 1 percentage point quarter on quarter. Net margin was about 28%, down 3 percentage points year on year and 1 percentage point quarter on quarter. Let's turn to segment gross margin. Gross margin for VAS was 65%, down 1 percentage point on year or up one percentage point quarter on quarter. The sequential increase mainly reflects a higher revenue contribution from in house games. Gross margin for on our advertising was 52%, up two percentage points year on year or down 2 percentage points quarter on quarter. The sequential decrease mainly reflected high, higher online video content costs as we continue to acquire video content. Gross margin for e commerce transactions was 6%, up two percentage points year on year of stable quarter on quarter. Moving on to operating expenses. Sedan marketing expenses was RMB 1,500,000,000, up 7 9% year on year and 19% sequentially. The year on year increase was mainly due to promoting reach out in international markets on on games and certain mobile applications as a percentage of revenue. Selling and marketing expenses increased to 9% from 7% in the first last year. G and A expenses was rmb 2.6 billion, up 29% year on year and 9% sequentially. The year on year change mainly reflected increases in R And D expenses, staff scores and administrative such as office rental to corporate business expansion. As a percentage of revenue, G and A expenses decreased to 17% from 18% in the first last year. Included under G And A, R and D expenses was RMB1.4 billion, up 21% year on year, 9% sequentially. R and D represented 9% of quarterly revenue. As at quarter end, we had about 20 7000 employees, up 15% year on year and 6% sequentially. Comparing to last year, we employ more people to run warehousing and launches operations for our e commerce business. Quarter on quarter, the increase was due to our annual recruitment of university graduates to support the spreads. Now we'll look at margin ratios for the first quarter. Gross margin was 54.7 percent, excluding e commerce. Non GAAP operating margin was 34.3% excluding e commerce transaction revenues and costs, it would be 39.4%. Non GAAP net margin was 28.4% Excluding e commerce transaction revenues and costs, it would have been 32.4%. During the third quarter, we did not repurchase any shares. For 2013 to date, we repurchased 6,640,000 shares for an aggregate consideration of HKD 1,600,000,000 The total number of shares outstanding was $1,859,000,000. Basic was RMB 2.105 on a GAAP basis and RMB 2.382 on a non GAAP basis. Diluted EPS was RMB2.07 on GAAP basis and RMB2.343 on a GAAP basis. Total CapEx book for the quarter was rmb 1,600,000,000, up 43% year on year and 11% quarter on quarter. Operating CapEx was rmb985 1,000,000, up 1% year on year and 35% quarter on quarter. During the quarter, we repurchased more servers to support growth in our vast businesses. Non operating CapEx was RMB336 1,000,000, up to the 3 12% year on year was around 14% quarter on quarter. This year to year change reflected the expansion of $3 census in China. Free cash flow reached 4,200,000,000 RMB up 2% year on year 3 percent quarter on quarter. Our net cash position at quarter end remained strong at $34,400,000,000, up 46% year on year and 3% quarter on quarter. Finally, I will detail the financial impact of the Sogou Sogou transaction and our revenue recognition for mobile games. For the Sogou Sogou transaction, we will consolidate Sogou related advertising revenue and costs and capture our share of the new Sogou's net income or losses as share of profit or loss from associates the provident loss accounts. On the balance sheet, we will recognize our equity interest in the news or go under interest in associates. For mobile games distributed on mobile QQ and reaching game centers, with street revenue between social networks and online games. We allocate the platform portion of revenue under our open platform subsegment and the operator and developer portions under online games. This concludes our presentation. Thank you. Thank you, John. Your first question comes Please ask your question. Hi, good morning and good evening everyone. Thank you very much for taking my question. I have two questions. The number one question is, as Martin discussed, the operation of mobile game publishing on mobile 2Q and Wixin has demonstrated a mobile social forms and user reach and the viral adoption ability. So my question is, beyond the mobile gaming, what are the digital content and services the recent such power can be applied to our mobile? And do you have a plan to introduce these continent services to your mobile social platforms? Number 2 question is, obviously, this quarter, we have seen the median usage has been shifting to mobile as well. What will be the the amortization across different app categories such as a brand ads, video ads, and performance data answers such as Guangdian Tong? Thank you very much. Okay. On the question of additional content. I think a lot of digital content actually sort of quite suitable for mobile distribution. And we have already sort of put in some of these integration points, for example, on our news, flat form. We actually now have got, a daily meals, one in the morning and one in at the night. Which sort of provide the headlines of our new service to the WeChat as well as mobile Kiki users. And that is very, very popular. And it's a service that has a lot of user value. And through that, we actually also have been able to cross promote So that's an example. In addition to that, we have been sort of promoting our music content well as video content through social sharing within our platform. So a lot of these digital content actually very suitable for social distribution and we have been leveraging our platforms through that. Now in terms of the monetization, James would actually address the question. Yes, I think you were asking about, as media usage shifts from desktop to smartphone, how can we shift our advertising revenue and response. Our belief is that the performance advertising, the shift is relatively natural if you look at the financial results from companies like Facebook or Twitter and the rest of the world, then they've obviously been able to ramp up their mobile performance advertising relatively rapidly. In China, we've been experimenting with putting, performance apps from Guanli and Tongong on third party mobile apps. And what we find is that the click through rate on mobile can be comparable to or actually superior to the click rate on desktop for performance ads. Moving on to display advertising, the transitions a little bit rock here, but we are now seeing some success with our experiments in areas like flash screen ads that appear when you load on user app each day. And then finally, video advertising is probably the most challenge at the moment, partly because of the proliferation of pirates So there are some apps out there that enable users to watch video content from any site, including our own, but actually script the advertising out. And that is obviously a fairly substantial deterrent to the ability of the industry to generate mobile video advertising at meaningful scale. So that's part of why we and other companies in the space are very focused on cracking down on video piracy and you may have seen an announcement about that this afternoon. Thank you. The next question comes from the line of Digwei from Credit Suisse. Please ask your question. Hi, good evening. Thanks for taking my questions. I guess some other questions on the dynamics on the social network side. Guess in the press release, we talked about some of the decline in subscription is going to be offset was offset by the item based, related revenue on the social network. Can you talk a little bit about the dynamics? How should we expect like to change down the road? And in particular, with this mobile, new mobile revenue working, Atlantic mythology, how does it how did it change the, kind of numbers in the third quarter? Thank you. Yes. On the dynamics of the, I would say something, your question is related to the subscription revenue, I think we have actually been already explaining this in for a few core is Neil. When, when we were in the PC regime, we actually had a lot of privileges related the, a membership and VIP, for the users. Now, when we actually, start to migrate users over to the mobile platform, we actually, have really focused on building user experience, the basic communication and social functionalities. And a lot of the monetization mechanisms, a lot of the privileges were actually sort of add ons that were not the most important for the basic user experience. So that's why, to some extent, we have sort of left them to a later time. So now when we look at sort of the subscription, services and the VIP services. A lot of the privileges that are not sort of mobile related. So now we have started to provide certain mobile related privileges and put it into the VIP packages. So we are seeing line of the subscription, leveling up, at this point in time. But I think it would take us more effort as well as longer time in order to really provide the full suite of privileges in relation to the VIP services. But of course, in the meantime, New has we move to mobile, we're now having a pretty vibrant gaming platform. And, that would actually help us to generate some revenue, over year to medium term. Now John would actually talk about how exactly we actually did the revenue. All right. As I mentioned before, we allocate platform portion of the revenue under open platform segment. And the operating operator and developer portion under online games, in this quarter since we have just started our game, the revenue is noticeable, but it's not that huge since all of our five games are self developed they're more portioned under online gaming, with this, you know, the platforms. Okay. Got it. And I just want to maybe go back to the, kind of the the speed of the subscription, the PC based subscription declined. When would you see kind of the reacceleration of some of the subscription, kind of the mobile preferred subscription related subscription to more to drive the, the growth on the segment? Well, I don't think we'll give this kind of a specific guidance via New York Pass and when more and more privileges are added on the mobile side. And the mobile side subscription would actually start to pick up and hopefully would actually overcompensate, for the TCD client. But we'll have to see. I think a lot of it actually is sort of new. We know that a whole host of things that we need to do But sort of the speed at which we do it will also be impacted by how much fundamental work that we need to do to improve the basic user experience. So we can't really sort of give a timetable. At the present time, I think the most important thing is still to make sure that the app itself is actually providing the best user experience on the fundamental value side. Great. Thank you. The next question is from Alan Hallawell from Deutsche Bank. Please ask a question. Great. Thank you so much. Just a quick question. We probably all recall, the, results presentation from your partner Nexen, and generally somewhat of a negative surprise as they talked about the fourth quarter and their reference to a dungeon fighter. I know that there are oftentimes, extenuating circumstances that would explain that, but can you give us your interpretation of of why why they might be, bringing this up and and add a little color there, if you don't mind? I think we'll probably pass on that interpreting what other people say. But I did mention in the introductory remarks that Dungeon and Fighter revenue has experienced some pressure. And the specific reason is because the expansion pack released in the third quarter of 20 13 was less impactful than the expansion pack in the third quarter of 2012. Now I think it's probably fair to argue that as a game, gets older, then it is, you know, logical that expansion packs may have diminishing impact over time or conversely that an expansion pack needs to be bigger and better in order to achieve the same impact as earlier expansion pack. So be that as it may. I think also worth pointing out that our aggregate game revenue achieved relatively healthy growth in the third quarter of this year versus the third quarter of last year. The majority of that growth was actually driven by self developed games. Now I don't think that will necessarily be the pattern going forward because we have lots of license games that we're very excited about in our portfolio. But the key takeaway, I think, is that we do have a portfolio of games. And while we'd like every to be doing spectacularly every quarter that that's never really been the case in the past and will probably never be the case in the future. Got it. And James, sorry, one quick follow-up. You've, here, 2, 4, very rightly, you've talked about the growth in mobile gaming as being significantly incremental to your burgeoning desktop business, gaming business. We really start hitting scale in mobile gaming, what do you see as the interactions between desktop mobile in terms of time spent, etcetera? I think at this point, our view is that in a mobile game could be somewhat kind of ballistic of the mini casual game card 3 of desktop games, which as you know, is very much the minority of our desktop game revenue. At this point, we believe that mobile gaming is very largely incremental in terms of both time spent and also money spent to the desktop game category. And that belief is based on what we've seen so far in China, what we've seen so far in Korea, Japan and the rest of the world. Obviously, things may change in the future, but that's how things look at the moment now in China and overseas. Fantastic. Thank you very much. The next question comes from the line of Timothy Chen from Morgan Stanley. The first one is about the competition in for Weixin in China. Your competitors, they're now getting more aggressive in pitting with, you know, waste in product and some even started to subsidize the data charges. And can you talk about how meaningful is the competition, now in China? Thank you. And I have a follow-up question. Yes. On the competition side, I think, well, 1st of all, I think we actually do welcome, competition. And competition, I think it's really an edge nature of life in the China Internet market, it's only when you have a good segment that sort of new competition starts to come in. And I think the important thing is that sort of by having competitors, it actually drive, you to actually work harder in order to come up with better user experience for the user is. So I think that's, to some extent, a good thing for the market. Secondly, for us, we continue to view that the biggest value of communication and social product is actually within the product itself. We are very focused on building user experience in order to deliver the best user experience for our users. And so that when you have the best user experience and the users stay and the users when they stay, they actually keep each other. And I think that's actually the biggest value a social network and of a communication tool. So from a more light perspective, you never see sort of a product, which gives away money actually eventually taking over the market. So I think ultimately, the most important thing is really the fact that, who has the best user experience, who can actually provide the best user value to the And I think on that front, we are completely focused on. So could you also talk about the later competitive landscape for WeChat And overseas market. What are the countries now you have a clear lead where do you need to continue to spend on marketing? And finally, how should we think about the WeChat marketing spend next year compared to 100,000,000 to 200,000,000 this year? Thank you. Well, I think there's not that much to update, right? I think we have given sort of the overall situation of WeChat in the overseas market. 1 quarter has passed. The number had been consistently growing. And we are very focused on making sure that's sort of within the market that we're penetrated. We continue to provide good product good service quality so that the users will have reliable service and we'll have increasing user engagement been. And I think for now, the marketing will go on and we'll see, at least for the next few quarters, we'll continue to spend on marketing so that we can sign up new users. But over time, I think the focus will be gradually shifted to making sure that users are engaged more on our platform. And now with sort of the launch of 5.0 in the overseas markets that's coming up, we will have games. We'll have more emoticons that will provide the users. And we'll have new functionalities. And hopefully, all these things will actually add to the user engagement. Now, the dual graphic coverage is still primarily, Southeast Asia, Asia certain countries in Latin America as well as countries like Italy in Europe. I think we have a number of these markets. Some of them sort of we have a pretty good concentration to users already. Some of them so that we are seeing early traction. So I think it would take another few quarters to play out. Sure. Thanks Martin. Thank you. The next question comes from the line of Eddie Lim from Merrill Lynch. Please ask your question. Hi. Good evening. Thank you for taking my questions. I have 2 questions. The first one is about your mobile game that we're going to be able to your 100 and 1000 of our developers out there. How quickly will we see the number of games increase on your platform And how do you see the differentiations between Mobile QQ and Weixin in servicing your developers? And then secondly, just a housekeeping question, could we have the ARPU trend of your online games? Thank you. Okay. On the mobile game platform, right? I think, we actually sort of have a whole series platforms. So the strategy might be sort of slightly different with respect to these different sort of properties. But overall, I would say the focus is actually sort of to be able to, work with many good developers as possible so that we can actually deliver the best games and the best gaming experience to the users. But sort of because of the different nature of the different properties, the strategy might be different. For example, if you look at our social platform, Weixin and Mobile QQ. I think the strategy there is actually should be more selective in terms of introducing games. So the nature of these platforms that we try to sort of bring on games that has a social element, that sort of can not only provide the gaming experience, but also sort of and the communication and social experience of the users. So we have to sort of pick the games that actually fulfilled circumstances and sort of criteria. Now, on other parts of our overall platforms, such as our our app store. And the strategy will be as open as possible. Sort of in the future, if you launch Guangdian Tong, for example, which allows different applications to promote their games, then that would be sort of a much sort of open platform with much wider selection. So I think depending on what kind of properties it is and what kind of setup that would actually provide for the best user experience according to their expectation, we'll have sort of different strategy. But by and large, in the very near future, sort of new third party games will sort of adopt the dominant force within our platform. That's what we want to eventually sort of achieve. In respect of the ARPUs, the MMOG in Cortistry was $185 to $275,000,000. And for advanced casual gains, it was $75,000,000 to $175,000,000. Thank you. Next question comes from the line of Alicia Yap from Barclays. Please ask your question. So my question is related to VJET payment. Can management elaborate a little bit on so far since the introductions of the features in August, how the user traction has been so far And in addition to the payments that related to the in game purchase, is there anything that we generate so far from the O2 business activities and how is the traction? And if so, where is the revenues actually being recorded? Well, I think your WeChat payment, actually, it's called Weixin payment because it's not available on the WeChat platform, which with international users yet. So waste in payment is fairly, trial of our payment, mechanisms sort of for the Weixin platform And it's actually, leveraging sort of the existing infrastructure of our 10 K platform and we extend part of the user experience onto the racing application. And, I would say right now, it's actually sort of, you know, mainly for, providing convenience to the users so that they can actually, pay for our own games as well as pay for some of their sort of mobile subscription as well as buying certain sort of virtual items. But over time, we believe that it would actually also be very helpful to different kinds of, on, merchants, right, who wants to get into mobile transactions. So for example, our public account ecosystem can actually sort of benefit from the fact that there is a waste in payment platform. Also some of our partners on the e commerce side, on the group buy side, on DTC side, you know, they also certainly can leverage, which are payment to you get payment from the users. So I think it's still early days in terms of the development, but we believe with more and more payment mechanisms with more and more to grow. From the line of John Chow from Macquarie. My first question is about WeChat and Mobile QQ. You talked about your revenue between gaming and social for the revenues you are getting from the games on these 2 social platforms. Could you share with us the exact split is that fifty-fifty or seventy-thirty? How do you split that? And is that the same split you intend to use once you open the WeChat to the 3rd party games and what the timing for that opening up is going to be later this year. I think you talked earlier. My second question is on your e commerce business. I was hoping you can talk a bit about what you saw on a single state activities compared to last year for both of your platform business as well as for your sort of 1st party merchant principle business? As I've explained earlier, the amounts of revenue booked under online gaming for those mobile games under just more than that book under open platform. Going forward, if there are 3rd party developers going on to our path It will really depends on whether we are the principal agents in some cases in which we do not determine the pricing or the recent reports rest with the developers, then it will be booked as net revenue. However, if we operated out the games, ourselves, set pricing and stuff like that, then we will be it will be both at gross revenue and they will be sharing the paid out to them. That's how the accounting works for those mobile games going forward. So on e commerce, right? John, I want to follow-up on this. I was asking, if you you have a $100 revenue from a Weixin game and do you put a $50 into the social networks, $50 into the games? I was asking a split if you're able to share with us? I think it's pretty clear that we're not going to be able to share this with you. So what John is saying is that, you know, the for self developed games, right now, right, which the first five games, both ourselves developed has proof of concept and sort of the revenue booked to the gaming division is actually higher than that to the platform because the gaming division sort of has both responsible for the content as well as for the operation of the game. Okay. So on your question regarding e commerce, right? I would say a single day is actually sort of a little bit difficult sort of indicator of the overall performance of the platform, but obviously this year, right? Because everybody has prepared for this particular one day. So the performance of our platform has been sort of quite good compared to last year. So as a data points, because of sort of the focus on making sure that our logistics is actually, well prepared as well as with a more focused in terms of traffic generation and also in terms of making sure that we have enough trees, the first party sale actually GMV order is actually more than five times what we had last year on the same day. You. The next question comes from the line of Thomas Trond from Bank of China International. Please ask your question. Hi, good evening. Thanks for taking my question. I have a question about the status features. If you look at overseas payers, line in Japan. We love about 20 percent of the revenue coming from stickers. How should I think about the trend in China expected is going to be a meaningful revenue contributor to Tencent WeChat? Thanks. Sort of know that we believe actually Stages is actually a pretty good way to engage users rather than generate revenue from the users. I mean, on the revenue generation front, Sameer, we provide free games, but within the games is is very easier to generate, differential experience so that some people may want to pay for. Some people don't wanna for. But with the stickers, I think the guiding principle for us is probably going to be trying to provide the stickers if possible, right? And if some IP owners would not sort of give us a blanket, right? Distribute the stickers. But if and when the cases are possible, then we actually want to provide the stickers to as many users as possible, which means that it will be relatively tricky. Thank you. The next question comes from the line of Ming Zhao from 86Research. Please ask your question. Excuse me, Mr. Ming Zhang, your line is now open. Please proceed with your question. Okay. I think he might be, not around. And also in the interest of time, shall we take the last three questions, please? No problem. The next question comes from the line of John Choi from Daiwa. Please ask your question. Good evening guys and thanks for taking my question. I have a couple of questions. First of all, on your search business cooperation with Sogou, Could you elaborate on more when should we be seeing the integration really happening between Sogou and Tencent on especially on the mobile search area. We'd like to get more color on that area. My second question is regarding the blade and sole, recently heard very positive feedbacks from the limited CBT. When does the management expect BNS to officially launch a game in China? Also based on the positive feedback and response from users so far, does the management think this game could be as successful as comparable to TNF, which obviously one of the key games for Tencent. Thank you. On the our integration with Sogou, I think would say the progress has been pretty smooth. And, we have merged the teams and we are in the process of moving the inventories, from, from so so over to sort of the average platform of Sogou. And we are also sort of providing a transition plan for the search advertising agencies and distributors on the social platform. So I think things are moving in order. And, the more complete integration will probably set up NIO, be happening toward the end of this year. On blade and soul, we probably won't answer the question you're asking, but it's a high level observation, blade and soul is a game that that's going to track relatively well in the most anticipated game rankings in China for a long time now. And so far it seems as if it's one of those rare, happy circumstances in life when the reality, at least the early bunch of users indeed gives up to the elevated expectations. Looking forward, in the de sequence of sort of progression for our games is typically they move from a, limited close beta test or only a certain number of people can play into an unlimited closed beta test and then open beta and commercial launch full commercial launch thereafter. So that, that's sort of the forward trajectory. The next question comes from line of Ravi Sarati from Citigroup. Please ask your question. Will proceed for the next question. The next question comes from the line of Piyushi Mumbai from Goldman Sachs. Please ask a question. Thank you. I had two questions. The first is when I look at the rollout of games on Weixin And I contrast that with the way line progressed and caca talk progressed. It looks like you've been a lot more cautious you comment on that and tell us what the pros and cons are of the strategy you're deploying? That's the first question. 2nd, on the merger with of Soso and Sogo, doesn't lead to your eventually taking costs out? And if that's the case, is there any other anything else that we could look at in the next couple of months as being areas where costs could be taken out potentially. Thank you very much. On the gaming platform, so I think your observation is actually sort of correct. And as I actually explained earlier, we do have sort of quite a number of different platforms to leverage. So I think we are applying financial strategy with respect to the different platforms. Now on Mobile QQ and Weixin, these are sort of our crown jewel platforms. And, we very much certainly care about the user experience. And we want to have a symbiotic relationship between these applications and the games such that the games are not there just sort of using the distribution channel, we actually want to have these games actually, feeding back into the social and community indication interaction for those platforms. So we actually, I would say, attach a pretty high, standard for emitting games into these platforms. And so that's why in the initial stage, it's actually sort of self developed games so that we actually have the full troll to tweak all the user experiences so that we want to make sure that the games are not sort of hurting the applications, but the same, but rather they're actually going to be able to help the applications over time. I think we have gotten pretty good, of such proof of concept so that now we can actually, games into the platform. But by and large, we'll be very cautious because we do want to maintain a very conducive and nice environment for our users within our cloud platform. On the other hand, right? And some of marketplace oriented platforms that we also know, such as, the App Store, such as in the future, maybe the browser we can actually sort of provide a place for more open platform type of operation, which includes many, many more games. Add to the Sysco transaction, again, you're right to observe that there will be, consequence cost savings running a search business as an extensive business, particularly in terms of engineers and server CapEx. Now that's not the primary or sole rationale for the transaction. The primary rationale is to do a better search product for our users. Better traffic for our advertisers, but it's a fair observation. The capital profit that's freed up, we'll reinvest some of that in, strategic investment areas where we see continued growth opportunities such as online video. So, you shouldn't expect us to suddenly change our stripes and become, very short term oriented and we'll continue to invest aggressively for the long term, same time, I think the transaction does illustrate that we invest aggressively, but not irrationally. Thanks. Thank you, Jim. Thanks very much. Thank you. Our last question comes from the line of Ravi Sarawasi from the Citigroup. Thank you very much for taking my questions. I have a couple of very quick questions, if I may. You've certainly wetted our appetite with the first this that you gave for the 5 key games of $570,000,000 registrations on the mobile platform. I was wondering, last quarter, you shared number DAUs, a number of downloads in 10 days. I was wondering if you had any other color you could possibly share around anyone or all of those games. My second question is, I may have missed it, but the amount of spending for WeChat International on sales and marketing in quarter or any numbers you may wish to share for the quarter or other time periods? Yes. In terms of the The mobile game, so I think the number sort of group that we gave for this quarter and you had the following, right? The first one is actually 517,000,000 for across the five games, cumulatively sort of within the 1st 3 months. And at the same time, we also gave the ranking of these games, basically, so that each one of them, move to the top of the App Store, after launch and sort of stayed there for quite some time, after the launch. And, from a revenue generation perspective, one of our games, which is TME everyday run, actually had breached, the top 3 in terms of the grossing chart for iOS App Store and where it has stayed there for quite some time as well, which certainly does prove the monetization capability of certain of our games. So that's for the games. And, what was the last question? Sorry. Oh, the sales and marketing automation, I would say sort of the other, the spending, actually, sort of, in the third quarter on WeChat International is actually, mainly related to sort of the messy, marketing program that we actually launched across 15 different markets. But sort of towards the latter part of the quarter, because it's in summer of occasion, we actually sort of reduced the spending quite substantially, but sort of stepping into the fourth quarter, we stopped spending again. And this time around, it was sort of both the global campaign as well as a quite credit field of local paid in the target markets. So I don't say sort of you should expect this quarter will be a step up in terms of spending compared to the third quarter. And as I said, right, we will actually keep spending to acquire new users for the next few quarters. But we feel that this is actually sort of important for the long term growth of our company. Okay. Thank you very much, Mavi, and thank you, operator. We're rounding up the conference call now. If you wish to check our press release and other dimensions information, please visit our website under www.pearson.com/ir. We'll offer those to replay updates webcast on the site shortly. Thank you and see you next quarter. Thank you, everyone. That does conclude our conference for today. Thank you all for participation of Talend Holdings Limited 2013 Third Quarter Results Announcement Conference Call. May now disconnect.