Thank you for standing by. Welcome to the Tencent Holdings Limited 2013 first quarter results announcement conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a 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 a 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, Ms. Catherine Chan from Tencent. Please go ahead.
Thank you, operator. Good evening. Welcome to our latest conference call for the first quarter of 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 that 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 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 measures, please refer to our disclosure documents downloadable on www.tencent.com/ir. Having said that, let me introduce the management team on the call tonight.
They are our Chairman and CEO, Pony Ma, President Martin Lau, Chief Strategy Officer James Mitchell, and CFO John Lo. Pony will kick off with a shorter video for financials and platforms. Martin will discuss our Value-Added Services segment. James will speak to online advertising and e-commerce transactions segment. John will go through the financials before we open the floor for questions. Now let me invite Pony to begin.
Thank you, Catherine. Good evening, everyone. Thank you for joining us. In the first quarter of 2013, our community advantages, platform strength, and execution capabilities have helped to further expand our market leadership and deliver broad-based 40% year-on-year growth in revenues. Our strong business model has enabled us to invest in e-commerce, WeChat international marketing, mobile initiatives, and video content, while delivering a healthy 23% year-on-year non-GAAP earnings growth and 57% year-on-year growth in net cash. Now let me highlight the financial numbers for you. Total revenue was RMB 13.5 billion, up 40% year-on-year and 11% quarter-on-quarter. Our redefined Value-Added Services Segment revenue, which combines both the previous IVAS and NVAS segments, was RMB 10.7 billion, up 29% year-on-year and 14% quarter-on-quarter. We reported two sub-segments under Value-Added Services, namely Social Networks and Online Games. Social Networks revenue was RMB 3.2 billion, up 16% year-on-year and 2% quarter-on-quarter.
Online games revenue was RMB 7.5 billion, up 35% year-on-year and 19% quarter-on-quarter. Online advertising revenue was RMB 850 million, up 57% year-on-year or down 10% quarter-on-quarter. E-commerce transactions revenue was RMB 1.9 billion, up 154% year-on-year and 14% quarter-on-quarter. non-GAAP operating profit was RMB 5.1 billion, up 24% year-on-year and 17% quarter-on-quarter. non-GAAP net profit attributable to shareholders was RMB 4.04 billion, up 23% year-on-year or down 1% quarter-on-quarter. Moving on to our online platforms. For our core communication platform, QQ IM monthly active user accounts grew steadily at 10% year-on-year to 825 million. PCU increased 3% year-on-year to 173 million. During the quarter, we continued to see users shifting access channels from PC-only to both PC and mobile. Our smartphone-based social communication service, Weixin, further expanded user base in China. Its international version, WeChat, recently grew to 40 million user accounts in overseas markets.
As at quarter end, the combined MAU for Weixin and WeChat was 194 million, up 228% year-on-year. For social networks platform, Qzone MAU increased 6% year-on-year to 611 million. About 70% of the MAU now access the service from mobile only or a combination of PC and mobile. For our online games platform, PCU of QQ Game platform grew 5% year-on-year to 9.2 million. We are transforming QQ Game platform into an open platform that can be accessed through both PC or mobile platforms. Our media platforms achieved a solid growth in traffic and deepened our differentiation through integration of our portal, microblog, and video platforms. qq.com continued to lead Chinese peers in terms of page views and unique visitors. Tencent Weibo had 81 million daily active user accounts at quarter end. Our video service enjoyed significant growth in users and traffic with enriched content and enhanced user experience.
For our utilities platform, we are rapidly expanding penetration in mobile internet through our mobile security solution and mobile browser. That's all from me, and I will invite Martin and James to review our business segments.
Thank you, Pony. Good evening and good morning. During the first quarter of 2013, we further broadened our revenue base and achieved overall revenue growth of 40% year-on-year. Excluding the e-commerce transactions, our quarterly revenue would have grown 31% year-on-year. From a mix perspective, contribution from online games was 55% in the first quarter, compared to 57% a year ago. Social networks contributed to 24% of total revenue, compared to 29% for the same period last year. Online advertising was stable at 6% of total revenue, and e-commerce transactions was 14% of total revenue, compared to 8% when we stepped up the scale of investment in our principal operations early last year. Starting from this quarter, we have combined, as you can see, the former IVAS and MVAS revenue segments into a new segment called Value-Added Services.
The change is mainly as a result of the increasing integration between PC and mobile platforms, also because of the unification of many of our PC and mobile product teams. Within this VAS segment, we have two sub-segments, namely social networks and online games. Under social networks, we had RMB 2.55 billion of community and open platforms revenue previously under IVAS, and we added RMB 643 million of mobile non-game revenue previously under MVAS. Under online games, we had RMB 7.14 billion of online games revenue previously under IVAS, and we have added RMB 337 million of mobile games revenue previously under MVAS. The new VAS revenue increased 29% over the first quarter of 2012. If we look at the former IVAS revenue, it grew 31% year-on-year, and the former MVAS revenue grew 7% year-on-year. Diving into the new VAS segment, social networks revenue was RMB 3.2 billion, up 16% year-on-year and 2% quarter-on-quarter.
Item sales on open platforms grew as we converted more users to paying users and as we increased the average revenue per user. On both year-on-year and quarter-on-quarter basis, the increase in open platform item sales has more than offset the decrease in subscription revenue. For online games, the revenue was RMB 7.47 billion, up 35% year-on-year and 19% quarter-on-quarter. New in-house games, including Legend of Yulong and Legend of Xuan Yuan, more users, also increased ARPU from existing popular titles drove year-on-year revenue growth. Revenue grew sequentially due to new games, expansion packs for certain major games, as well as positive seasonality and marketing activities associated with that. Taking a closer look at social networks, our users are increasingly accessing our community and communication services on mobile devices.
For example, we have now 550 million MAU for Wireless QQ, 194 million MAU for Weixin and WeChat combined, also 70% of the 611 million MAU for Qzone are using some degree of mobile to access the service. For the time being, our VIP privileges offered on smartphones are not as well developed because we are preoccupied with improving the basic features first and building the platform. As a result, the proportion of users who subscribed to monthly packages dipped. We're now addressing this issue by integrating our PC and mobile product teams, unifying product experiences for these services, also developing new VIP monthly subscription packages for both PC and mobile usage.
Over the longer term, we believe our users will show similar propensity to pay for privileges on smartphones as they did on PC, as we have seen in Super QQ, which is already enjoying pretty healthy subscription rates on smartphones. On the open platform side, we continue to strengthen our leadership position. We have internally developed and operated our cloud infrastructure, which provides operational scalability to developers and online security to users. During the last 12 months, the number of applications generating revenue on our open platform increased 180%. To broaden the mix on our open platforms, we also encouraged developers to launch non-gaming applications, and we have provided them with marketing support. We're also in the preparation stage to extend the current PC-based open platform to the mobile devices. Moving to online games, on QQ game platform, we now operate 178 games in total.
The combined PCU increased 5% year-on-year to 9.2 million due to seasonal in-game marketing activities. The combined ACU decreased 5% year-on-year as users spend more time on open platform games that are operated on our social networks. For ACG, we operate seven titles. The combined PCU grew 73% year-on-year to 15.6 million, and combined ACU grew 50% year-on-year to 5.1 million. The main drivers behind user activity growth were expansion packs for CrossFire, new play modes for QQ Speed, as well as technical upgrades to enable more users per server cluster for League of Legends. In-house titles contributed materially to year-on-year revenue growth in the quarter. In terms of new games, we are releasing NBA 2K Online, a joint development title, and War of the Zombie, a licensed FPS title, for open beta in May. For MMOG, we are now operating 14 titles.
The combined PCU increased 30% year-on-year to 4.3 million, and combined ACU increased 38% year-on-year to 2.2 million due to new in-house games, Legend of Yulong and Legend of Xuan Yuan, as well as expansion packs for DNF. The sequential revenue growth benefited from the first full quarter monetization of the Legend of Xuan Yuan. Now, we also like to give an update on our online games pipeline. As you can see on this page, we have assembled a rich pipeline for our game platform business. Our portfolio represents a good balance between in-house and licensed games and a broad mix of genres, ranging from dancing games to shooting games, to action and fighting games. Currently, we have six games under closed beta, including Assault Fire, QQ Dancer 2, and Warface under the ACG category, as well as Asura, QQ Fairy, and Blade & Soul under the MMOG category.
Given our unyielding focus on quality of the games, we will release these titles only after we are satisfied with the overall game experience, rather than adhering to a rigid timetable. Now I would like to pass to James to talk about the online advertising and e-commerce businesses. James?
Thank you, Martin. Online advertising segment revenue was RMB 850 million, up 57% year-on-year and down 10% quarter-on-quarter. Within that, display advertising revenue was RMB 754 million, up 59% year-on-year and down 8% quarter-on-quarter. The year-on-year growth was due to performance display advertising, in-video advertising, and new inventory from our regional portals. The sequential decline was due to Chinese New Year holidays and in line with historic seasonality. Our search advertising revenue was RMB 96 million, up 48% year-on-year and down 23% quarter-on-quarter. The search landscape as a whole has become more challenging due to new composition and to users' shift to mobile devices, where they may generate fewer paid clicks. We remain focused on improving our search experience, especially on mobile, and on upgrading our infrastructure to improve search results quality.
Digging deeper into display advertising, our top five advertiser categories for brand display were food and beverage, automobiles, online services, consumer electronics, and personal care. Our video advertising revenue more than doubled year-on-year and increased substantially quarter-on-quarter due to significant traffic growth and improved sell-through rates in core first-tier cities. Year-on-year, we increased our regional portals from seven to 10, providing more inventory for local advertisers. For performance display, we've expanded our targeted ad system from our social networks to now cover some of our other properties, such as the Tencent QQ chat box. We've also made the targeted ad system available to developers of applications on our open platform, where it's proven particularly popular with the non-game app developers.
We've recently launched SNS Win, a new cost-per-click targeted ad solution for small and medium enterprises to buy advertising on Tencent Weibo, starting with banner ads and later extending to promoted feeds. Turning to e-commerce transactions, segment revenue was RMB 1.9 billion, up 154% year-on-year and up 14% quarter-on-quarter, despite the e-commerce industry being seasonally weaker in the first quarter of each year. For our principal business, organic growth from our operation in Eastern China, plus contributions from our newer operations in Southern and Northern China, drove both the year-on-year and the quarter-on-quarter increases. In addition, we have expanded our product range in home appliances category during the quarter. For our agency business, revenue grew rapidly off a small base year-on-year due to increased merchant fees, but dipped quarter-on-quarter due to adverse seasonality.
During the quarter, we've begun the process of selecting premium merchants from our existing marketplaces to join our B2C open platform. That concludes the business review, and I'll hand over to John to discuss the financials.
Thank you, James. Hello, everyone. For the first quarter of 2013, our total revenue was RMB 13.55 billion, up 40% year-on-year and 11% quarter-on-quarter. Operating profit was RMB 5.06 billion, up 37% year-on-year and 36% quarter-on-quarter. We recorded net other gains of RMB 351 million versus net other losses of RMB 202 million last quarter. The change mainly reflected the recognition of a special dividend income of RMB 438 million from Mail.ru, partially offset by the donation of RMB 120 million to Tencent Charity Foundation. We did not book any impairment provision for investment this quarter. Mail.ru has distributed special dividends twice, contributing to a total of US$131 million or RMB 829 million to our P&L. This represented a return of 44% on our US$300 million investment in Mail.ru, excluding the fair value gain on our equity holding.
Share of profit of associates and joint venture was RMB 120 million, compared to losses of RMB 41 million last quarter. The change mainly reflected contribution from Epic Games relating to the launch of a new console game in the U.S. and European markets during the quarter. Income tax expense was RMB 1.03 billion, and the effective tax rate for the quarter was 20.2%. This has returned to a normalized level compared to income tax expense of RMB 151 million and effective tax rate of 4.2% last quarter as a result of income tax expense reversal. Net profit attributable to shareholders was RMB 4.04 billion, up 37% year-on-year and 17% quarter-on-quarter. On non-GAAP basis, operating profit for the first quarter of 2013 was RMB 5.06 billion, up 24% year-on-year and 17% quarter-on-quarter. Net profit attributable to shareholders was RMB 4.04 billion, up 23% year-on-year or down 1% quarter-on-quarter.
Operating margin was about 37%, down five percentage points year-on-year or up one percentage point from last quarter. Net margin was about 30%, down four percentage points year-on-year and quarter-on-quarter. During the first quarter, gross margin was 56%, down four percentage points year-on-year and broadly stable quarter-on-quarter. VAS gross margin were broadly stable at 66% both year-on-year and quarter-on-quarter. Gross margin for online advertising was 41%, broadly stable year-on-year. Sequentially, gross margin decreased eight percentage points due to weak seasonality in the first quarter. Gross margin for e-commerce transaction was 7%, up four percentage points year-on-year or down two percentage points quarter-on-quarter. Moving on to operating expense for the first quarter. Selling and marketing expense was RMB 962 million, up 105% year-on-year or down 12% quarter-on-quarter. The year-to-year jump mainly reflected increased marketing activities to promote our games and mobile products, including WeChat.
Sequentially, the seasonal reduction of advertising expense in China was partially offset by increased expense relating to our annual brand advertising campaign in China and advertising campaign to promote WeChat in Asian markets. Selling and marketing expense represented 7% of quarterly revenue compared to 9% in the fourth quarter last year. G&A expense was RMB 2.2 billion, up 25% year-on-year and 3% quarter-on-quarter. This mainly reflected increases in share-based compensation and other staff costs. G&A represented 16% of quarterly revenue, compared to 17% in the fourth quarter last year. Included under G&A, research and development expense was RMB 1.2 billion, up 28% year-on-year and 11% quarter-on-quarter. It represented 55% of G&A or 9% of quarterly revenue. As at quarter end, we had over 24,600 employees, up 29% year-on-year and 2% quarter-on-quarter. Our e-commerce business accounted for approximately half of the year-to-year increase.
Let's look at the margin ratios for the first quarter. Gross margin was 56.1%, down 0.5 percentage point from last quarter. Excluding e-commerce transactions revenue and costs, gross margin was 64.1%. Non-GAAP operating margin was 37.4%, up from 35.5% last quarter. Excluding e-commerce transactions revenue and costs, we would have been 42.4%. Non-GAAP net margin was 30.2%, down from 33.7% last quarter. Excluding e-commerce transactions revenue and costs, it would have been 34%. During the first quarter, we bought back 2.06 million shares for approximately HKD 509 million. For year 2013 to date, we repurchased 6.64 million shares for an aggregate amount of HKD 1.63 billion. The total number of shares outstanding reduced by 4.8 million to 1.849 billion now. Basic EPS was RMB 2.204 on GAAP basis, and RMB 2.2 on non-GAAP basis. Diluted EPS was RMB 2.166 on GAAP basis, and RMB 2.163 on non-GAAP basis.
Total CapEx for the quarter was RMB 1.04 billion, up 56% year-on-year or down 42% quarter-on-quarter. Operating CapEx was RMB 820 million, up 93% year-on-year and 39% quarter-on-quarter, as we purchased more service to support business growth. Non-operating CapEx was RMB 215 million, down 10% year-on-year and 82% quarter-on-quarter. The sequential decline was against the purchase of new office spaces in Nanshan District last quarter. Free cash flow reached RMB 5.9 billion, up 49% year-on-year and 37% quarter-on-quarter. Our net cash at quarter end remains strong at RMB 52.7 billion, up 57% year-on-year and 20% quarter-on-quarter. This concludes our presentation. Thank you.
Thank you. Operator, shall we take the first question, please?
Your first question from the line. Sorry. Ladies and gentlemen, 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 request, please press the pound or hash key. Your first question from the line comes from Eddie Leung from Merrill Lynch. Please ask the question.
Hey, good evening, guys. Thank you for taking my questions. My first question is about mobile games. Could you share some color on the development of your mobile game open platform? Is there any key milestones to watch for? Related to that, I just want to get your thoughts on how important you think the social elements in a smartphone mobile game platform versus some of the app stores right now in the space where users just can download thousands of applications pretty quickly. I would like to get a thought. Thanks.
Yeah, Eddie. On mobile games, I have to say we are continuing with our development of that platform. On one end, we want to make sure that we have the right infrastructure to link the games with our various large DAU applications, which would include the Mobile QQ and Weixin, as well as our Qzone. At the same time, we are also working very aggressively on building the portfolio, the pipeline for the games. We want to make sure that we have a number of high-quality games to be launched when this infrastructure is ready. We're continuing to push in the right direction, and it will be launched in the next few months, when everything is ready.
In terms of the social element, I think what we bring to the table is actually more than just the social element. What we clearly has demonstrated within our open platform on the social network, on the PC side is that social infrastructure is one that's very important. Two, we also bring in the logged-in accounts of all the users that we have on our existing platform. We bring in the payment infrastructure, which allows users to pay for the games very easily. Then we have the infrastructure that allows the games to promote themselves within the social network. At the same time, we also have a very strong cloud infrastructure that would allow games to be deployed on our platform very quickly and scaled very quickly.
At the same time, that cloud infrastructure also would help to ensure security and peace of mind for the users. I think there's a whole host of advantages that we are actually bringing to the developers, and we hope that would actually be much more appealing than just an App Store leaving a whole bunch of games for people to choose from. Of course, I think bringing to bear is actually our very strong expertise in choosing games and finding the high-quality games to be put onto the platform, so that the users will not be lost in a myriad of games, but really would be able to enjoy the very high-quality games along with their friends.
Yeah, got that. That's very helpful. Then just a quick follow-up on the performance display advertising side. Could you talk a little bit about the contribution of this segment to your overall advertising revenues? Then, have you opened up the inventory to more industries recently? Thanks.
In terms of contribution, we're gratified that advertisers like the product. As a result of the advertiser demand, it's the biggest contributor to the year-on-year growth for our overall online advertising business. In terms of expanding, over time, we've been progressively making it available to more advertiser categories. At the same time, and probably more important in the last several months, we've also been taking what was originally a product that was serving ads on Qzone and Pengyou, our social properties, and now also enabling it to serve ads across a broad range of our other properties. What we discover is as long as the users are logged in, which in most cases on our platform, they are logged in most of the time, then the Guangdian Tong targeted advertising solution can target and deliver ads very effectively for the advertisers.
Understood. Thanks, James.
Your next question comes from Alicia Yap from Barclays. Please ask question.
Hi. Good evening, everyone. Thanks for taking my questions. My first question is also related to mobile games. When you comment that your mobile games achieve 50% year-over-year growth, I wanted to get some clarity on this. Where is the main revenue source? Is this come from the per-download fees or the item buying within the certain games? Where are the main channels that gamers get the games? How should we think about the growth trend for the mobile games once you bring in the social games into the WeChat platform?
Well, this set of mobile games, I would say, is really the, if you want to call it, the first run of our mobile game offerings. Some of them are quite vintage oriented. There's a mixture of download games and WAP games, as well as some client games. By and large, these are not the connected online client-oriented games. What we are building for the online game platform, that's what mobile platform is really focused on the smartphones. If you look at the existing mobile game, some of them actually are not run on smartphones, and some of them are run on the feature phones. I would say, this is a little bit more the vintage mobile games revenue, and what we're trying to roll out is actually one that's suited for the new smartphone-based era.
I see. That's right. That's very helpful. My second question is on your new advertising platform for the Tencent Weibo. Can you elaborate a little bit further, because any specific category of the advertiser that you plan to target in the beginning? Related to that, what are some of the reasons that trigger the company to decide to start introducing the advertising into Microblog? I think if I remember correctly, I believe from previously, management comment that you guys are actually thinking about integrating the Microblog service to WeChat and may not have any plans for monetizing. Thank you.
Alicia, I'd say we're still at a relatively experimental early stage in terms of advertising on Microblog. It's much smaller for us than advertising on social networks. We think it'll probably be smaller in the long run as well. We feel the social networks are a more powerful advertising medium for our advertisers. It's something that we felt we could make available to advertisers, which if we control it properly, won't negatively impact our users. At this point, we'll respond to advertising demand. We'll build it at a very kind of measured, conservative pace.
I see. All right. Great. Thank you.
Your next question comes from [Catherine Leung] from Avery. Please ask the question.
Hi. Just a follow-up, I guess, on the previous question in terms of the smartphone-focused mobile game platform. Can you comment on how we expect your Weixin users versus, say, sort of the Mobile QQ versus the Mobile QZone users to access your mobile games? Do you expect sort of different dynamics and sort of have different games that are targeted at these different demographics? Thank you.
I think from a gaming perspective, they should be sort of relatively similar. I think different people have different social circles they want to play games with. I think that's primarily the difference. We're going to make the games available on all the platforms. I think, over time, we would tell whether some games are more suited for some platforms. I think it doesn't prevent us from making the games actually available to all the platforms at this stage.
I guess maybe another follow-up to this. Globally, we've clearly seen sort of very successful mobile games that are sort of generating revenue run rates of about $1 billion. Do you feel that for such a game to exist in the Chinese market, are there sort of clear titles or clear templates of what types of games could succeed? You think this is probably more a sort of a natural evolution as game players become more sophisticated?
Yeah, I think it's really early stage in terms of the development of the mobile game industry. Obviously, there are very successful mobile games. Some of the games are a little like sort of very successful single download or console games, right? They're not sort of even played socially. Then sort of there are very successful social games, and they are also very successful or becoming quite successful, more sophisticated, and heavy experience type of online mobile games. I think over time, the mobile game industry would actually go through a similar evolution as sort of the entire gaming industry, but maybe sort of within a more compressed time span, which means that you have console game, single-player game, and then sort of you have social game, and then you start to have the more professional and more heavier experience type of games.
Then sort of all of them sort of will have a certain part of the market. I think what we see is that the mobile games is actually sort of an addition to the existing gaming industry, which right now sort of is a very heavy experience, a lot of entertainment value, a lot of production value on PCs. Mobile games actually sort of allow people to play games and get entertained in fragmented time on their cell phones. I think that's one. Two is, we do feel excited when you have everybody sort of carrying a game machine in their pocket, right? That creates quite a bit of potential, and I think that's sort of where we see it right now.
Right. Okay. Thank you.
Your next question comes from Cynthia Meng from Jefferies. Please ask the question.
Thank you, management. I have two questions. One is on the e-commerce side. Assuming economy of scale of benefit to continue, can management give some more color on what the optimal gross margin we should be looking for in the future? In light of Alibaba's deal with Sina, they're getting access to Weibo's user data. What is the strategy at Tencent to get a bigger piece of the e-commerce market? That's my first question.
In terms of gross margin, I think there are a number of different determinants, right? One is sort of product mix. What exactly are you selling? We're clearly seeing the consumer electronics is actually sort of one of the lowest margin in the entire industry. Over time, if we can add sort of more appliances and white goods, that actually sort of can increase the margin. Over time, if we sort of add other products, they would carry different types of margins. It's driven a little bit by sort of product mix, but more likely, some of the new categories that we add will carry slightly higher gross margin than sort of consumer electronics are commanding right now. Two is actually, it depends on the open platform, the scale of the open platform.
The open platform is really sort of an agent model in the sense that you don't actually book the merchandise or GMV revenue, right? Basically, it's close to 100% gross margin business. The higher open platform GMV that we can generate over time, I'm not saying sort of it's soon, but over time, if we have more users, and we can actually connect our Yixun platform with our Paipai open platform, then we'll have more open platform type of revenue, and that would actually increase gross margin.
Okay, thank you. My second question is on the video side. We see increasing consolidation on the online video market with Baidu's recent acquisition of PPS. How would Tencent be positioning itself in that business? Would Tencent be also considering to buy post this consolidation, or will you consider to continue the existing self-built strategy in online video?
We've seen very rapid traffic growth by building organically. That in turn has fed through to relatively rapid revenue growth. I mentioned our revenue slightly more than doubled year-over-year in the first quarter from online video. I think that when we look at the assets we bring to bear in terms of our traffic, in terms of our relationship with our users, in terms of our back-end infrastructure, we feel that the platform we have today is a sufficient platform to get us to where we want to be in the industry. As you mentioned, there have been some transactions in the industry recently. I think specifically there's a situation where a web-based service acquired a client-based service. We think that's extremely sensible.
We've always been of the view that running the web-based service and the client-based service together is optimal because the web-based service maximizes reach. The client-based service maximizes user loyalty. The client-based service has lower costs for certain types of content distribution. We ourselves already have both a web solution and a client solution within our Tencent Video business. We already have both those assets organically.
Thank you, James. One last question on the global expansion strategy. How many users of WeChat do we have overseas? We read something like 40 million. I just want to confirm with management that this is the case. Given that Line and some other social networks have been posting impressive growth globally, we want to get some more color from management. Do you have any insights into taking WeChat into a global offer? Also, when you are ready to launch mobile game, would this aspect be part of the mobile game growth?
Yeah. We confirm, we have said we have more than 40 million users outside of China. It has grown quite rapidly. We'll continue to build on that user base. At this point in time, the focus is really user base. When models are actually sort of fully tested out in China, we may actually bring it to the WeChat platform. That's the next stage. Thank you.
Thank you. Next question.
Your next question comes from Chi Tsang from HSBC. Please ask the question.
Evening. Thanks for taking my question. I had a couple of questions regarding WeChat. I was wondering if you can give us an update on where you are regarding the commercial negotiations with the carriers as relates to WeChat, and if you can help us understand what might be a win-win situation between you and the carriers.
Well, I don't think there is so to speak, a commercial negotiation. I think, what we see with WeChat is actually, WeChat as Weixin for China, right, as well as other internet services are actually sort of in the same boat, which is, the availability of these services actually allow carriers to build out their data business, which has been sort of going very nicely. We felt that over time, for operators, the win-win situation at the very least is that the availability of internet services would drive a much wider uptake of data packages, as well as sort of upgrade of data packages into higher ARPU type of situations. If you look at China Unicom, their 2G ARPU is actually in the RMB 30s, whereas their 3G ARPU is actually in the RMB 80s.
Very clearly, when you actually sort of can do many more things with your handset, with your smartphones, users are willing to pay for a higher access charge. I think that's sort of fundamentally a win-win situation. We are also looking at additional commercial cooperations with new carriers, that's sort of more a usual thing that we have been doing ever since we have our MVAS services. On a particular technical issue in the sense that the internet services may be using up the signaling capacity of mobile networks, particularly with respect to 2G and 2.5G networks. We have actually established dedicated task force to work with the operators to try to optimize on that from a technical perspective.
Great. My second question is, I'm looking at sort of the stock buyback. You folks have been very aggressive. Last year, you only repurchased RMB 25 million in stock, I was wondering if you're seeing this as a strategic decision to return more cash to shareholders, or are you seeing this as more sort of opportunistic? Thank you.
Well, the way we look at it is actually our fundamental business is actually sort of quite cash generative. At the same time, over the years, we have actually built out a pretty sizable cash war chest. I think fundamentally, right, we would be more inclined to do share buyback, as the time and opportunity arise to act as a way to return cash to the shareholders. We do pay a very consistently growing dividend in addition to that, we would be also using share buyback as a way to return our cash to the shareholders.
Okay.
Next question, please.
Your next question comes from Timothy Chan from Morgan Stanley. Please ask the question.
Hi. Thank you very much for taking my questions. I have two questions, if I may. The first question is actually on e-commerce. Some of your competitors are now stepping up in terms of logistics. For example, offering up to four deliveries per day in Beijing. Is this something that you are going to match? If so, how should we think about the impact on your margin?
I think we have been sort of the market leader in terms of providing timely deliveries, we will continue to do that. Now, whether it's three or four or five, I think, at some point in time, sort of there is a marginal diminishing, marginal return. What we want to make sure is actually sort of, we have the infrastructure and sort of the logistics expertise to make sure that when we make a promise to our consumers, we actually sort of do can deliver. At the same time, it's actually delivered in a high-quality way. We would continue to improve our logistics infrastructure to try to deliver the best In class services to our users. I think that's our commitment. I don't think it's unique.
It's one dimension in the sense of how many deliveries you are making on a day, and especially sort of just on an advertising basis.
Great. Thank you. My second question is on the WeChat overseas expansion. I'm just curious, what do you see the difference is between the overseas users and Chinese users on WeChat, on the, for example, demographics or user behavior? Would you say the monetization for WeChat overseas going forward will be very similar to that in China? Thank you.
I would say, the fundamental usage is actually sort of quite the same, right? Because essentially you have a very rich communication experience with multimedia oriented. You can engage in group discussion. Within WeChat, we also have a number of pretty fun and social-oriented functions. Like Look Around, like Moments. I think fundamentally, people are using the same features and it's resolving, it's addressing the same user needs. In terms of each market, I think the cultural aspect is actually quite different. In some countries, it is actually sort of people are more using the push-to-talk function. In some cases, people like Look Around more. In some cases, people actually like to share pictures through Moments. We actually need to cater to each one of these markets when we do marketing, when we do feature promotions and when we target the users, right?
In some cases, the people are using mostly Android. In some cases, actually, the people are mostly using BlackBerry, as their accessing device. Each market is different and we try to be as local as possible when we actually go to these international markets.
That's very helpful. Thank you very much.
Next question, please.
Your next question comes from Piyush Mubayi from Goldman Sachs. Please ask the question.
Thank you. I have two questions. First, could you talk through your quarter-to-date performance of Blade & Soul in closed beta? The second is with regards WeChat when you go abroad. You've talked about 40 million subs. Is there any color you could give us in which markets you're present, first? Second, what is the scale requirement for operating in certain of these markets? Thank you.
Well, for Blade & Soul, I think we're continuing the process of the closed beta. I think just like what we do in any closed beta, we try to keep on improving on the user experience. We're not gonna launch the game until we feel that the user experience is up to a certain standard, especially for Blade & Soul, which is a very important title within our game pipeline. It's progressing in that direction. In terms of WeChat, at this point in time, it's fair to say we are quite strong in Southeast Asian countries. If you look at Indonesia, Malaysia, Singapore, and those places, there are a lot of such users. Obviously, from China extending to sort of Greater China, we have quite a large number of users in Hong Kong and Taiwan.
I think that's sort of the areas, then sort of around the world, we actually have pockets of users in different countries. I think you can actually check up on the App Store, even on U.A.E., for example, we are pretty high in terms of the App Store ranking.
Related to WeChat, could you give us your last registered number please, in China? I realize that's less relevant than the usage.
Well, I think we have actually moved to a more relevant number, which is sort of the monthly active users. I think that's probably more relevant.
Okay
determining sort of how many people are active perspective.
All right. In that case, could I ask you for related to the 40 million registered users outside China, what is the MAU?
We don't separately disclose that. We have a combined number at this point in time, which is 194 million.
All right. Thank you very much.
Sure.
Thank you. Next question, please.
Your next question comes from Jiong Shao from Macquarie. Please ask the question.
Hello. Can you hear me okay?
Yes, we can.
Okay. Hi, good evening. Thank you so much for taking my questions. First question, I want to follow up on your e-commerce business. The e-commerce gross margins have been somewhat volatile last couple quarters. I was wondering, in the most recent quarter, was there any kind of one time item in it, was sort of mid-single digit is a sustainable level going forward? I think Martin earlier mentioned, at a certain stage, you're going to expand on your open platform, sort of a segment within the e-commerce. I was wondering, do you have in your mind or timing in your mind when you really push hard in the platform segment of the business, in addition to the principal base? That's my first question on e-commerce.
Yeah, I think in terms of the gross margin of e-commerce, it grew initially from about 3%-4% to about 9% last quarter. As we had warned in the last quarter earnings conference call that, it was due to some sort of high margin, low tier type of items being promoted during that period. We also said that 9% would decrease over medium term or perhaps will even go down within one or two quarters. This quarter, we will also have some sort of special items in there. Just as you understand, in terms of e-commerce, the first quarter should be considered to be a less strong season. The impact of those items are less than what we had in quarter 4.
Yeah. In terms of open platform, I think we would gradually sort of ramp it up. I think there are a couple things that need to be done. One is, from a system integration perspective, we need to integrate the open platform system with the B2C system so that users can actually navigate through the 2 systems very smoothly. Secondly, we want to cultivate, we want to select the right merchants from our existing open platform, and bring them onto our open platform that's sort of more tied in with the B2C, because we want to make sure that the user experience, and the service level of these merchants are up to a certain standard, so that it would continue our very good product review of our existing B2C business.
That will be a gradual process, but if we can find more very qualified merchants, that process can run faster. If our system integration goes more smoothly, that process can go faster.
Thank you. My second question is really just a clarification on your mobile platform. Earlier, lots of questions has been asked on your mobile platform. I just want to clarify, when you meant a mobile platform, and you have different games and third-party games and apps, will you have the same apps in both, for example, Mobile QQ and for Weixin, or the Mobile QQ will have slightly different set of apps and games from the sets on Weixin. If you can clarify that'll be great. Thank you.
I think initially we will have very similar games. Over time, if the platforms demonstrate sort of very different user inclination and behavior, maybe there could be different games. At the present time, they will have very similar games to start out with.
Okay. Thank you very much.
Ladies and gentlemen, due to time constraint, we will be taking the last three questions. Your next question comes from [Thomas Chong] from CLSA. Please ask the question.
Hi. Good evening, everyone. I have two questions about the online games business. The first one is, do you guys see the online games will have lack of seasonality in second quarter, or should we expect there are some sort of offsetting effects like expansion packs? My second question is regarding the ARPU for the PC games. Can management give us some color about the ARPU range for MMO as well as advanced casual games? Thank you.
In terms of seasonality, as you know, our game business does exhibit some seasonality. We tend to launch more expansion packs, do more marketing activity, and have more user activity during the first quarter. That's just a historic pattern if you look back at years past. In terms of ARPU, John.
Yeah. The quarterly ARPU for ACG ranges from RMB 65-RMB 130. For MMOG, RMB 145-RMB 220.
I see. Thanks. That's very helpful. I will get back to the queue.
Thank you. Next question, please. Your next question comes from Alex Yao from Deutsche Bank. Please ask the question.
Hi. Good evening, everyone, and thank you very much for taking my question. My question is on the WeChat gaming strategy. Martin, you mentioned that you believe Chinese mobile gaming market will experience kind of the similar evolution as the online PC gaming market. Does it mean for your WeChat gaming strategy, you will focus on the more strong monetization revenue-oriented hardcore games initially, then gradually roll out the social connection-oriented social games in the later stage, because that's the trend we have witnessed on the PC gaming market. Thank you.
I think we would try to source good games in all of these categories. If you look at our PC gaming portfolio, we have the largest collection of games within our game platform. We have mini casual games and advanced casual games and very heavy MMOGs. I think on the mobile side, we try to assemble a broad collection of games. In terms of the availability, at this point in time, I would say it will be social games plus some heavier games. Over time, I think there would be actually more and more heavier experience games that would come out.
Got it. Thank you.
Your last question comes from Evan Zhou from JP Morgan. Please ask the question.
Hi. Good evening. Thank you for giving me my questions. My question is about your online web game business, because we've seen some recent transactions on the web game part of the business, some major studios and distributors platforms got acquired, and many web game developers turning to mobile games. We are also one of the major platform hosting a good bunch of web games. I'd like to see that, did you guys see a growth of the web game segment to kind of slow down compared to previous quarters? Could you maybe share some of the colors on the trend of ARPU and user numbers on the web games? That'll be very helpful. Thank you.
I think on web games, it's fair to say, it has experienced two years of very rapid growth, and I think it's definitely sort of slowing down. Part of it is just the law of large numbers, and part of it is actually the market starts to saturate when you have so many web games. Indeed, a lot of developers are now branching off to do mobile games as well. I think, over time, the web game industry would become more, I would say, high-quality game-oriented. The time when people just slap together a game within a few months and then sort of roll it out and try to get users for a few months and get pretty high revenue, I think those days will be gradually gone, and we would see more and more high-quality web games being launched.
I think what we try to position ourselves is actually the open platform that actually can embrace all these high-quality games. I think we'll try to use that same strategy for the mobile game platform as well.
Great. Thank you.
Thank you. We have now reached the end of the question and answer session. Ms. Chan, please begin your closing remarks.
Thank you, operator. We're done on the call now. If you wish to check out our press release and other financial information, please visit our website on the www.tencent.com/ir. We'll also post a replay of this webcast on the site shortly. Thank you, and see you next quarter.
That does conclude our conference for today. Thank you for participating. Tencent Holdings Limited 2013 first quarter results announcement conference call. You may all disconnect now.