Ladies and gentlemen, thank you for standing by, and welcome to the Tencent Holdings Limited 2012 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 the question. If you wish to cancel your question, please press the pound or hash key. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host today, Ms. Catherine Chan from Tencent. Thank you. Please go ahead, Ms. Chan.
Thank you, and good evening. Welcome to our annual results conference call for the first quarter of 2012. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in future for various reasons. Besides, information about general market conditions is coming from a variety of sources outside of Tencent. For a detailed discussion of the risk factors that may affect our businesses and operations, 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 Chairman and CEO, Pony Ma, President Martin Lau, Chief Strategy Officer James Mitchell, and John Lo, who has been promoted to our Chief Financial Officer. Pony will kick off with a short review of our financial performance and key platforms update.
Martin will present the company's strategic highlights, while James will walk you through the business review and outlook. John will discuss the financials, and then we'll open the floor for questions. Now let me turn the call over to Pony.
Thank you, Catherine. Good evening. Thank you for joining us. First of all, congratulations to John on his appointment. Now let me give you our financial highlights. In the first quarter of 2012, we registered healthy growth in our online platforms, which in turn contribute to the solid financial performance of our core IVAS business. MVAS business recorded steady growth despite collection rate volatility. Our online advertising business, boosted by the growth of performance ads and video ad inventory utilization, sustained above industry year-on-year growth rate. Beginning this quarter, we report e-commerce transactions as a new segment to reflect its growing importance to our overall franchise. Let me highlight a few numbers for you. Total revenue was CNY 9.6 billion, up 52% year-on-year or 22% quarter-on-quarter. IVAS revenue was CNY 7.4 billion, up 41% year-on-year or 15% quarter-on-quarter. MVAS revenue was CNY 914 million, up 17% year-on-year or 7% quarter-on-quarter.
Online advertising revenue was CNY 540 million, up 92% year-on-year or down 10% quarter-on-quarter. E-commerce transactions revenue was CNY 753 million. Non-GAAP operating profit was CNY 4.1 billion, up 30% year-on-year or 16% quarter-on-quarter. Non-GAAP net profit attributable to shareholders was CNY 3.3 billion, up 27% year-on-year or 13% quarter-on-quarter. Moving on to an update on our key platforms. In the first quarter, on our communication platform, QQ IM monthly active user accounts grew 12% year-on-year to 752 million, and PCU increased 22% year-on-year to 167 million. Our smartphone-based communication product Weixin exceeds 100 million registered user accounts. For our social networks, engagement and sharing increased as we add new SNS features and more apps on an open platform. Monthly active user accounts at Qzone grew 10% year-on-year to 577 million, and at Pengyou grew 30% year-on-year to 215 million.
qq.com maintained its position as the most popular portal in China by PV and UV. Social media service, Tencent Weibo, had 67 million daily active users. QQ Games open platform recorded PCU 8.8 million, up 14% year-on-year, boosted by introduction of third-party web games to the open platform and positive seasonality. Our wireless portal 3g.qq.com saw continued growth in user engagement, page view, and search traffic. Now I will invite Martin to give you some highlights on our e-commerce business.
Thank you, Pony. Good evening. Good morning to everybody. Before James takes the time to walk you through the detail of our core business, I would like to give you some color on our e-commerce business, which we present as a new revenue segment for the first time. Please bear in mind that the revenue that we presented in our accounts only account for our B2C revenue in which we act as principal, and that is actually a small part of the total GMV on our e-commerce platform. Going through the e-commerce opportunity, we believe that on a macro level, the e-commerce market is a large and fast-growing market with close to CNY 800 billion of GMV in 2011, and that represents 40.2% of China's total retail. We believe this number will continue to grow up at a pretty fast pace going forward.
In terms of our own activities, we have been building our e-commerce business for quite some time. In 2005, we launched our SME to C marketplace, paipai.com. Over the years, we have diversified into B2C platforms through the building of QQ Mall and QQ Buy. The combined GMV across all our platforms now ranks us as the third largest e-commerce platform in China. We're now scaling up our efforts to build up our QQ Buy as the hub for our consumer e-commerce initiatives. Under this open platform model, buy.qq.com will host a range of first-party and third-party B2C, as well as SME to C merchants. During the past year, we have also selectively invested in and acquired various B2C verticals in order to deliver a better consumer experience to our users. Leveraging our experience from the past years, we're now ready to step up our e-commerce initiatives.
We believe we have a number of advantages in this market, including a large logged-in user base and intensive user engagement across our internet platforms, existing SME to C marketplace and payment franchises, longstanding building relationship with our users. Fourthly, targeted marketing platform to attract users. Fifthly, users social graph that enables word-of-mouth effect to spread for our merchants. Finally, our experience in delivering operational excellence at massive scale, such as on our communication and social platforms, as well as our own open platforms. If you turn to the next page, this slide summarizes the architecture of our overall e-commerce platforms. We're building and positioning buy.qq.com as a unified destination for online shoppers, averaging traffic from our communication, social, and other internet platforms. buy.qq.com will enable consumers to buy goods and services from a universe of third-party partners.
That include new consumers looking for mass market mainstream products can purchase from a best-of-breed vertical sellers. In some cases, big established B2C retailers act as principal, and we act as the agent. In other cases, we ourselves act as principal. Consumers looking for unique or unusual items can purchase from small merchants through our SME to C marketplace. Hence, we can actually enhance the assortment that we provide to the consumers. Consumers seeking lifestyle services such as hotel bookings or concert tickets, cinema tickets, can purchase from selected online partners through our platform. Consumers seeking other online services such as restaurants, spas, and other services can purchase through our offline to online platform integrated with our mobile platform. By bringing users to our unified e-commerce destination, we offer consumer benefits such as convenience, unified delivery and purchasing experience, as well as unified loyalty program.
We also help our merchant partners to lower the marketing costs through cross-selling, repeat purchase, and word-of-mouth effect through our social network. We will continue to invest prudently but consistently in our e-commerce business and leverage our unique advantages with the aim of building a substantial business over the long run. I will now pass on to James to walk you through the core businesses.
Thank you, Martin, and good evening and good morning. The next slide illustrates our evolving revenue mix by segment. The step up in revenue contribution from e-commerce transactions helps contribute to year-on-year revenue growth of 52% this quarter. If we exclude the impact of e-commerce, we still sustained healthy growth rates in each of our existing segments, generating a year-on-year revenue growth of 40% and a sequential revenue growth of 12%, excluding e-commerce. Focusing on Internet Value-Added Services, segment revenue of CNY 7.4 billion was up 41% year-on-year and 15% quarter-on-quarter. Online game revenue was CNY 5.3 billion, up 49% year-on-year and 19% quarter-on-quarter. Titles such as CrossFire, QQ Dancer, Dungeon & Fighter, League of Legends, and QQ Speed drove the sequential user and revenue growth during what was seasonally a strong quarter.
We are renaming our community VAS to Community and Open Platforms this quarter to reflect the growing importance of the open platforms. This subcategory reported revenue of CNY 2.1 billion, up 23% year-on-year and 6% quarter-on-quarter, mainly due to strong increases in item revenue on the open platforms. Within the Community and Open Platforms, Qzone maintained its position as the number one social platform in China by monthly active user accounts and also by volume of sharing. We are internally testing a new timeline feature to deepen the sharing experience further between our users.
To leverage on the popularity of open platform apps and increase the value offering for our users, we're starting to bundle items from third-party as well as first-party apps into the monthly subscription packages around Qzone. Our real name social network, Pengyou, remained the largest of its kind by unique visitors in China, according to iRe search. On average, Pengyou matches 250 million friend connections a month. Tencent Weibo was ranked the second social platform in China, behind only Qzone, by volume of sharing, according to BShare. Because of the impact of regulatory changes, including real name registration, and because of seasonality, our Weibo DAU was essentially flat quarter-on-quarter at 67 million at the end of the quarter. Given the intensified regulatory environment, we mentioned previously we would focus on driving engagement this quarter, our Tencent Weibo daily page views increased 49% quarter-on-quarter.
On our open platforms, our substantial traffic, logged-in relationships with users, and payment platform enabled an increasing number of third-party developers to achieve franchise and financial success. For example, the number of third-party applications with over 10 million monthly active users doubled to 20 this quarter. Digging into each category in our online game sub-segment, we're retitling mini casual games to QQ Game Open Platform to reflect its changing business model. We now offer 143 games after adding 32 web games to this distribution platform. Combined PCU and ACU rose sequentially to 8.8 million and 4.3 million, helped by seasonal promotions and the introduction of web games to the open platform. In advanced casual games, combined PCU and ACU increased sequentially to 9 million and 3.4 million. CrossFire achieved a record peak concurrent user count of three and a half million and expanded its paying user base.
QQ Speed and QQ Dancer benefited from more paying users as a result of seasonal in-game marketing activities. League of Legends continued to rapidly grow its user base. Massively multiplayer games, combined PCU and ACU were stable at 3.3 million and 1.6 million. DNF holiday promotions increased average concurrent user accounts and contributed to healthy monetization. Revenue from our mobile segment was CNY 914 million, up 17% year-on-year and 7% quarter-on-quarter. Within that, revenue from 2G services climbed 11% year-on-year and 8% quarter-on-quarter as bundled SMS package sales increased. Revenue from 2.5G and 3G services increased 32% year-on-year and 6% quarter-on-quarter, with notable contributions from mobile games and mobile books. On April 1st, China Mobile selected eight partners, one of whom was Tencent, to join its new cooperation model.
The impact of the transition to this new model may not be clear for some time. Moving on to our online advertising business, segment revenue was CNY 540 million, declining 10% sequentially due to adverse seasonality. However, revenue increased 92% year-on-year, with display advertising up 83% and search advertising up almost 200%. The drivers behind the growth included the introduction of performance-based advertising on our social networks, video traffic growth and improved video traffic monetization, search advertising system improvements, and market share gains within certain brand display industries. In the past, we used to break out IM client and portal advertising categories separately. However, as our advertising business broadens to include new formats such as performance advertising and in-video advertising, the old categories are becoming less meaningful. We're now aggregating display and search categories.
Within display, there's brand display, which we sell primarily on cost per time or cost per thousand impression basis, and performance display, which we sell primarily on cost per click or cost per action basis. Inside brand display, our top 5 advertiser categories were online services, food and beverage, automobiles, apparel, and consumer electronics. We believe we gained market share, particularly in food and beverage and in e-commerce industries, as our Microblog and our media marketing campaigns increased QQ.com's media influence. Our online video advertising revenue grew sequentially despite weak seasonality. We've recently formed an alliance with Sohu Video and iQIYI for content licensing and sharing. In performance display, advertisers are responding enthusiastically to our targeted ad system for placing ads on our social network, which is initially open to selected retailers, e-commerce merchants, and third-party apps developers.
Our newly launched targeted ad platform is designed with algorithmic targeting, which enables click-through rates and an advertiser bidding system which enhances cost per click. In search, our traffic continues to grow, especially on mobile and from search networks. Mobile queries now account for about half of our total query volume. We're in the early stages of mobile search monetization. Martin Lau's discussed the business objectives for our new e-commerce segment. I'll briefly recap the revenue treatment for the segment. For those transactions where we act as agent, which represent the majority of our transactions by gross merchandise volume, we report our fees and commissions as revenue. For those transactions where we act as principal and actually own the inventories, we book gross merchandise volume as revenue and cost of merchandise sold as cost of revenue.
During the quarter, we've stepped up owned inventory transactions in certain categories in order to enhance our customer experience. We report any e-commerce advertising revenue within our online advertising segment. We'll continue to invest prudently in our e-commerce business with the aim of building a substantial operation over the long run. Some of this investment is direct spending that impacts our income statement, as you've already seen in previous quarters. Some of this investment shows up on our balance sheet and cash flow statements, and some of this investment takes the form of marketing support using our internal advertising inventory. With that, I'll hand over to John.
Thanks, James. Hello, everyone. For the first quarter of 2012, our total revenue was CNY 9.65 billion, up 52% year-on-year or 22% quarter-on-quarter. Operating profit was CNY 3.69 billion, up 9% year-on-year or 19% quarter-on-quarter. Net profit attributable to shareholders was CNY 2.95 billion, up 3% year-on-year or 16% quarter-on-quarter. On non-GAAP basis, operating profit was CNY 4.07 billion, up 30% year-on-year or 16% quarter-on-quarter. Net profit attributable to shareholders was CNY 3.28 billion, up 27% year-on-year or 13% quarter-on-quarter. Operating margin was 42.2%, down 2.2 percentage points from last quarter. Net margin was 34.3%, down 2.7 percentage points from last quarter. Total cost of revenue was CNY 3.84 billion for the first quarter, an increase of 40% quarter-on-quarter or 75% year-on-year. This primarily reflected the recognition of cost of merchandise sold related to our e-commerce transactions, as well as an increase in sharing costs and staff costs.
As a percentage of revenues, total cost was 40% this quarter and 35% last quarter. IVAS gross margin dipped one percentage point sequentially to 67% in the first quarter, and VAS gross margin decreased three percentage points to 63%, mainly reflected the increased staff costs. Gross margin for online advertising decreased eight percentage points to 41% this quarter, mainly due to seasonal slowdown in advertising activities and increased staff costs. Gross margin for e-commerce transactions was 3%. Moving on to operating expenses for the first quarter. Selling and marketing expenses was CNY 469 million, down 37% quarter-on-quarter or up 56% year-on-year. This sequential decrease mainly reflected the seasonal slowdown in advertising and promotion spend spanning in the first quarter against the year-end campaigns launched last quarter. Selling and marketing expenses represented 5% of quarterly revenue. G&A expenses totaled CNY 1.75 billion, up 13% quarter-on-quarter or 95% year-on-year.
This sequential increase reflected increases in R&D expenses and staff costs. G&A represented 18% of quarterly revenue. Key drivers behind the year-on-year increase were increases in office lease and expenses and increase in staff costs. Under G&A, R&D expenses was CNY 941 million, up 23% quarter-on-quarter or 83% year-on-year. It represented 54% of G&A or 10% of total revenue. Let's look at the margin ratios for the first quarter. Gross margin was at 60.2%. Excluding e-commerce, gross margin would have been 65.1% for the quarter. Non-GAAP operating margin was 42.2%. Excluding e-commerce, it would have increased to 45.5%. Non-GAAP net margin was 34.3%. Excluding e-commerce, it would have been stable at 37%. During the first quarter, we repurchased 128,400 shares for approximately HKD 20 million. The total number of shares outstanding was 1.84 billion. Basic EPS was CNY 1.618 on GAAP basis and CNY 1.8 on non-GAAP basis.
Diluted EPS was CNY 1.587 on GAAP basis and CNY 1.765 on non-GAAP basis. Total CapEx was CNY 662 million, down 26% quarter-on-quarter or 8% year-on-year, of which operating CapEx was CNY 424 million, down 43% quarter-on-quarter or 34% year-on-year as optimization of server usage to increase utilization enable us to buy fewer servers this quarter. Non-operating CapEx was CNY 238 million, up 55% quarter-on-quarter or about two times year-on-year, mainly reflecting office and IDC expansion and purchase of land use rights. Free cash flow reached CNY 4 billion, up 31% quarter-on-quarter or 45% year-on-year.
Our net cash position at quarter end remains strong at CNY 20.8 billion, up 18% quarter-on-quarter or 14% year-on-year. This concludes our presentation. Thank you.
Thank you, John. Operator, we shall open the floor for questions. I would like to request two questions to analyst in your session. We'll take the first question.
Thank you, ladies and gentlemen. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Timothy Chen from Morgan Stanley. Please ask your question.
Hi, Pony, Martin, James, John, and Catherine. Thanks very much for taking my questions. I actually have two questions. The first one is actually regarding your e-commerce business. May I clarify that if the commission income is also included in the e-commerce line? If so, why is the gross margin only 3%? How do we think of its growth potential as well as the margin trends this year? I have a follow-up question. Thank you.
Yeah. Well, commission is actually included in this line. As I said earlier in the introduction of our overall e-commerce architecture, we are still in the process of building up sort of the buy.qq.com unified destination. That destination right now is opened only to a number of geographies, not sort of available nationally. We are actually sort of in a very early process of generating some commission from some of the GMV. If you look at sort of the Paipai, which sort of has been the bigger generator of GMV, the primary revenue model there is still sort of on advertising, which as we have disclosed, that advertising is actually included in the advertising line.
So-
That explains itself, right? In terms of margin trending, it's too early for us to comment on this at this point in time. I think we do want to let everybody know about our e-commerce business, primarily because of the fact that we have taken a principal role in certain of the transactions, such that we can actually provide a better user experience in those transactions. I don't think we are in a position to really talk a lot about this particular segment yet, because this segment is only a small portion of our total GMV on the e-commerce part. This disclosure to some extent is really sort of more of a technical disclosure. I think we are still in a process of building up our e-commerce overall architecture.
I think as it continues to build out, I think we'll be in a better position to comment on the business model and sort of the margin trend. Right now, it's still a work in progress.
Mm-hmm. Thanks. My second question would be on Weixin. Given the very strong user growth and the open API as SNS features that we see in version 4.0, maybe could you talk about your strategies in mobile internet, and where do you see the monetization potential, and when will that happen? Thank you.
I think with regards to Weixin, we're very excited about the opportunity for user growth as smartphone penetration in China takes off. We're kind of frankly delighted that Weixin has evolved, achieved the penetration of smartphone that it already has. We also find that those users who register with Weixin, which we've disclosed is over 100 million, have a very decent propensity to convert into MAUs and DAUs, and then high levels of daily engagement. We think that this is an extremely interesting platform over the long term. As you observe, we're enabling third-party applications through APIs, I think that's in common with all of our platforms where we're trying to tap the development skills of developers at large rather than just the employees at Tencent. With regards to monetization, it's very far from being our priority at this stage.
Our priority at this stage remains really ramping user growth. However, given the ubiquity of the service, given high levels of user engagement with the service, given some unique features of the service, such as the location awareness, we think that over time, monetization should follow fairly naturally.
Thanks.
Thank you. Your next question comes from the line of Dick Wei from JPMorgan. Please ask your question.
Hi. Congrats on a very strong quarter, thanks for taking my questions. My questions are on e-commerce. First part of it is that for the GMV of around CNY 750 million, how much of it comes from the agency basis versus on a principal basis? Also, if you can share with us what is the total GMV as well as the take rate, that would be great. Thank you.
Yeah, Dick. The entirety of the revenue is actually on a principal basis. Apart from that, we actually sort of have an even bigger GMV, which is not booked as part of revenue because we act as an agent. I think, as I said earlier, sort of in response to Tim's question, we are not at the stage where I think we want to present the e-commerce business in its entirety, because we are still in the process of aggregating a number of these platforms that we have accumulated over the years and try to sort of make it into a unified destination with a unified user experience, with a unified business model.
The disclosure on the revenue itself is really disclosing a part of the revenue in which we take the inventory and act as a principal, and this is more like a technical disclosure rather than a strategic disclosure. However, I think we are stepping up our efforts in terms of consolidating all our e-commerce assets into a unified destination. I think we'll provide more color and provide more disclosure as we proceed on that strategy.
Got it. Just a quick follow-up that the reason that we're disclosing in first quarter, was it because due to some of the ownership changes in the subsidiary that you are required to disclose that, and prior quarter is probably not comparable?
There's a big step-up in terms of this part of the revenue, so that's why it's disclosed. Part of it is because we are taking more of a principal role in certain categories, so that we can actually provide a better user experience.
Great. Thank you very much.
Thank you. Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask the question. Right. Move on to next question. Comes from the line Ms. Eddie Leung from Merrill Lynch, please ask the question.
Hey. Yes. My first question is about some of the news report. There have been some news saying that there is potentially some internal restructuring of some of the business units. I was wondering if you guys can give some clarification on that front. Secondly, on your press release, you mentioned that the user spending on some of your games increased in the quarter. Could you share with us the upper range of your different types of games in the quarter? Thanks.
I think, Eddie, on the first one, we are not in a position to comment at this point in time. As and when we're ready to make an announcement, you will see it, and we can actually sort of comment on it. In terms of the market rumors at this point in time, I can't comment on it.
Got that. In terms of the upper range for MMOG is 90-130 per quarter, and for advanced casual game is between 50-95.
Thank you.
Thank you. Your next question comes from the line of Alex Yao from Deutsche Bank. Please ask the question.
Hi, good evening, everyone, and congratulations to John's appointment. I have two questions. Number one is, can you give us an update on your logistic initiative that you build for the transaction you act as the principal? Second one is, it was mentioned in the press release that average daily hours on IM increased very strongly at 29% year-over-year. Can you help us to understand what is driving the users to spend more time chatting online? Is it Weixin? Thank you very much.
In terms of logistics initiative, we do have a range of logistics arrangements for the delivery of our products, which are in the GMV. A big part of it is actually sort of consumer electronics. What we have is a warehouse which sort of store these inventories. We have actually sort of delivery people who actually deliver to various locations. In particular, sort of in the region of Shanghai and sort of the neighborhood cities, we actually sort of have our own people doing the delivery, whereas sort of in other parts of the country, we rely on third-party delivery. We'll continue to build out this overall logistics and fulfillment as we actually roll the services out to other parts of the country.
Can I follow up with one quick question? Is it going to be based on a leased model? Is it going to be a self-built model?
Right now, it's sort of on a leased model. We'll continue to evaluate whether sort of we would build the actual warehouse Okay. In terms of the user hours, I think there's actually a general trend towards an increased number of hours that people actually spend on that network. I think a number of reasons for that. Number one is the fact that we actually have more and more services provided to the users, actually increase the propensity for people to continue to stay logged on. For example, as we offer more video, as we offer better music services, and as we continue to ramp up in terms of our microblog and our social networking services. As we continue to increase the number of third-party apps on our overall open platform, there's a higher propensity for people to keep logged on, and that's on the PC side.
At the same time, as people continue to use our services on the wireless side. This actually does not include WeChat. This is actually people who are logged on to the wireless QQ service. As more and more people have access to better handsets, they want to have wireless QQ to be always on, and as a result, they log on to our services more.
All right. Thank you very much.
Sure.
Thank you. The next question comes from the line of Jin Yoon from Nomura. Please ask your question.
Hey, good evening, everyone. Just on your margins, this quarter, you finished the gross margins at 60% compared to 65% last quarter. I assume that's largely due to the e-commerce growth. Should we expect gross margins to continue to stay at these levels going forward or even further below 60% levels going forward? On top of that, operating margins came in a little bit better because of the fact that sales and marketing declined 37% sequentially. Should we expect for the second quarter that sales and marketing will revert back to Q3, Q4 levels? If you could provide some color on that'd be great. Thanks.
I think that with regards to the gross margins, we've said in the past, we're not managing this business for margins, and if different segments grow at different speeds with different margin profiles, and that has an impact on our blended margin, then that's something we'll live with. We'd never not want to participate in a business because it happened to be lower margin than games or higher margin than online advertising. We look after the gross margin within each segment, and we care about that. The overall blended gross margin will be a function of the growth rates of different businesses. To the extent that people have very high expectations for a lower margin segment, then that all else equal would result in lower margin for us as a group.
If you didn't have great expectations for our lower margin segment, then there would be less impact on our blended gross margin. John disclosed, as you accurately pointed out, that the main reason for the sequential margin degradation was indeed the mix shift toward e-commerce. With regard to sales and marketing, we don't give forward-looking commentary, but I would point you to our disclosures where we note that in the fourth quarter last year, there was some seasonal year-end spending. Hence, we saw a reduction in sales and marketing expenditure going into the first quarter.
On an absolute basis, we should expect sales and marketing to pick up from Q1 levels going forward, correct?
We don't give that kind of guidance.
I think if you actually look at the presentation that I've presented before, if we exclude the effect of the e-commerce, the gross margin actually increased by about 4.9 percentage points.
Right. Great. Thanks.
From 22 to 65.1, yeah.
Thank you. Your next question comes from the line of Wendy Huang from RBS. Please ask your question.
Thanks. First, can you elaborate on the new model that China Mobile is introducing, and how that will change Tencent revenue payout to the telecom operator, and also Tencent's bargaining power on the mobile internet value chain?
At this point in time, we're still waiting for the details. We don't have a definitive answer yet. I think we can't comment on that. We just know that there will be a new model, and it's being designed right now. We are included in the new model that will be rolled out in the future.
Can you give us some update on the real name registration rules on the microblog? How has been the implementation by Tencent, and also how has that affected the user activities since it's effective in December last year? Thank you.
We have been actually implementing the real name registration, and that's part of the reason why, as you can see, our daily active users have actually declined slightly from the previous quarter. It's fair to say it is having some impact on our overall business. Especially on the adding of the new users. Now, having said that, we have been actually spending a lot of effort in terms of trying to, one, increase the sign-up rate for the users. Two, among the existing users, we try to put in a lot of effort to increase their activeness. That's why, as James pointed out in his commentary, that the PV actually increased by quite a lot, despite the fact that the user base actually stays relatively flat.
What percentage of your over 400 million users have already submitted their ID for the verification?
We are not in a position to disclose that. I think that's not something that we would like to disclose.
Okay. Thank you very much.
Thank you. The next question comes from the line of Mark Marostica from Piper Jaffray. Please ask your question.
Yes, thank you for taking my question. Turning to your advertising business, you saw good strength in the quarter. I'm curious if you're seeing any effect of the slowing economy in any of your various segments across advertising at all.
Yes, as you observed, the economy has slowed. That's had a knock-on impact within some specific advertiser industries. We believe we have been able to largely offset that by market share gains within our traditional brand advertising business. In addition, we've also been layering on revenue from some of our newer initiatives, such as our performance advertising. We think that really unlocks new wallet opportunities that didn't previously exist. That's why we were able to sustain fairly substantially above industry revenue growth rates for our online advertising business during the quarter.
A quick question regarding your games business. Blade & Soul, when should we expect that game to be launched?
We don't disclose the timing of game launches, partly as a matter of policy and partly because internally, we choose to release games when we think they're ready to be released. I think that our Korean developer of that game had some commentary recently about when it expected the timing of the launch of that game in international markets.
I think the philosophy of ours and the philosophy of NCSOFT is basically to release a game when it's good enough to be released. We thought that's actually the right approach within the gaming industry.
Fair enough. Thank you.
Sure. Thank you. Your next question comes from the line of Mi Zhou from UBS. Please ask your question.
Thank you for taking my question. I have a question about e-commerce. You said that you want to sell consumer electronics on your B2C platform. Right now, the competition is really fierce in this space. I wonder, how do you want to participate in this market? Do you want to use price war, and does that mean your gross margin in e-commerce is going to deteriorate? Thank you.
I think we are already having a pretty big scale in terms of consumer electronics business, as we have commented on the revenue that we disclose. The more than CNY 700 million revenue, actually, primarily that's generated through consumer electronics. We are already at scale. In terms of where it stands, the primary geography location in which these sales are generated right now are in the [Foreign language], in the Shanghai region. We believe that over time, we're going to take that model and gradually roll it out to other parts of China. In terms of the pricing strategy, we are already actually quite the price leader in this market, actually lower than some of the bigger peers.
We believe that the more important thing for us is actually to be able to continue to increase the assortment, to be able to roll out to the different regions within China, and also to leverage our overall traffic platform in order to increase the number of users who are going to be using our platform. At the same time, because we do have the advantage of much lower marketing costs because we have our own traffic platform. That actually serves as an advantage for us.
Thank you. In terms of advertising, I assume you put ads on your social platform. Would that cannibalize your advertising business? I assume you also want to attract a lot of B2C advertisers to your advertising platform.
Would putting ads on our social platform cannibalize the business of putting ads on our portal? We would think not, partly that's theoretical, the advertising on portals tends to be brand advertising from companies looking to establish a presence. It tends to be priced on a cost per time or cost per impression basis. The advertising on our social networks would be largely performance advertising from companies looking to drive downloads, drive transactions. It would be priced on a cost per action.
It would be priced on a cost per click-through basis. We see those as two fairly different subsets of the overall advertising market in theory, and then in practice, I think our revenue growth rate relative to the industry speaks for itself to a great extent.
Okay, thank you.
Thank you. Your next question comes from the line of Catherine Leung from Goldman Sachs. Please ask the question.
Hi. Firstly, in terms of your discussing earlier, the rationale for having a principal e-commerce business to provide a better user experience, this is mainly to fill out any product categories that may not be provided by the third-party e-tailers. Will you eventually de-emphasize this principal business as the marketplace business builds out? Secondly, has the renaming of your community VAS segment been accompanied by any changes in revenue allocation between the games and the community segments? Thank you.
I think, in terms of the principal e-commerce business, it is indeed for us to provide a better user experience. By having the inventory, especially on very fast turn type of products, we can actually really speed up the delivery to the users. While at the same time, we actually do not really take up a lot of inventory risk because all these products are very fast turn. Now, I think, over time, we will have more and more platform-based, agent-based B2C business as well, because we do want to run our buy.qq.com as an open platform. We feel that these two businesses go hand in hand with each other, because by having a great user experience, you are able to really attract a lot of users.
Through these users, you can actually offer the other third-party B2C companies a lower cost in terms of attracting these users to purchase their merchandise. These two will go hand in hand. That's why in our architecture, we believe that the first-party B2C products, the third-party B2C products, and the marketplace will go hand in hand in terms of playing different roles in enhancing the user experience. By having a lot of users, we can basically lower the marketing cost and enhance the repeat purchase of everyone involved in this ecosystem.
In relation to the renaming of the community VAS to community platform, it's nothing to do with the reallocation of revenue between gaming versus community VAS. Actually, the reason I'm eyeing that is because more and more revenue are generated through our open platform, such as Qzone, Pengyou, Weibo, Q Press, and QQ Games, et cetera. I think it's more appropriate to be called a community platform rather than just community value-added services.
In terms of the QQ game open platform, are those revenues recognized in the gaming segment or in the open platform segment?
I think it really depends on the contracts we have had with those suppliers. If they are placed on open platform, it relates to open platform. However, if there's some sort of revenue generated through the official portal whatsoever, it will be captured under the gaming side.
Okay, understood. Thank you.
Thank you. Your next question comes from the line of Wallace Cheung from Credit Suisse. Please ask the question.
Hi. Thanks for taking my questions. Congratulations to John for the promotion. Two questions here. One is regarding mobile internet. As we are seeing many internet companies in China are actually trying to build up their own mobile ecosystem, mobile operating systems, and shipping their own handset. Do you think in the long term, as this trend keeps evolving, will there be any possibility to negatively impact Tencent future mobile internet ecosystems and monetization planning as well? I will have another question follow-up. Thank you.
Well, I think as we have stated quite a few times, what we focus on in the mobile internet is actually to provide applications that can go onto multiple platforms, multiple handsets, and to work with multiple operators. I think that is a principle that we adhere to, and we believe over time, that's actually the way to create the biggest network of audience within the mobile internet. Now, having said that, we do cooperate with different partners within the value chain. We will seek to partner with various handset manufacturers. We would seek to partner with various operators, and we also develop our applications for different operating systems.
We do not believe that we should, for example, build a handset and try to put all our applications on that handset and try to use that as a way to build up our market share within the mobile internet space.
Thank you. Just one quick and second question is, I think in the announcement, in the subsequent event, Tencent has spent around $400 million for a 40% stake of a mobile chatting company. It seems like the total valuation of company at $450 million US dollars. It seems quite a tangible company. Is it a China company or non-China company, and what's the purpose of the investment? How would you integrate the sort of investment with your sort of Tencent mobile apps family going forward? Thank you.
We identified quite an interesting mobile chat business in Korea that has enjoyed very interesting user growth rates and has some quite innovative ideas about the product. We made an investment in that company.
We assume they could be potentially sort of launching this product in China going forward?
No, that would not be our expectation. We view them as interesting for their non-China operations.
Okay, great. Thank you. Thank you very much.
Thank you. The next question comes from the line of Alicia Yap from Barclays Capital. Please ask your question.
Good evening. Thanks for taking my questions. My first question is follow-up on e-commerce. Just wonder, what are some of the reasons that consumer electronics is the category that you are stepping up the effort versus other categories?
I think, firstly, it's a large enough market. It's actually sort of a very big market in terms of GMV. Secondly, it's a market that we have less risk to some extent of taking inventories because a lot of these products are very fast-moving. That's why the inventory risk of these products are actually sort of relatively little. Thirdly, these are very standardized products, that's why it's actually quite easy for us to do the promotion on our platform and then sort of bring the users in, convert them into purchase, and do the delivery. I think it's because of these reasons that they became the segment that we say, we can actually provide a better service to the users by taking control of the inventory.
As a result, we can actually make the delivery and make the user experience better without overloading ourselves with a lot of inventory risk.
I see. That's great. Thank you. Second question is that, can you rank your games by top revenue contribution and also by growth rate for the quarter?
We would not do that as a matter of policy. We did mention a number of games. I think we named at least five contributors to the sequential revenue growth. We mentioned five because those five all did contribute meaningfully to the sequential revenue growth.
Okay, great. Thank you.
Thank you. The next question comes from the line of Ming Zhao from 86Research. Please ask your question.
Hi, thanks. You said that GMV is much bigger than reported e-commerce revenue. My question is actually on Tenpay. Are those GMV dollars mostly going through the Tenpay? What's the current status and your future plan in terms of monetizing it? Finally, any comment on the regulatory risk of Tenpay? Thank you.
Well, a lot of our payment is actually sort of going through our own payment platform. I think at this point in time, it's still quite early to talk about sort of monetization plans. I think we'll leave it at that for now.
Sorry. For the third-party merchant-
Ming, sorry, could you repeat the question? We lost you right at the beginning of it.
Okay, sorry. For the third-party merchants on your e-commerce platform, are you already charging them for the payment right now?
Well, right now, relatively little because what we have been having a lot of sort of GMV and sort of what we have been sort of having revenue is actually sort of through our Paipai platform at this point in time. The revenue is actually through the advertising model, which is booked under advertising at this point in time. We are still in the process of building out our buy.qq.com such that we can provide a unified destination for the larger B2C sites. Right now, sort of buy.qq.com is only available in selected regions, and we have a few B2C companies who have signed up. It's fair to say it's still in a trial mode at this point in time, so the revenue from the transaction side will not be meaningful at this point in time.
All right. Thank you very much.
Okay, thank you, operator. We're going to run to the conference call now. If you wish to check out our press release and other financial information, please visit our website under www.tencent.com/ir. We'll also post a replay of this webcast on this site shortly. Thank you and see you next quarter.
Thank you. That does conclude our conference call today. Thank you for participating in Tencent Holdings Limited's 2012 first quarter results announcement conference call. You may all now disconnect.