Earnings Call: Q1 2012

May 16, 2012

Ladies and gentlemen, thank you for standing by, and welcome 10 Sand Holdings Limited 2012 First Quarter Results Announcement Conference Call. At this time, all participants are in a listen only mode. Your name will 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. Dan. Thank you, and good evening. Welcome to our annual results conference call for the first quarter of 2012. Before we start the presentation, we'd 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. Besides information about general market conditions is coming from a variety of sources outside of consent. For a detailed discussion of the risk factors that may effect of 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 our Chairman and CEO, Pony Martin Lau. Chief Strategy Officer, Jay Metro and Joanneau, who has been promoted to our Chief Financial Officer. Tony will kick off with a short overview of of our financial performance and key performance update. Marcy will present the company's strategic highlights, while James will walk you through the business review and outlook. John, we 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. 1st of all congratulations to John on his appointment. Now let me give you our financial highlights. In the first quarter of 2012, we reached a healthy growth in our online platforms, which in turn contribute to our to the solid financial performance of our core IVAS business. NVA's business record steady growth despite collection rate volatility. Our online advertising business boosted by the growth of performance as a video ad inventory utilization sustained above the industry year on year growth rate. Beginning in 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 1,000,000,000, up 52% year on year or 22% quarter on quarter. IVAS revenue was rmb 7,400,000,000, 41% year on year or 15% quarter on quarter. NVAS revenue was RMB914 RMB up 17% year on year or 7 percent quarter on quarter. Online advertising revenue was RMB 540,000,000 up 93% year on year or down 10% quarter on quarter. E commerce transaction and revenue was RMB753 1,000,000, Non GAAP operating profit was rmb 4,100,000,000, up 30% year on year or 16% quarter on quarter. Non GAAP net profit attributable to shareholders was RMB 3,300,000,000, up 27% year year or 13% quarter on quarter. Moving on to an update on our key platforms. The first quarter on our communication platform, QQIM monthly active user accounts grew 12% year on year to RMB752 1,000,000 and PCU increased 22% year on year to RMB167 1,000,000. Our smartphone basis communication product, we see exceed 100,000,000 registered user count. For our social network, engagement and sharing increase 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 $577,000,000 and at Pengyou grew 30 percent year on year to $215,000,000. Qq.com maintained its position as the most popular portal in China by PV And UV. Social media service, Tencent Microabog had 67,000,000 daily active users. QQ game open platform recalled PCU $8,800,000, up 14% year on year. Good by introduction of 3rd party, we have games to the open platform and positive seasonality. Our wireless portal, 3g occupy.com saw continued growth in user engagement, page view and search traffic. Now will invite Martin to give you some highlights on our e commerce business. Thank you, Pony, and good evening, good morning to everybody. Now, before James take the time to walk you through the details 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 tons 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. Now going through the e commerce opportunity, we believe that on the Mac level, the e commerce market is a large and fast growing market with close to RMB800 billion of GMV in 2011. And that represents 40.2 percent 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, pipi.com. And over the years, we have diversified into B2C plus forms through the building of QQ Mall and QQ Buy. The combined GMV across all our platforms now ranks us as the 3rd largest e commerce platform in China. We're now scaling up our efforts to build up our 2Q buy as the hub for our consumer e commerce initiatives. Under this open platform model, buy. Juke.com will host a range of 1st party and third party B2C as well as SME to C merchants. During the past year, we have also selectively in vested in and acquired various B2C verticals in order to deliver a better consumer experience to our users. We believe we have user engagement across our Internet platforms, existing SME to C marketplace and payment franchises, long standing billing relationship with our users, fourthly targeted marketing platform to attract users, fifthly, user's social graph that enables weather mode effect to spread for our merchants. And finally, our experience in delivering operational excellence at math scale such as on our communication and social platforms as well as our own open platform. Now if you turn to the next page, this slide summarizes the architecture of our overall e commerce platforms. Now we're building and positioning buy. Qq.com as a unified destination for online shoppers, leveraging traffic from communication, social, and other internet platforms. Baiduq.com will enable consumers to buy goods kit mainstream products can purchase from a best breed vertical sellers. In some cases, B2C retailers act as principle and we act as the agent. And in other cases, we ourselves act as principle. Consumers looking for unique or unusual items can purchase from small merchants through our SME to C marketplace. And hence, we can actually enhance the assortment that we provide to the consumers. Consumer seeking lifestyle services such as hotel bookings or concert tickets, cinema tickets can purchase from selected online partners throughout platform and consumer seeking other online services such as restaurants, spas and other services can purchase the nation, we offer consumer benefits such as convenience, unified delivery and purchasing, experience as well as unified loyalty program. When we and 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. So I will now pass on to James to walk you through the core businesses. And good morning. The next slide illustrates, evolving revenue mix by segment, the step up in revenue contribution from e commerce transactions help contributes to year on year revenue growth of 52 percent this quarter. But 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% ex UDE Commerce. Focusing on internet value added services. Segment revenue of RMB7.4 billion was up 41% year on year and 15% quarter quarter. Online game revenue was rmb 5,300,000,000, up 49% year on year and 19% quarter on quarter. Title such cross fire, QQDancer, Dungeon and Fighter, League of Legends, and QQ Speed drove the sequential user and revenue growth during what season strong quarter. We're renaming our community VAS to community and open platforms this quarter to reflect the growing of the open platforms. This subcategory reported revenue of RMB2.1 billion, up 23% year on year, 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 of sharing. We're 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 offerings for our users, we're starting to bundle item from 3rd party as well as 1st party apps into the monthly subscription packages around Qzone. Our real name social network Tanya remained the largest of its by unique visitors in China according to my research. On average, Panyo matches 250,000,000 friend connections a month. Hence, that microblock ranked the 2nd social platform in China behind only Q zone by volume of sharing according to Bshare. Because of the of regulatory changes, including real name registration. And because of seasonality, our micro above DAU was essentially flat quarter on quarter at $67,000,000 at the end the quarter. Given the intensified regulatory environment, we mentioned previously we would focus on driving engagement this quarter and our 10cent microblog daily page views increased 49 percent quarter on quarter. On our open platforms, our substantial traffic logged in relationship 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 10,000,000 monthly active users doubled to 20 this quarter. Digging into each category in our online games sub segment, we're retycling mini casual games to QQ game open platform to reflect its changing business model. Now offer 143 games after adding 32 web games to this distribution platform. Combined PCU and ACU rose sequentially to $8,800,000 $4,300,000, helped by seasonal promotions and the introduction of web games to the open platform. In advanced casual game, combined PCU and ACU increased sequentially to $9,000,000 $3,400,000. Cross fire achieved a record concurrent use account of 3,500,000 and expanded its paying user base. QQ speed and QQ created for more paying users as a result of seasonal in game marketing activities. And League of Legends continued to rapidly grow its user base. Massively multi player games combined PCU and ACU were stable at $3,300,000 $1,600,000. But DNF holiday promotions increased average concurrent user accounts and contributed to healthy monetization. Revenue from our mobile segment was R914 $1,000,000, 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 1, China Mobile selected 8 partners, one of whom was 10 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 rmb 540,000,000, declining 10% sequentially due to 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 improvement and market share gains within certain brand display industries. In the past, However, as our advertising business broadens to include new formats such as performance advertising and in video advertising, the categories are becoming less meaningful. And so we're now aggregating display and search categories. Within display, there's brand display, which we sell primarily on costs per or cost per 1000 impression basis and performance display, which we sell primarily on cost per click or cost per action basis. In our brand display, our top 5 advertising categories for online services, food and beverage, automobiles, apparel and consumer electronics, We believe we gained market share, particularly in Food And Beverage And E Commerce Industries, as our microblog and our media marketing campaigns increased dotcom's media influence. Our online video advertising revenue grew sequentially despite weak seasonality we had recently formed an alliance with Sohu Video and Iqiyi for content licensing and sharing. And performance display, advertisers are responding enthusiastically to our targeted ad system, replacing ads on our social net work, which is initially open to selected etailers, ecommerce merchants, and 3rd party apps to adipers. Our newly launched targeted ad platform is designed with algorithmic targeting, which enables click through rates and an advertiser bidding system, which enhances cost 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. Martins discussed the business objectives our new e commerce segment, and I'll briefly recap the revenue treatment for the segment. For those transactions where we act agent, which represent the majority of our transactions by gross merchandise volume, we report our fees and commissions as revenue. 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. Reported e commerce advertising revenue within our online advertising segment. We'll continue to invest currently in our e commerce business with the aim of building a substantial operation over the long run. Some of this investment is direct spending 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, Jay. Hello, everyone. For the first quarter of 2012, our total revenue was 9 1,000,000,000, up 52% year on year or 22% quarter on quarter. Operating profit was 3.6 rmb9 billion, up 9% year on year or 19 percent quarter on quarter. Net profit attributable to shareholders was rmb 2,950,000,000, up 3% year on year or 16% quarter on quarter. On a non GAAP basis. Operating profit was 4.07000000000, up 30% year on year or 16 percent quarter on quarter. Net profit attributable to shareholders was rmb 3,280,000,000, up 27% year on year or 13% quarter on quarter. Operating margin was 42.2 percent, down 2 point 3%, down 2.7 percentage points from last quarter. Total cost of revenue was RMB3.84 billion for the 1st quarter, an increase of 40% quarter on quarter or cents 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 factors. As a percentage of revenues, total cost was 40% this quarter, and 35% last quarter. Out of ops gross margin dipped 1 percentage points sequentially to 67 percent in the first quarter. And VAS gross margin decreased 3 percentage points to 63%, mainly reflected the increase staff force. Gross margin for online advertising increased 8 percentage points to 41% this quarter, mainly due end. Moving on to operating expenses for the first quarter, selling and operating expenses was RMB 469,000,000, down 37% quarter on quarter or up 56% year on year. The sequential decrease mainly reflected the seasonal slowdown in advertising and promotion that Spanning in the first against the year end campaigns launched last quarter. Selling and marketing expenses represented 5% of quarterly revenue. G and A expenses totaled RMB 1,750,000,000, up 13% quarter on quarter or 95% year on year. This sequential increase reflected increases in R And D expenses and staff costs. G and A represented 18 percent of quarterly revenue. Key drivers behind the year on year increase were increases in office lease and the expenses and increase in staff costs. Under G And A, R And D expenses was R941 1,000,000, up 23% quarter on quarter or 83% year on year. It represented 54 percent of G And A or 10% of total revenue. Let's look at the margin ratios for the first quarter. Gross margin was 16% at 60.2%, excluding e commerce Gross margin would have been 65.1 percent for the quarter. Non GAAP operating margin was 42.2 percent, 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 20,000,000 Hong Kong dollars. The total number of shares outstanding was 1,840,000,000. Basic EPS was RMB1.618 on GAAP basis and RMB1.8 on non GAAP basis dollars. Diluted EPS was rmb 1.587 on GAAP basis, and 1.765 revenue on a non GAAP basis. Total CapEx was Rmb662 1,000,000, down 26% quarter on quarter or 8% year on year, of which operating CapEx was RMB424 1,000,000, down 43 percent quarter on quarter or 34% year on year as optimization of server usage to increase utilization and enable us to buy fewer service this quarter. Non operating CapEx was rmb 238,000,000, 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 for BILLA, up 31% quarter on quarter or 45 percent year on year. Our net cash position at quarter end remains strong at 1000000000, up 18% quarter on quarter or 14% year on year. This concludes our presentation. Thank you. Thank you, John. Operator, we shall open this up for questions, but I would like to request, two questions to answer in your session. And we'll take Your first question comes from the line of Timothy Chan from Morgan Stanley. Please ask your question. Hi, Tony Martin, James Stone, and Kathleen. Thanks very much for taking my questions. I actually have two questions. The first one is actually regard regarding your e commerce business. May I clarify that, if the commission income is also included in the ecommerce side. If so, why is the gross margin only 3%? How do we think of this growth potential as well as the margin trend this year? And 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 unithied destination And that destination right now is opened only to a number of geographies, not sort of new available and so 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 PIPI, which sort of has been the bigger generator of GMP, it's still the primary revenue model there is still sort of on advertising, which as web disclosed, that advertising is actually included in the advertising line. So that explains itself, right? In terms of margin trading, it's too early for us to comment on this at this point in time. I think we do want to let sort of everybody know about our e commerce business primarily because of the fact that we have taken principal role in certain of the transactions, such that we can actually provide a better user experience in those transactions. So I don't think we are in a position to really You've talked a lot about this particular segment yet because this segment is only a small portion of our total GMV on the e commerce part. So this disclosure extend is really sort of more of a technical disclosure. I think we are still in a process of building up e commerce, overall architecture, adding asset 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. My second question would be on WACI, given the very strong user growth and the, open API assess, from SMS features that we see in wasn't open. No. Maybe, can you talk about, your strategy in mobile Internet? And where do you see the mode on monetization potential And when would that happen? Thank you. I think with regards to Wei Xin, we're very excited about the opportunity for user growth as smartphone penetration in China takes off. And, you know, we're kind of frankly delighted that Weixin has achieved the penetration of smartphone that it already has. We also find that those users who, register with Weixin, which we've discussed have is over 100 and have a very decent propensity to convert into MAUs and DAUs and in high levels of daily engagement. So we think that this is an extremely interesting platform over the long term. As you observe, what we're enabling, third party applications through APIs, I think that, that's in common with all of our platforms where we're trying to tap the development skills of, of, the developments at large, rather than just employees 10¢. With regard to monetization, it's very far from being our priority at this stage. Our priority at this stage remains ready 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. And we think that over time, monetization should you. Your next question comes from the line of Dick Way from JP Morgan. Please ask your question. Hi. Congrats on a very strong quarter and thanks for taking my questions. But questions are on e commerce. So, first part of it is that for the GMV of Aram $750,000,000. How much of it comes from, on the agency basis versus on a principal basis? And also, if you can share us what is the total GMV as well as the tick rate, that will be great. Yes. Dick, the entirety of the revenue is actually on a principal basis. So apart from that, we actually sort of have an even bigger GMV, which is sort of not booked as part of revenue because we act as an agent. I think as I said earlier, sort of in response to Tim discussion. We're not at this stage where I think we want to sent the e commerce business in its entirety because we are still in the process of sort of aggregating a number of these platforms that we have accumulated over the years and try to make it into a unified destination with a unified user experience with a unified business model. So, the disclosure on the revenue itself is really disclosing a part of the revenue in which we take the inventory and act as a principle and this is more like a technical disclosure rather than a strategic closure. However, I think we are stepping up our effort in terms of consolidating our e commerce assets in unified destination. And I think we'll provide more color and provide a more disclosure as we proceed on that strategy. Got it. So just a quick follow-up that, the reason that we're disclosing in first quarter, was it us due to some of the ownership changes in the subsidiary that you are required to disclose that. And so 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 in your part of it is because we are taking more, also principal role in certain categories. So that we can actually provide a better user experience. Thank you. Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question. Alright. Move on to the next question. Yes. Ms. Eddy Zong from Merrill Lynch. Please ask the question. Hey, yes. My first question is about some of the news report. There has been some news saying that there is potentially some internal restructuring, of some of visas units. I was wondering if you guys can give some clarification on that front. And then secondly, on your press release, you mentioned that A use of spending on some of your gains increased in the quarter. So could you share with us the ARPU range of your different types of games in the quarter? Thanks. You, Eddie, on the first one, I am we are not in a position to comment at this point in time. As and when we're ready to make an sort of announcement, then you will see it and we can actually sort of comment on it. But in terms of sort of the market rumors at this point in time, I can't comment on it. Got it. In tons of the upper range for MMOG is 90 to 130 per quarter. And for Avan's casual game is between 50 to 95. Thank you. Your next question comes from the line of Alex Yao from Bank. Please ask your question. Hi, good evening, everyone, and, congratulations to John's appointment. I have two questions. Number 1 is, can you give us an update on your logistic initiative that you used for the transaction you act as a principle. And the second one is, it was mentioning the the press release that, average daily hours on I am 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 wishing? Very much. Yes. In terms of logistics initiative, right? We, to 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. So what we have is a warehouse which sort of store these inventories. And then we have actually sort of delivery people who actually deliver to various locations. And in particular, sort of, in the region of Shanghai and sort of the neighborhood cities, we actually sort of knew 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 a one quick question? Is it going to be based on, at least the model or is it going to be a self of built model? Right now, it's sort of on a lease model. We'll continue to devalue whether sort of we would build the actual warehouse. Okay. Well, in terms of, the user also, I think there's actually a general trend towards an increase in number of hours that people actually spend on that network. I think a number of reasons for that, right? Number 1 is sort of the fact that we actually sort of have a more and more services provided to the users actually sort of increase the for people to continue to stay locked on. For example, right, as we offer more video, as we offer better music service, as we sort of continue to ramp up in terms of our micro block and our social networking services, right? And as we sort of need to increase the number of third party apps on our overall open platform. There's a higher propensity for people to use keep locked on and that's on the PC side. And at the same time, right, as, people continue to use our services, on the wireless side. And this actually sort of is not does not include waste. This is actually sort of people who are locked on to the wireless QQ service, right? And as more and more people have access to better handsets, they want to have wireless activity to be always on and as a result, the new day locked on to our services more. All right. Thank you very much. Sure. Thank you. Your next question comes from the line of Jing Yoon from Nomura. Please ask your question. Hey, good or 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. So should we expect gross margins to continue to stay at these levels going forward or even further below 60% levels going forward. And on top of that, operating margins came in a little bit better because of the fact that sales and marketing declined 37 percent sequentially. Should we expect for the second quarter that sales and marketing will revert back to Q3, Q3 four levels. So if you could provide some color on that, that'd be great. Thanks. I think that, you know, 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, And then that's something we'll live with. We'd never not want to participate in a business because it happened to be lower margins in games or higher margin than our advertising. So, we look after the gross margin within each segment, and we care about that, but the overall blended gross margin will be a function of the gross rates of different businesses. So, you know, to the extent that people have very high expectations for a lower margin segment, then that all else equal would result in lower instrats as a group. And if you didn't have great expectations for our lower margin segment, then there will be that impact on our blended margin. Now 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. 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 But 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. So 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% points. Yeah. Great. Thanks. 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 Chunamba is introducing? And how that will change 10¢ revenue payout to the telecom operator and also Tencent's bargaining power on the mobile Internet value chain. Yeah, at this point in time, we're still waiting for sort of the details. So, we don't have a definitive answer it yet. So I think we can't comment on that. Know that there will be a new model and it's being designed right now. And we are included in the new model, that will be rolled out in the future. Okay. Then can you give us some update on the Renee registration rules on the microblog? How high been the implementation by Tencent? And also, how has that affected the user activities since it's effective in December last year? Thank you. Yes. We have been actually implementing the real name registration. And that's sort of part of the reason why as you can see sort of our daily active users have actually declined slightly from the previous quarter. And so it's fair to say that it is having some impact on our overall business, right? Overall, especially sort of on the adding of the new users. Now having said that, right, we have been actually that are spending a lot of effort in terms of trying to, 1, increase the the sign up rate for the users. And 2, among the existing use we try to sort of put in a lot of effort to increase their, activities. So that's why as, James point out in his commentary, that the PV actually sort of increased by quite a lot, despite the fact that the user base actually sort of stays relatively flat. So what percentage of, of of your over 400,000,000 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 Marasekha 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. And I'm curious if you're seeing any effect of the slowing economy in any of your various segments across advertising at all. Yes. I mean, as you have observed, the economy has slowed, that's had a knock on impact within some specific ad advertise industries. We believe we've 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. And we think that really unlocks new audit opportunities that didn't previously exist. So that's why we were able to staying fairly, substantially above industry revenue growth rates for our online advertising business during to quarter. And then a quick question regarding your games business. Bladen Saul, when should we expect that game to be launched? We don't disclose the timing of game launches party 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 has commentary recently about, you know, when it expected, the timing of of the launch of that game in in international markets. Yes. But I think the philosophy of ours and the philosophy of NCSoft is basically sort of new to release the game when it's good enough to be released. And without that the right approach within the gaming industry. Fair enough. Thank you. Thank you. Your next question comes from the line of Mitchell from UBS. Please ask your question. Thank you for taking my question. I have a question about e commerce. So you said that you want to sell, consumer electronics. You'll need to see 5 form. So right now the competition, is really fierce in this space. I wonder how do you want to put it in this bucket, do you want to use size 4? And does that mean your your gross margin in e commerce is gonna deteriorate? Thank you. Yes. I think we are already sort of having a pretty big scale in terms of sort of consumer electronics business as we have commented on the revenue that we disclosed, right, the more than $700,000,000 revenue sort of primarily that's generated through consumer electronics. So we are already at scale. In terms of sort of where it stands. The primary geography location in which sort of these cells are generated right now in the in the sort of Shanghai region. And we believe that over time, we're going to sort of take that model and gradually rolled it out to other parts of China. In terms of sort of the pricing strategy, we are already actually sort of the price leader in this market, actually sort of lower than some of the bigger peers. And we believe that sort of the more important thing for us is actually to be able to continue to increase the assortment, to be able to use that are rolled out to the different regions within China and also sort of to leverage our overall, the traffic platform in order to increase the number of users going to be using our platform. And at the same time, because we do have the advantage of much lower marketing calls, right? Because we have our own traffic platform. So that actually serves as an advantage for us. Thank you. And in terms of advertising, do you see so I I assume you put ads on your social platform. So would that cannibalize your, advertising business? Because I I assume you you also want to tackle a lot of B2C advertisers to your platform to your advertising platform. We're putting ads on our social platform cannibalize the business of putting ads on our portal. I mean, we would think not partly that that's you know, theoretical, but the advertising on portals tends to be brand advertising from companies looking to to establish a presence, tends to be priced on a cost per time or cost per impression basis. The advertising on on our social networks would be a large performance advertising from companies looking to drive downloads, drive transactions will be priced on per action or or, cost per click through basis. So we see those as 2, you know, fairly different upsets 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. Great. Thank you. Thank you. Your next question comes from the line of Catherine Lill from Gomen Sachs. Please ask the question. Hi. Firstly, in terms of you're 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 deemphasize this principal business as the marketplace business build out? And secondly, has the renaming of your community, VAS segment been accompanied by any changes in revenue allocation between the names and the community a printful e commerce business, it is indeed for us to sort of provide a better user experience because by having the inventory especially sort of on very fast turn type of products so we can actually sort of maybe speed up the delivery to the users. While at the same time, we actually sort of do not really take up a lot of inventory risk because all these products are very fast. Now I think over time, we will have more and more, platform based sort of agent based B2C B2C business as well because we do want to sort of run our buy. Qt.com as an open platform. But we feel that sort of these two business go line hand in hand with each other because by having a great user experience, you are able to really attract a lot of users. And so the through these users, you can actually sort of offer the other third party to see companies a lower cost in terms of attracting these users to their to purchase their merchandise. So these 2 sort of will go in hand. So that's why in our architecture, we believe that the 1st party B2C product the 3rd party B2C products and the marketplace will go hand in hand in terms of playing different roles in enhancing the user experience. And by having a lot of users, we can basically sort of lower marketing cost and hence the repurchase of everyone involved in this ecosystem. In relation to the renaming of the community bias to community and platform, it's nothing to do with the reallocation of your revenue between gaming versus community bias. Actually, the reason underlying that is because more and more revenue are generated through our path open platform, such as, you know, queues your Weibo, Q plus and Google games, etcetera. So I think we it's more appropriate to be called community platform. Than, you know, just community value added services. So in terms of the QQ game open platform, are the open platform, are those revenues recognized in the gaming segment or in the open platform segment? I think it really depends on, you know, the contracts we have had with those suppliers. Is it they are placed on open platform then 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. Thank you. Your next question comes from the line of Wallace Chung from Credit Suisse. Please ask your question. Hi, thanks for taking my questions. Congratulations to join the promotion. Two questions here. One is regarding mobile internet, as we are seeing many internet companies in China, the trying to build up their own, sort of mobile, ecosystem, mobile operating systems and shipping their own handsets. Do you think in a long term as this trend is keep, you know, evolving, will there be any possibility to impact negatively impact 10th and future sort of mobile internet ecosystems and monetization planning as well. And I will have another question pulled up. Thank you. Well, I think you, as we have stated, quite a few times, right? What we focus on applications that can go on to multiple platforms, multiple handsets and, to work multiple operators, right? So I think that is principle that we adhere to and we believe sort of over time that's actually sort of 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. So we will seek to partner with various handset manufacturers. We would seek to partner with various operators. And we also sort of developed our applications for different operating systems. But we're not going to sort of we do not believe that we should, for example, be able to handset and sort of try to put all our applications on that handset and try to use that as a way to sort of build up our market within the mobile internet space. Thank you. Just one quick second question is, think in the announcement in this subsequent event, Tien Tsin has spent around 400 meetings for, 14% takes up a mobile check-in company. It seems like the total valuation of the company at US450 $1,000,000. It seems quite a cashable company. Is it a track a company on on China Economy. And what's the purpose of investment? How would you integrate and sort of invest in with your sort of a 10¢ mobile app stability going forward? Thank you. Yeah. We identified quite an interesting mobile chat business in in Korea, that has enjoyed, you know, very, interesting user user growth rates and and had some quite innovative high ideas about the product. So we made an investment in that company. And we assume there could be potentially sort of launching this product in China going forward? No. That would not be that would not be our expectation. We view them as interesting for that in a non China operations. Thank you. The next question comes from the line of Alicia Young from Barclays Capital. Please ask your question. Good evening. Thanks for taking my questions. My first question is follow-up on e commerce. So just one what are some of the reasons that consumer electronics is the category that you are stepping up the effort, versus other categories? Yeah. I think you're right. Firstly, it's a large enough market right it's actually sort of a very big market in terms of GMV. And 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. So that's why the inventory risk of these products are actually sort of relatively little. And thirdly, these are very standardized products. So that's why it's actually quite easy for us to do promotion on our platform and then sort of bring the users in convert them into purchase and do the delivery, right? So 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. And as a result, we can actually make the delivery and, without overloading ourselves with a lot of inventory risk. I see. That's great. Thank you. And second question is that on can you rank your gains by, your top revenue contribution and also by growth rate for the quarter? But we would not do that as a matter of policy. We did mention a number of games. I think we named at least 5 contributed to the sequential revenue growth. And we mentioned 5 because those 5 all did contribute meaningfully to the sequential revenue card. Okay. Great. Thank you. Thank you. The next question comes from the line of Ming Zhao from 86research. Please ask your question. Alright. Thanks. So, you said that GMV is a much bigger than reported e commerce revenue. So my question is actually on Tempe. Are those GMV dollars mostly going through the 10 pay. What's the current status and your future plan in terms of monetizing it? And finally, any comment on the regulatory risk of Tempe? Thank you. Well, you know, the, you know, a lot of our, payment is actually sort of going through our our payment our own payment platform. And I think at this point in time, it's still quite early to talk about sort of monetization plans So I think we'll leave it at that for now. Sorry. I mean, sorry, could you repeat the question? We lost you right at the beginning of it. Okay. Sorry. So for the 3rd party merchants, on your, ecommerce platform. Are are you already charging them for the payment right now? Well, right now, relatively low because what we happen, having a lot of sort of GMV sort of what we have been sort of having revenue is actually sort of new to our PIPI platform at this point in time. And sort of that the revenue is actually through the advertising model, which is built 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 site right now is that bioenergy.com is only available in selected regions. And we have a few B2C companies have sign up, but it's fair to say it's still in a try mode at this point in time. So the revenue from the section side would not be meaningful at this point in time. All right. Thank you very much. Okay. Thank you. With you to run out the call for now. If you wish to check how our press release and our financial information, please visit our our website under www.content.com/irolf. We'll also talk to some replay of its webcast on the site shortly. Thank you and see you next quarter. Thank you. That does conclude our conference for today. Thank you for participating in Tencent Holdings Limited Twenty 12 Quarter Results Announcement Conference Call. You may all now disconnect.